Times have been better for the search engine pioneer. Reaching share prices above $30 in June, 2008, it appeared that Yahoo! (YHOO) was going to be able to compete with search engine giant Google (GOOG) and highly evolving Facebook in profiting off its high online visitor base through its capitalizing on a significant share of the $50 billion U.S. online advertising market.
While Google has evolved into social networking and its integration into mobile devices by offering applications for Androids, iPhones and others, Yahoo! has remained relatively stagnant in keeping up with consumers' desire for search engines to provide more than just search inquiry results. This failure to evolve stands as one of the main reasons that Yahoo! has been unable to compete with Google, which at its current share price of around $634, has allowed it to emerge as the leading search engine company on the Internet.
As a result, many have begun to buy into the idea that Yahoo!'s brand is being phased out as its competitors continue to take an increased share of the market. As a result of consumer mentality Yahoo! has seen its stock shed 50% of its value from June, 2008 to where it currently stands at approximately $15 per share.
With its declining value, Yahoo! has recently announced that it will be laying off 2,000 employees or approximately 14% of its total work force, a move that will save the company $375 million a year.
This move, as announced by CEO Scott Thompson, is the first of many that Yahoo! will make in the coming year to develop a leaner more focused company that will look to establish itself in social media marketing in it efforts to appeal to a younger audience. Thompson announced further that his blue print for Yahoo!'s future business platform, which could result in further layoffs, will be released when Yahoo! announces its 1st-quarter earnings on April 14, 2012.
The bold moves planned by Yahoo! could not have come at a more crucial time as rivals Google and Facebook (FB) continue to eat away at Yahoo!'s online display advertising. It has been projected that Google and Facebook will gather $4.8 and $3.8 billion respectively in online display advertising by 2014, while Yahoo! will only amass $1.6 billion.
However, despite all of this bad news, it is my opinion that Yahoo!'s share price cannot diminish any further in the coming year and, if the April 14 blue print is sufficient to regain some consumer confidence in Yahoo!'s solubility, the upcoming year should prove to be very profitable for Yahoo! investors.
Despite all of the negative publicity and the consistent drop in share price that Yahoo! has experience in the last five years, it appears that the company is starting to recover. Yahoo! reported (pdf) a 4th-quarter drop in revenue of 3%. However despite the decline, Yahoo! also reported a 10% growth in income from operations.
If Yahoo! lays out a sufficient plan for 2012 with a more focused approach on how it will be able to harness its over 700 million online visitors (pdf) each month, then Yahoo! should return to profitability within the 2nd quarter of 2012. If even a modest gain is reported, it is my opinion that, with the strength of its expansive monthly audience, Yahoo!'s share price will make substantial gains the remainder of the year. These gains should result in healthy dividends being paid to investors who have taken advantage of Yahoo!'s current discount price.
Beyond the high volume of monthly visitors, Yahoo! also commands a dominating presence in its financial news sector, a presence that has enabled it to substantially distance itself from its competitors. In 2009 in was reported that Yahoo! finance had taken the top spot in attracting internet searchers for finance news for 19 consecutive months. In the month of July, 2009 alone, Yahoo! drew 21.7 million unique users substantially beating out Google, which only attracted 1.2 million.
Yahoo! is also showing considerably more resolve in pushing back against rival Facebook as it recently filed a patent-infringement lawsuit against the social media giant. This lawsuit arose after Facebook, which had integrated itself deeply into the Yahoo! search engine, began to experience significant benefits from users who elected to forgo using Yahoo! all together. Although Yahoo! experienced significant difficulties as a result of its failed relationship with Facebook, this lawsuit has forced Yahoo! to forge a new identity, a change it desperately needs.
No matter who comes out as the victor in this pending lawsuit, it is my opinion that the severing of the Facebook relationship will in fact hold significant value to Yahoo! as it looks to forge ahead in creating a streamline image that is unique from its competitors. A 2012 revamp of Yahoo! will not only open itself to new audiences, but will also allow the company to continue to improve on its sophisticated visitor base that relies on Yahoo! for its financial and other news. This improved image should rekindle some of Yahoo!'s old momentum, and give it the push it needs to reestablish investor confidence in 2012 and beyond.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.