Yahoo! is not performing well in the advertisement field
Under the leadership of Marissa Mayer, Yahoo! Inc. (NASDAQ:YHOO) has gained as much as 40.35% on the market, outperforming the S&P 500’s gain of only around 18.20%. Yahoo! derived most of its revenue from advertising. In the second quarter, display-ad revenue contributed nearly $471.7 million, accounting for around 41.5% of the total revenue, while the search-ad revenue contributed around $418.2 million in sales. Despite the U.S. advertising market growth of 15% last year, Yahoo! Inc. (NASDAQ:YHOO) advertisement revenue went the opposite way. The display-ad revenue experienced a 12% decline, whereas the search-ad revenue decreased by 9%.
Its much bigger peers, including Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) , have seen their revenue grow significantly. In the first quarter, Google’s revenue experienced year-over-year growth of 22% to nearly $13 billion, while Facebook’s advertising revenue enjoyed spectacular growth of 60% to $1.25 billion, representing as much as 85% of its total revenue. Among the three, Facebook Inc (NASDAQ:FB) seems to be strong in mobile advertising, contributing as much as 30% of the company’s total revenue.
Dan Loeb is still bullish on Yahoo!, but it is quite expensive now
What got Dan Loeb previously excited about Yahoo! Inc. (NASDAQ:YHOO) was its stake in Alibaba, the fast-growing Chinese internet firm. He mentioned that since he initiated the position, more than $20.2 billion of value has been created, including more than $5.2 billion of cash being returned to shareholders. He saw that the momentum around Yahoo!’s new products, especially for mobile, has risen significantly. Dan Loeb believed that the company would prosper under the leadership of Ms. Mayer.
However, I personally think that Yahoo! Inc. (NASDAQ:YHOO)’s valuation is quite high right now. It is trading at around $28 per share, with a total market cap of $30.60 billion. The market values Yahoo! at more than 22 times its trailing EBITDA.
Yahoo!’s valuation is closer to Facebook’s valuation, which is often known to be high. At $35.40 per share, Facebook Inc (NASDAQ:FB) is worth around $85.20 billion on the market. The market values Facebook at 27.3 times its trailing EBITDA.
Interestingly, Google Inc (NASDAQ:GOOG) becomes the cheapest stock among the three companies. Google is trading at $882.30 per share, with the total market cap of around $294 billion. The market values Google at less than 14.7 times its trailing EBITDA.
Facebook and Google are still dominating the mobile and tablet market
In the world’s fast growing trend of mobile and tablets, Yahoo! Inc. (NASDAQ:YHOO) must focus its efforts not only on increasing the advertising revenue, but also growing its business in the mobile and tablet markets. Google Inc (NASDAQ:GOOG) is successfully penetrating the mobile market with its leading position in search and the Android operating system. Currently, Google has taken over 75% of the total smartphone market and 56% of the tablet market in the world. Facebook Inc (NASDAQ:FB) has its edge with the ownership of invaluable personal data on more than 1.1 billion people globally.
Consequently, it is much easier for Facebook to draw users into its mobile applications, increasing Facebook Inc (NASDAQ:FB)’s advertisement revenue. Facebook reported growth in its monthly active users by 54% to 751 million as of March. Yahoo!, on the other hand, has just around 300 million users, less than half of Facebook Inc (NASDAQ:FB)’s monthly active users.
My Foolish take
Personally, I think innovation is the key success factor for Yahoo! Inc. (NASDAQ:YHOO), but it will be quite challenging to compete with Google Inc (NASDAQ:GOOG) and Facebook. At the current trading price, Yahoo! seems to be quite expensive now. Going forward, technology investors should go with Facebook Inc (NASDAQ:FB) and Google. With their market-leading positions and their “sticky” platforms, they will continue to dominate the mobile and tablet market in the near future.
The article Following Dan Loeb’s Divestment of Yahoo! originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google Inc (NASDAQ:GOOG), and Yahoo! Inc. (NASDAQ:YHOO). The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG). Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
