Particularly worrying for Yahoo shareholders: Yahoo's ad sales slumped. "After growing 2% Y/Y in Q1 (its first quarter of positive growth in some time), Yahoo's display ad revenue (ex-TAC) fell 7% in Q2 to $394M. A 24% drop in ad prices (hurt by mobile?) more than offset a 24% increase in ads sold. The display weakness comes as eMarketer forecasts Yahoo's share of global digital ad spend will fall to 2.52% in 2014 from 2.86% in 2013 and 3.36% in 2012."
Eli Hoffmann recently announced that Yahoo severed its relationship with Seeking Alpha. The reason wasn't that Yahoo disliked Seeking Alpha content, but that it decided to launch its own financial contributor network.
ValueWalk argues that Yahoo "is getting aggressive, driven perhaps by a desire to emerge from the financial shadow of its holding in Alibaba, which Wall Street prognosticators have credited with delivering most if not all of Yahoo's stock price value". Yahoo, he claims, is under pressure to generate ad revenue and reduce its content costs, burdened by its $500,000 per month contract with Katie Couric.
The problem isn't Yahoo's contract with Katie Couric. It's Yahoo's $1 billion acquisition of Tumblr. Yahoo's ad revenue fell despite spending a billion dollars on Tumblr, a massive bet on user generated content. Yahoo is under intense pressure to justify the Tumblr acquisition.
Yahoo needs to demonstrate that it can monetize Tumblr, and that it has a viable new media strategy. Yahoo is widely viewed as a "previous generation" internet company which has been overtaken by Google, Facebook and Twitter.
This explains why Yahoo hurriedly launched a finance contributor network based on Tumblr's platform after it missed estimates. Yahoo is trying to leverage Tumblr's platform and content in areas like finance where ad rates are higher.
Yahoo is a media company. Yahoo, like many other online media companies, views contributor content as a source of cheap pageviews. In the old model you had to pay journalists; with the new model you get content for free, and you can sell ads against it. That's the Tumblr, Facebook and Twitter model.
This is where Seeking Alpha fundamentally diverges from Yahoo. At SA, we don't view our contributors as a source of cheap page views or a cut-price alternative to full time journalists. We believe in crowdsourcing because it's better, not cheaper. We believe that crowdsourcing will revolutionize equity research, and that our contributors deserve to be compensated for their insights.
We believe that investors will pay for valuable equity research, and crowdsourcing will produce better equity research than anything currently available. Our contributors should be rewarded for that value.
This is why Seeking Alpha pays contributors amounts that cannot be justified by ad revenue alone. For example: we just introduced two $2,500 awards per week for outstanding stock picks; we pay $500 immediately for top ideas; and we pay more for almost every article than can be justified by page views.
The key question for Yahoo investors is whether Yahoo has a viable growth strategy once the Alibaba IPO effect is removed from its stock price.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.