Yahoo! Inc. (NASDAQ:YHOO) and Microsoft Corporation (NASDAQ:MSFT) are constantly playing catch-up with Google Inc (NASDAQ:GOOG) in the search for more ad revenue, but the two underdogs may have found an opportunity to expand their reach through the use of social networking.
Don’t drop the ball, Yahoo!
Yahoo!’s acquisition of Tumblr has been framed by the media as the worst idea since Geocities, because of Yahoo!’s apparently uncool nature and “black thumb” when it comes to new projects.
Some are worried that Yahoo! Inc. (NASDAQ:YHOO) will hurt its brand image by providing ad services to a website with controversial pictures and subjects. To that, I say: the company could stand to spice up its image. Since the bleak Yahoo.com (NASDAQ:YHOO) interface isn’t going away any time soon, this is their best shot.
But the acquisition of the one-off social media site for $1.1 billion has its benefits, and may help Yahoo! to become a stronger competitor against Google. The price tag wasn’t a problem- Yahoo! still has over $4 billion in cash after the purchase.
Tumblr is expected to bring in $1.1 million in ad revenue for 2013, marking the first year the company will turn a profit. There’s more room for ad revenue, but Yahoo! will have to tread lightly when it comes to infringing on blog space.
One idea that Yahoo! Inc. (NASDAQ:YHOO) should consider is the idea of sharing ad revenue with Tumblr bloggers. The opportunity to make money from blogging could provide a turn-key experience for users, something that could explode in popularity like Google Adwords did for bloggers in the past.
While this won’t dethrone Google just yet, Yahoo! may have a lot of promise in profiting from the acquisition. Yahoo! has a 24.1% return on assets (RoA), almost twice the 12.62% RoA of Google. There’s a lot of ground to cover, but Yahoo! may not be the managerial train wreck that the media has framed it to be. Plus, Yahoo! Inc. (NASDAQ:YHOO) trades at only 8 times its earnings- giving it a lot of room for error compared to Google- trading at a P/E OF 25.5.
Bing’s aggressive approach
Microsoft Corporation (NASDAQ:MSFT)’s Bing project continues to bite at the ankles of Google, but until lately, it didn’t seem to be making progress. The company has poured $10 billion into the search engine, and has made great efforts to smear Google in its “scroogled” advertising campaign, among others.