There will always be comparisons made between Yahoo! Inc. (NASDAQ:YHOO) and Google Inc (NASDAQ:GOOG) because of their history as Internet pioneers and innovators in search. But while Google Inc (NASDAQ:GOOG) has branched into email, cloud services, video, mobile operating systems, and other products, it has stayed a search company at heart, something Yahoo! Inc. (NASDAQ:YHOO) hasn’t done — for better or worse.
Yahoo! has become a true Internet portal — a source for news, financial analysis, and an assortment of other services. Everything the company does is intended to get eyeballs to the site.
The problem for Yahoo! Inc. (NASDAQ:YHOO) is that a search for users has caused the search business to suffer in the mean time. Paid clicks generated from search dropped throughout 2011 and have only began to rebound from lows seen in late 2012. While clicks have picked up, price per click dropped 7% in the first quarter, a sign the company isn’t monetizing search as well as Google Inc (NASDAQ:GOOG). Yahoo! Inc. (NASDAQ:YHOO)’s partnership with Microsoft Corporation (NASDAQ:MSFT), which was supposed to help both companies battle Google, hasn’t resulted in significant financial progress for either company.
On the display ad side of the business, ads sold have fallen every quarter since Q2 2011 and price per ad also dropped in Q1 of this year. It’s really display ads that have been a drag on revenue. When you add display and search together, you get the chart below, with revenue growth lagging well behind Google Inc (NASDAQ:GOOG). The bump in earnings you see is only because of a one-time $2.8 billion gain from the sale of Alibaba shares.
Desperate times call for desperate measures
Yahoo! Inc. (NASDAQ:YHOO) can’t seem to get traction in its core businesses, so now it’s spending $1.1 billion in precious cash to buy blog site Tumblr. But that may backfire: Tumblr’s users have already started a petition protesting the sale and some say they’ll leave rather than become part of Yahoo!. To make matters worse, TechCrunch reports that visits to the site have been falling over the past year, as much as 21% in the U.S., a trend that makes Yahoo!’s purchase look unwise.