Echo To All submits: Ever since ‘Panama’ came out, a lot of talking heads have been touting Yahoo (NASDAQ:YHOO) stock over Google (NASDAQ:GOOG) stock due to Yahoo’s accelerated revenue and earnings growth. No one can really argue with accelerated revenue and earnings, and the recent appreciation in Yahoo’s stock reflects this acceleration.
Many are praising Panama; even Yahoo’s CEO himself gets a ‘broad smile’ from the results they are seeing with the system. BUT what is it actually doing? Panama was established to better monetize Yahoo’s search traffic, and based on Terry’s smile this is obviously happening. The problem I have with all the talking heads praising Panama, is that they are not mentioning Yahoo’s shrinking market share and huge gap between Google search.
Google is still gaining market share in search (as the February comScore ratings suggests), which means it has most of the users. Ultimately, advertisers need to be where the audience is located. So while Yahoo appears to be doing a good job toward monetizing their search users and market share (finally), their ability to milk them is limited to their market share and growth of the sector. Google’s massive growth comes from their massive amounts of users (it continuously gains), along with sector growth. As such, I am not expecting Yahoo to see ‘Google-esc’ levels of growth beyond their first few months of initial monetization. After the initial monetiation, Yahoo search revenues should trend with sector growth or even lower if it continues to lose market share.
GOOG/YHOO 1-yr comparison chart
Disclosure: Author has a long position in GOOG