Yahoo! Inc. (NASDAQ:YHOO) announced the acquisition of Summly for $30 million. While the acquisition is small given Yahoo’s $25.9 billion market cap and $1.4 billion in cash, it is representative of changes at Yahoo and potentially in the search and content industry.
Yahoo!’s Need for Change
Yahoo! is a search, content and communication tool company whose need for new products and revenue streams has been an ongoing issue. Yahoo! brought on Marissa Mayer to update its business. She has already made noise by a banning working from home and again recently by acquiring Summly. Yahoo! Inc. (NASDAQ:YHOO) desperately needed change and still does. In the 4 years before Mayer, the company’s stock decreased almost 50%. However, since she came on staff in July 2012, the stock has went from $15.60 to $23.50.
Summly is a mobile application that searches content providers, like yahoo, for content. Interestingly, a seventeen year old Londoner started Summly. The technology represents a potential threat to content providers like Yahoo, Google Inc (NASDAQ:GOOG) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU). All of these firms create content for free and generate revenue by posting ads while users browse their site for this content. Google has 67% of the market share. Baidu has second spot with its massive Chinese user base and Yahoo falls into third. This model made Google $10.79 billion in the last year and Baidu $1.67 billion. Revenue growth is over 35% for Google and Baidu as well. An outside service that pulls content for around the web based on user interests could disrupt this model that the three giants use. Instead of standing on the sidelines while this technology was developed and potentially bit into Yahoo! Inc. (NASDAQ:YHOO)’s business model, Yahoo’s new CEO decided to lead the way and push the development. This took a threat and made it a potential asset. Yahoo! will remove the current Summly app from the app store but will incorporate the technology into its other services.
Strong Stock Performance
Since the end of September in 2012, Yahoo is up 48%, whereas Google is up 5% and 9%. Clearly, just by Mayer announcing intentions to change and then making more noise via a change in telecommuting, has made Yahoo! sound relevant again. Revenues are up, but acquiring technology and more importantly innovators in acquisitions like Summly can improve the long-term growth prospects of Yahoo.