Will Yahoo! Inc. (YHOO)’s Fortunes Turn Around?

Yahoo! Inc. (NASDAQ:YHOO)’s fortunes have gone downhill in recent years. The company is no longer viewed as a technology powerhouse that it once was. Newer and more innovative companies in the Internet landscape have attracted advertisers away from Yahoo. Not surprisingly, the company’s annual revenues have gone down from $7.21 Billion in 2008 to $4.98 Billion at the end of 2012. However, large share buybacks and improved operations will likely be a bigger driver for the company’s share price down the road.

Striking Up More Partnerships

Yahoo continues to work with Microsoft Corporation (NASDAQ:MSFT) to strengthen their partnership for delivering better results under the search agreement. Yahoo’s other Internet sites like Yahoo Sports got into strategic partnerships with NBC Sports to deliver news, games etc. Yahoo also expanded its partnership with Samsung, enabling Samsung SmartTV users to engage more with Yahoo Content.

In addition, Yahoo recently struck up a partnership with Google Inc (NASDAQ:GOOG) to ramp up the display advertising business with contextual ads. Google advertising technologies are top notch, and will place ads on various Yahoo and affiliate properties using Google’s AdSense. On mobile, using Google’s AdMob services, the company can expect to better monetize its mobile audience of more than 200+ million monthly unique visitors.

Platform Improvements

Yahoo is also making changes to its User Interface for a cleaner look, which should assist in placing more display ads across various Yahoo offerings like Shopping, Travel, Autos and Real Estate etc. The company is reinvigorating the Yahoo experience on mobile and a face-lift of Yahoo Mail and its photo-sharing app, Flickr has taken place in Dec-2012. Yahoo introduced a newer redesigned version of the Flickr app which allows for sharing on Facebook and Twitter. In addition, a number of key changes to the executive team have taken place in 2012 as well.

Display Business Should Gain Traction

Display revenues have long been a major source of revenue for Yahoo. Revenues from display advertising were down 3% Year-over-year and came in at $591m for Q4, and for the full year Display revenue stood at $2.143 Billion, which represented 43% of Yahoo’s total revenues of $4.99 Billion.

More importantly for Yahoo, in Q4  the number of ads portrayed on Yahoo Properties is down a material 10% year-over-year from Q4 2011, but compared to Q3 2012 saw a sequential increase of 3%. However, the reduction in the number of ads sold was partially offset by an increase in the price-per-ad of 7% from a year ago.

Due to increased partnerships with various companies including Google, the display business should see reasonable growth down the road. Increased personalized content and enhanced products are vital for growing Yahoo’s display revenues. However, like many other companies, revenues are have been somewhat affected by the user migration to mobile. Yahoo’s mobile adoption strategy has been pretty strong and has more than 200 million users in place.