Yahoo! Takes Another Giant Plunge
Yesterday’s WSJ (subscription required) reported that Yahoo’s CEO, Terry Semel, hinted of a slowdown in search ad revenue growth. Significant news - search ad revenue growth has always been on the incline. His statement preceded a 12% drop in the stock price for YHOO (rival GOOG took a hit as well, dipping the price blow the $400 mark). Another big setback for the industry’s #2 player. Last month Yahoo! delayed it’s release a long awaited software upgrade that has caused it’s stock to take it’s biggest plunge in history – 22%.Analysts have been wondering if the search industry is a bubble waiting to pop.
Danny Sullivan, considered the search industry’s top expert, doesn’t think so.
Regarding the state of the search economy, Sullivan so eloquently, puts it:
“In fact, as I told a reporter yesterday, I think search will be just fine given its history. Search was booming during the ad downturn of 1999-2001. It was booming because of its highly measurable, highly converting nature. Born from a downturn, I expect it will continue to ride out any future ones, if not benefit from them.”
Avi Wilensky currently resides in Manhattan. He holds a BA from Rutgers University in Psychology and Economics. A small business owner and entreprenuer since his teenage years, he currently runs a search engine marketing consulting firm / boutique online ad agency. His hobbies include hanging with his dog, mountain biking, gadgets, and dreaming of the next big idea.
8 Comments Add your ownSubscribe
1. Jason | September 21st, 2006 at 9:00 am
YHOO is a stock that was on my radar back when it was treading $30-$35. Somehow it fell off my radar through the last fallout, and I missed trading the bounce.
I’m going to take another look at this stock as it recovers from this most recent hit. Some questions I’ll be asking myself:
- How is this dip like the dip last month?
- How is this dip like MSFT’s dip this summer?
- Where is the support for YHOO? Will $25 break? Will $20 catch them.
YHOO has the largest internet property in terms of traffic. So there should be no doubt they are an important company, but some have been questioning their ability to turn into a _prolific_ company with staying power. In Motley Fools terms: they were a great “rule breaker”, but can they transition into a “rule maker”?
Google is winning search. And I would guess Microsoft, if they can nail integration with Vista has a chance to take over second place.
When Yahoo! does release their new ad system, they are likely to provide some real competition for Google on that front. And they’ll surely get some use, which will be good for the bottom line. But then even though online advertising is a growth opportunity, the competition is going to eat into profits. Currently, there is no sign that Yahoo!’s product will be revolutionary enough to dethrone Google. And that’s what they need with this, because who wants to bet on a product that is just going to get the crumbs that fall out of the top dog’s mouth?
(I need to run some numbers on this. What does YHOO stand to gain from their new ad system? How will that affect their earnings-per-share and stock price?)
The trend in the stock is down for the interim. We need some reasons for a turn around? The focus is on their new ad platform, but I’m not sure that will do it.
Yahoo! needs to convince investors that there is more to the web than search, and then convince us that they are still going to make boatloads of money with it.
Yahoo! is playing into investors who think that the web = search. Search is a large part of the web, but not everything. Why isn’t Yahoo! toting “the social web” more? Is it because that term is now more associated with MySpace than Flickr and del.icio.us? Yahoo! Answers has become a big hit, but what else are they working on worth mentioning?
I hope to answer some of these questions myself. I love Yahoo!; I have faith in them. I think they are a great company.
Are they worth investing in the long term? If so, does the current weakness allow us to get a good price? What is that price?
2. avi | September 21st, 2006 at 12:18 pm
“Yahoo! needs to convince investors that there is more to the web than search, and then convince us that they are still going to make boatloads of money with it.”
Looks like they just did.
Fresh off the wire, Yahoo purchases Facebook for $1bn.
http://news.bbc.co.uk/2/hi/business/5367120.stm
Looks like the #2 search property now owns the #3 social network in world (data by Alexa).
3. Jason | September 21st, 2006 at 12:50 pm
I read about the “talks” on TechCrunch this morning.
This has a good chance of becoming official though. Any thoughts on the deal?
Neither FaceBook or MySpace have any kind of technological moat. It’s all about the users. FaceBook’s greatest asset is their access to college users (who used to be the only ones who could use the site). I haven’t been on a campus for a while, is FaceBook still a big deal?
If you compare this to the MySpace deal, it looks like Yahoo is paying more for less.
4. avi | September 21st, 2006 at 3:00 pm
Thoughts…Looks like Murdoch got a heck of a deal with the Myspace aquisition (580 mill) for about half of what Yahoo! is offering Facebook.
Facebook has opened it’s service recently to high school students, and select organizations and companies. I assume with the Yahoo! takeover, the doors will be opened to all.
According to Alexa - Facebook is the 70th most visited global web property. It trails Myspace, and Friendster in the social networking category.
5. CrossProfit | September 23rd, 2006 at 5:56 am
Yahoo will realize sooner or later that there is a limit to the online advertising and search game. It is true that the size of the advertising pie will grow along with the economy. This is the nature of any business. It is also true that they are still battling their competitors for market share of the advertising and search pie.
It is not true to think that this particular pie = source of income is in its infancy and therefore will triple over the next 3 years. Both web search and web advertising are quickly reaching a mature stage in the West. The Far East is a different story. Japan is on par with the U.S. and Europe. Russia and Eastern Europe have some catching up to do. The total number of clicks may grow tremendously but the charge per click is going to come down drastically. (This has to do with exposure/quality etc. - not for now.) In other words total dollar revenue is quickly approaching a mature status.
It is just a matter of time until Yahoo and Google realize that they are sitting on top of a gold mine. Take for instance a company that provides airline tickets and cheap hotel rooms like PCLN. When paying per click essentially Yahoo pays itself. Think of what free unlimited marketing means in real terms. This type of web based company heavily relies on web advertising to sell their products.
Any business that relies on advertising and is not a brick and mortar operation eventually will find the likes of Yahoo and Google running their own subsidiaries in their field. As long as the actual service or product is provided by a third party and Yahoo doesn’t try to reinvent the wheel they will succeed. (What I mean by the ‘wheel etc.’ is proprietary – sorry.) This is the real potential for Yahoo and Google. Companies like OSTK and AMZN are not threatened as they are the type of business that Yahoo and Google must stay away from.
Disclosure: This comment was written by a CrossProfit analyst and does reflect the opinion of CrossProfit.com.
http://www.crossprofit.com
6. tramadol without prescrip&hellip | January 19th, 2007 at 9:39 am
tramadol without prescription…
news…
7. live adult chat&hellip | September 22nd, 2007 at 4:24 am
live adult chat…
Yahoo! Takes Another Giant Plunge…
8. zubans | December 13th, 2007 at 12:19 pm
pujm pharmacy online order viagra brwq duf frudh.
Leave a Comment
Some HTML allowed:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>
Trackback this post | Subscribe to the comments via RSS Feed