Yahoo! Inc. (YHOO), Youku Tudou Inc (ADR) (YOKU), Sohu.com Inc (SOHU): 3 Internet Companies to Buy in 2013

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According to a study by Cisco, global mobile traffic grew by 70% in 2012 year over year. This traffic is expected to increase by 11.2 exabytes per month by 2017. The key factors for this growth will be feature enhancements in mobile devices and growth in the usage of smartphones and tablets. Though mobile devices contributed only around 4% to Internet traffic in 2012, with a constant increase in their usage they are expected to be a key factor for Internet traffic growth in the future.

In this article, I have picked three companies –Yahoo! Inc. (NASDAQ:YHOO), Youku Tudou Inc (ADR) (NYSE:YOKU), and Sohu.com Inc (NASDAQ:SOHU) – that have performed well in the past and expect long-term growth with the increase in mobile Internet usage. Using mobile as a growth platform, these companies are focusing to improve their profitability.

Yahoo! Inc. (NASDAQ:YHOO)

Accelerating mobile platform

Yahoo! Inc. (NASDAQ:YHOO) reported mixed earnings for the first quarter of 2013. Its first-quarter revenue was $1.07 billion, which included a decline in search and display advertisement revenue due to a lower price per advertisement rate. However, Yahoo!’s advertising revenue from mobile platforms improved and reached 300 million unique users this quarter against 167 million in the previous quarter. Mobile is going to be an important driver for the company’s long-term growth as its usage increases. Advertisers usually pay less for mobile display advertisements than other ad types, but Yahoo! reported a 16% increase in “paid clicks” this quarter as compared to the first quarter of 2012 thanks to improved content. By improving the mobile user experience and increasing content delivery, Yahoo! Inc. (NASDAQ:YHOO) has increased its focus on mobile display advertisements. It is estimated that the global mobile advertising market will reach $26.6 billion by 2016, and with accelerating mobile internet trends the company is targeting good advertisement revenue growth.

In the first quarter, Yahoo! Inc. (NASDAQ:YHOO)’s search advertisement revenue declined to $425 million, a loss of 10% year over year. To an extent, this decline in revenue was because of the closure of the company’s South Korean office. The search advertisement segment is one of the largest contributors to the company’s revenue, however, and shares 14% of the company’s total value. In a recent contract with Microsoft’s Bing, Yahoo! Inc. (NASDAQ:YHOO) has lowered its traffic acquisition costs by 3.7% in first-quarter 2013. This helped Yahoo! to report advertisement earnings growth of 6% quarter-over-quarter. It also saw a gain of 16% in paid clicks because of customized content. Providing customized content to its users, the company can further improve its search advertisement earnings.

Mobile - the next growth driver

With increasing demand for online video advertising and overall mobile user growth, Youku Tudou Inc (ADR) (NYSE:YOKU)reported first-quarter 2013 results with net revenue of $83 million, which was an increase of 21% from the first quarter of 2012. It posted net advertising revenue of $69 million, meeting the company’s estimation. The growth was mainly driven by increased use of its advertising services by branded advertising companies, along with improvements in the number of advertisers and increasing average spending per advertiser.

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