Reason to Believe Yahoo's Advertising Rates Will Recover

Apr. 5.11 | About: Yahoo! Inc. (YHOO)

Revenue per page view is a key metric in the online advertising industry, in which Yahoo (NASDAQ:YHOO) competes with Google (NASDAQ:GOOG), Facebook, Microsoft (NASDAQ:MSFT) and AOL (NYSE:AOL). As these companies drive new traffic to their sites, they look for opportunities to demand higher advertising rates.

While Yahoo continues to lose share in the online advertising market, [1] a broader shift in marketing dollars to the online space, coupled with an emphasis on more engaging content (like videos), could lift advertisement rates for Yahoo.

We currently maintain a $17.88 price estimate for Yahoo stock, which is about 5% above market price.

Advertising Dollars Moving Online

We expect online advertising to continue to take share from traditional media like TV, newspapers, and radio. With that, we also anticipate that advertisers will consolidate their marketing around big companies like Google and Yahoo, which provide them with unmatched scale and higher visibility.

Yahoo’s Increased Focus on Video Programming Content

Yahoo has has recently taken a few initiatives to increase its video programming content. It is improving the amount and quality of its video content across various media verticals including sports, news, finance and entertainment. Videos carry higher engagement levels and hence provide better ad monetization opportunities.

Can Yahoo’s Revenue per Page View Rates Rebound?

Yahoo’s revenue per thousand impressions (RPM) has been on the decline for the last few years, falling from around $1.4 per 1,000 page views in 2007 to around $1 per 1,000 page views in 2010. Going forward, we anticipate the recent trends highlighted above to help drive a recovery in Yahoo’s RPM rates.

Chart created using Trefis' app

However, RPM levels could stagnate if Yahoo is unable to capitalize on these opportunities, prompting downside to our $17.88 price estimate for Yahoo stock. To illustrate this downside risk, we estimate roughly 5% downside to our price estimate if RPM rates stagnate around current levels.

You can examine this scenario, and others, by dragging the trend line in the modifiable chart above.

See our full analysis and $17.88 price estimate for Yahoo


  1. eMarketer: Top 5 players in the U.S. online ad market, March 2011

Disclosure: No positions