Yahoo! Inc. (NASDAQ:YHOO)’s fourth-quarter results have given investors a real reason to believe that Marissa Mayer is moving the company in a positive direction. Yahoo! reported Q4 EPS of $0.32, better than the analyst estimates of $0.28. Revenue, excluding traffic acquisition costs, was $1.22 billion, compared with $1.17 billion in the year-ago quarter. That’s a sequential increase from its third-quarter 2012 revenue of $1.2 billion — a higher EPS of $0.35 in 3Q was due to one time gain from the Alibaba sale.
Yahoo! signed several key partnerships during the fourth quarter, including with CBS and NBC Sports, and made several improvements in Yahoo! Mail and Flickr for a better mobile experience. I believe Yahoo! has now initiated its long-awaited return towards recapturing its former status as the king of the web portal.
Marrisa Mayer’s role
Since taking over the helm at Yahoo! Inc. (NASDAQ:YHOO), Marissa Mayer has been active in putting Yahoo! on the right path. She persuaded co-founder of Paypal — Max Levchin — to join the company, as well as hiring famous recruiter Sandy Gould. She also stepped up on M&A through acquisitions of Stamped, Snip.it, and videochat startup OnTheAir. By hiring better employees and acquiring promising new companies, Yahoo! is re-focusing on its talent-building strategy, which will lead to a better quality of people joining Yahoo! in the future.
Mayer, through her former experience at Google Inc (NASDAQ:GOOG), is also aware that Yahoo!’s success in the future lies in implementing incremental improvements in existing users’ experience — through personalization of search, video and mobile. Mobile growth still remains a weak spot for Yahoo!, where it needs to make better quality products in order to sell more ad space to advertisers. Due to the shift from the desktop to mobile, it’s a no-brainer that this is an area where Yahoo! needs to be investing in the near future.
Mobile is the future
Yahoo! already has an advantage in mobile because of its large existing users base — the company already knows users’ habits through products and applications available on its web portal such as finance, news, weather, email, sports, etc. Yahoo! can now capitalize on this and provide mobile contents with users’ daily habits and potentially add more personalization around those habits in the future.
The mobile transition is now a global phenomenon, with smartphone adoption increasing worldwide. This move has shifted consumer behavior, with many people now using their smartphones to listen to music, watch tv, do online shopping, and consume other media. But Yahoo! will have to face immense competition in the mobile space, especially from Facebook Inc (NASDAQ:FB) and Google.
Reports suggest that Facebook’s revenue from its mobile platform will exceed those of any other platform next year. Facebook is now expected to reach a market share of almost 20% of the mobile advertising market in the US next year. Its mobile games and apps are showing no signs of slowing down, with popular games experiencing new record monthly active users. Together with its newly acquired Instagram, Facebook is sure to give Yahoo! a tough time as the latter tries to expand into mobile.
Yahoo! actually is in double jeopardy; not only it has to gain mobile market share but also defend its current desktop portal dominance. This compared to Google, whose mobile penetration has shown no signs of slowing down. Google ended 2012 with a mobile market share of 17%. But through its excellent service to advertisers on AdMob network and future expansion of YouTube mobile monetization, Google is all set to further extend its mobile advertising presence.
Moreover, while increasing usage Yahoo! needs to put more focus on growing international presence and appealing to a broader demographic of users. At present, Yahoo! derives 75% of its total revenue from the Americas region, something that needs to be worked on in the future. Organic user growth in the emerging markets, as more new members of the middle class start accessing the Internet, has the potential to deliver much needed revenue-diversification for Yahoo! in the future.