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Yahoo! Inc. (YHOO) Seems to Be Playing a Good Game

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Yahoo! Inc. (NASDAQ:YHOO)It’s hard to believe, but just a few days ago, Yahoo! Inc. (NASDAQ:YHOO)! seemed to be just one of the handful of companies trying to catch up with Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG), especially in terms of U.S. display advertising.

The social networking and search engine giants are the dominant players in the tech space as they are reaching out beyond their core businesses.

Yahoo! Inc. (NASDAQ:YHOO), on the other hand, had been struggling to grow, and as a result, fell behind, when it came to ad revenue.

Improving shareholder value

One of the things I looked at to get a better idea of how Yahoo! stacks up to its competition was its returns to investors. Yahoo! is up 74.38% over the last year versus the S&P 500, which was up 31.59%. Yahoo! has struggled to maintain its finances in the face of the growth, with the main area where it is losing ground centering on display advertising.

When it reported its first-quarter earnings, Yahoo! Inc. (NASDAQ:YHOO) had to admit that revenue from display ads was down 11% to $455 million compared to the first quarter of 2012. The number of ads sold (excluding Korea) decreased approximately 7%. Revenue from search was also down. It fell 10% to $425 million.

Stacking up

Display advertising is a significant contributor to total returns to investors, so the numbers posted by the key players in the space should be followed closely. eMarketer predicts that advertisers will spend roughly $18 billion on various display ad formats served to desktop and laptop computers, as well as mobile phones, tablets, and other devices.

Google Inc (NASDAQ:GOOG) garnered the most of the display ad dollars last year, raking in $2.26 billion. It should grow to $3.11 billion this year, according to eMarketer. Facebook Inc (NASDAQ:FB), which lost the top spot last year, should rake in $2.75 billion by the end of the year. That’s up from the $2.18 billion it earned last year.

Google’s 2013 market share growth comes after a decline in 2012, which eMarketer notes as a first for the search engine giant. eMarketer estimates Google Inc (NASDAQ:GOOG)’s share of search ad revenue dropped to 72.8% in 2012 from 74% in 2011. Meanwhile, Microsoft and Yahoo!’s combined share of the market grew to 14.5% in 2012 from 14%.

Yahoo! Inc. (NASDAQ:YHOO) needs to improve its display ad revenue. While it is expected to earn $1.37 billion this year, eMarketer expects its market share to decline to 7.7% from the 9% share it held last year. In comparison, Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) will see their shares of display ad revenue grow to 17.6% and 15.5%, respectively, this year, according to eMarketer.

And while Yahoo! display advertising has slipped, there are strong signs that will change soon. eMarketer, earlier this spring, raised its forecast for Yahoo! Inc. (NASDAQ:YHOO)’s net revenue in the U.S. This was the first time it had done so in more than a year, and was spurred by its belief that advertisers would increase their spending with the company for the second year in a row. In fact, eMarketer found that Yahoo!’s net U.S. ad revenue grew last year for the first time in several years. eMarketer estimates that Yahoo! Inc. (NASDAQ:YHOO) will see further growth of 3.2% to $3.28 billion in 2013.

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