Strengths
Crown jewels: The biggest value in Yahoo!! lies in its Asian equity holdings comprised of Yahoo! Inc. (NASDAQ:YHOO) Japan and Alibaba Group. Yahoo!! is increasingly reliant on these two equity investments for generating earnings for the company and in enhancing the intrinsic value of the firm. In 1Q13, the combined earnings from these two assets made up 56% of Yahoo! Inc. (NASDAQ:YHOO)’s net income. Yahoo!’s 24% stake in Alibaba could be worth more than $20 billion pre-tax, and its 35% stake in Yahoo! Japan is worth more than $9 billion on a pre-tax basis. And both of these assets are growing rapidly and increasing the overall value of Yahoo!.
Display properties: Yahoo! has a very strong footing in certain display categories like Yahoo! Finance, Mail, News, Sports, and Entertainment etc. And Yahoo! is increasingly making the monetization of its display assets a priority, and enhancing its user interface. Recently, Yahoo! got into an agreement with Google Inc (NASDAQ:GOOG) to portray display ads on various Yahoo! properties and certain sites, using Google Inc (NASDAQ:GOOG)’s AdSense for Content and AdMob technologies. With this partnership, Yahoo!’s network of advertising partners will expand enabling improved monetization for its various display assets.
Brand and user traffic: In spite of its lackluster revenue growth and lack of product innovation, Yahoo! remains a very well-known brand across the world. Yahoo! is one of the highest traffic Internet platforms in the world with more than 700 million monthly users, and trails only Google Inc (NASDAQ:GOOG), which has more than a 1 billion users across its search platform and Facebook Inc (NASDAQ:FB) which has more than 1.1 billion monthly active users. And Yahoo! Inc. (NASDAQ:YHOO)’s recent changes on its web platform, has led to increased user engagement as well. In May, the amount of time spent on Yahoo!.com increased by 36% year over year in the U.S., according to comScore.
Weaknesses
Losing ground in Search: Yahoo! is losing ground in the very competitive market for search. Yahoo!’s partnership with Microsoft Corporation (NASDAQ:MSFT), under which Yahoo!’s search results are powered by Bing, hasn’t seen much improvement. Microsoft Corporation (NASDAQ:MSFT) is gaining ground in the search market, and Google remains the ten thousand pound gorilla in the space. In the U.S. market, Yahoo! has only 11.4% market share, whereas Google has 66.7% and Microsoft Corporation (NASDAQ:MSFT) has almost 18% of the pie, according to comScore. However, Yahoo! is working to get more distribution to put Yahoo! search boxes in third party sites, to improve its market share and monetization potential going forward.
Weak monetization: Yahoo!’s monetization of its various consumer Internet assets has been less than impressive. The company’s core display advertising business hasn’t seen any growth ever since 2010 and has been flat. And on search Yahoo!’s revenues have declined drastically from 2010. Yahoo! needs to effectively monetize its massive user audience in both desktop and on mobile.
Opportunities
Video properties: Yahoo! Inc. (NASDAQ:YHOO)’s various properties have a lot of video content, and the company is increasingly aligning itself to grow its video views and monetization. The online video business is a fast growing one, and increasingly becoming more competitive. Yahoo! has added small amounts of original programming for some of its offerings, and hopes to earn more revenues from online video ads. As video ads on the Web have much higher prices compared to other online advertising mediums, the company can grow this segment in the future meaningfully.
