Yahoo! Inc. (NASDAQ:YHOO) has surged after its recent earnings report, extending its recent rise. The company’s fortune has clearly changed since Marissa Mayer became CEO–the stock is up 46% this year, and up over 70% since the CEO change. Is there still room for more growth?
Yahoo! Inc. (NASDAQ:YHOO) saw traffic growth recently after multiple years of decline, indicating that the bet that the company has put on various products is paying off. Numerous acquisitions that took place in the last year helped Yahoo! to bring in more users. At the same time, the company has stayed focused. Yahoo! has shut down 30 of its underutilized products and services.
The shift to mobile, which is happening everywhere, has affected the company’s bottom line. While the number of paid clicks increased by 21%, the price per click was down 8% because mobile clicks are currently cheaper than those on a PC. In the long run, the difference between mobile and PC click costs will narrow. Some businesses, such as pizza delivery services for example, would clearly prefer mobile clicks over PC, and as a result will push prices higher.
The effects of the shift to mobile was also seen in the recent financial report from Google Inc (NASDAQ:GOOG). The company’s cost per click was down 6% year-over-year and 2% quarter-over-quarter. Google network revenue has declined by 2%. Google has implemented “Enhanced Campaigns,” allowing marketers to deal with PC and mobile platforms in one advertising campaign. Six million active campaigns have already migrated to Enhanced, thus affecting the company’s revenue.
As both Google Inc (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO) get more customers from emerging markets, they will likely feel more pressure on the cost-per-click metric. Companies in less developed economies just have less money to spend on advertising.
One big search market is developing a life of its own and is not open for intruders. This is the Chinese market, dominated by home-grown search companies like Baidu.com, Inc. (ADR) (NASDAQ:BIDU) and Qihoo 360 Technology Co Ltd (NYSE:QIHU). Google Inc (NASDAQ:GOOG) had just 2.1% of the Chinese search market in June, down from 4.7% last October. Baidu has had a lumpy year, up only 10%, but its stock has recently shown signs of revival. Baidu’s search share has fallen from 73% to 69.4%, mainly because the search giant was late on expanding into the mobile front. A series of mobile acquisitions could put Baidu back in the game, however, and the company’s recent stock dynamics reflect that.
What’s in the future?
One of the key ingredients in Yahoo! Inc. (NASDAQ:YHOO)’s recent success was the stabilization of the workforce. In the second quarter, personnel attrition dropped by 59%. During the company’s earnings call, Yahoo! stated that during its peak week it had received 10,000 resumes. The workers who left the company earlier have also started to come back. Ten percent of the company’s hires were returning former employees.
With a good team and growing momentum, Yahoo! Inc. (NASDAQ:YHOO) can look confidently into its future. The company’s guidance for the second part of the year was moderate, however. New purchases and product enhancement need time to pay off. Video inventory sold months in advance, highlighting the need for more content. Yahoo! stated that we can expect the company make video investments in the second part of the year.