Yahoo! Inc. (NASDAQ:YHOO) announced the acquisition of Summly for $30 million. While the acquisition is small given Yahoo’s $25.9 billion market cap and $1.4 billion in cash, it is representative of changes at Yahoo and potentially in the search and content industry.
Yahoo!’s Need for Change
Yahoo! is a search, content and communication tool company whose need for new products and revenue streams has been an ongoing issue. Yahoo! brought on Marissa Mayer to update its business. She has already made noise by a banning working from home and again recently by acquiring Summly. Yahoo! Inc. (NASDAQ:YHOO) desperately needed change and still does. In the 4 years before Mayer, the company’s stock decreased almost 50%. However, since she came on staff in July 2012, the stock has went from $15.60 to $23.50.
Summly Acquisition
Summly is a mobile application that searches content providers, like yahoo, for content. Interestingly, a seventeen year old Londoner started Summly. The technology represents a potential threat to content providers like Yahoo, Google Inc (NASDAQ:GOOG) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU). All of these firms create content for free and generate revenue by posting ads while users browse their site for this content. Google has 67% of the market share. Baidu has second spot with its massive Chinese user base and Yahoo falls into third. This model made Google $10.79 billion in the last year and Baidu $1.67 billion. Revenue growth is over 35% for Google and Baidu as well. An outside service that pulls content for around the web based on user interests could disrupt this model that the three giants use. Instead of standing on the sidelines while this technology was developed and potentially bit into Yahoo! Inc. (NASDAQ:YHOO)’s business model, Yahoo’s new CEO decided to lead the way and push the development. This took a threat and made it a potential asset. Yahoo! will remove the current Summly app from the app store but will incorporate the technology into its other services.
Strong Stock Performance
Since the end of September in 2012, Yahoo is up 48%, whereas Google is up 5% and 9%. Clearly, just by Mayer announcing intentions to change and then making more noise via a change in telecommuting, has made Yahoo! sound relevant again. Revenues are up, but acquiring technology and more importantly innovators in acquisitions like Summly can improve the long-term growth prospects of Yahoo.
Mobile Technology is the New Focus
Yahoo! Inc. (NASDAQ:YHOO) plans to become an increasing player in mobile technology. It currently has a role in this market. Yahoo provides weather and stock content for Apple Inc. (NASDAQ:AAPL) and services like Flickr to smart phone users. That said, there is a lot of room to expand its role within the mobile software market. Mayer has publicly stated that she sees this as the future of the market with a number of mobile devices up 3x over the past five years. Tablets are expected to outsell laptop in 2013 for the first time. The key is to develop apps for this market but also monetize them. The acquisitions of Summly, Jybe, Stamped, OntheAir, Snip.it and Alike put Yahoo on the right path.
Conclusion
Yahoo! seems like it has finally found a new path to go down to pursue growth. It is third in search, but results there are improving due to its partnership with Microsoft’s Bing. In addition, its new focus on developing innovative technology in the mobile market makes sense. Additional acquisitions are likely and, while hard to product, should change the face of Yahoo! Inc. (NASDAQ:YHOO) over the coming years. The company and its shares are worth watching and possibly buying.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Baidu and Google. The Motley Fool owns shares of Baidu and Google.
