Technology

A Bullish Case for Yahoo as It Climbs Its Wall of Worry

Mayer Winkler

Published: December 21, 2015 6:45 am

Last Updated: January 13, 2020 3:53 pm

Yahoo! Inc. (NASDAQ: YHOO) has taken quite a beating in 2015, and the bears are piling up. The planned spin-off of its remaining Alibaba Group Holding Ltd. (NYSE: BABA) position, and the uncertainty surrounding the future of Yahoo! Japan, have put Marissa Mayer under intense scrutiny, and many are predicting these are her final days at the helm of the Internet darling of the late 1990s.

Annual revenues have declined for the past three years, declining from $4.98 million in 2012 to $4.61 million in 2015. This excludes the $9.4 billion the company received in return for its partial sale of its Alibaba stake. The company’s bottom line has followed the same pattern.

Rarely do technology companies recover once they start to decline. The only real success story of the past 30 years, as far as a decline and recovery is concerned, is Apple Inc. (NASDAQ: AAPL) under Steve Jobs’ leadership. Analysts are now calling time on the company that once dominated Web publishing and search. There is, however, something these analysts seem to be overlooking.

Yes, Yahoo’s financials may not be ideal. Yes, there may be some uncertainty surrounding the future direction of the company. These two factors aside, however, Yahoo is still one of the most visited Web properties in the world. comScore recorded Yahoo sites as the third most visited in its latest count, behind sites of Alphabet Inc. (NASDAQ: GOOGL) and Facebook Inc. (NASDAQ: FB). At its core, Yahoo has the same business model as both.
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Yahoo generates the vast majority of its revenues from advertising. This year became the first that search advertising overtook display advertising from a revenue perspective in Yahoo sites, and Mayer has expressed her intention to double down on this trend, with a focus on in-feed ad integration with the company’s mobile platform. Rewind a few years, and exactly the same thing happened with Facebook. If Yahoo can shed its excess weight, cut costs and focus on its core advertising business, it could mirror Facebook’s exceptional past three years’ performance.

The bottom line here is that Yahoo sites are very much a part of millions of Internet users’ daily life. Be it in finance, health, beauty or entertainment, Yahoo attracts billions of visits every year. Though it does not dominate like Alphabet’s Google, through careful management of its costs and monetization of its traffic through an effective, mobile-centric ad revenue strategy it could put the company back on the right track. In fact, the September 28 bottom at $27.20 seems to be holding for nearly three months now, while sentiment for the stock has yet to recover. That type of pattern is typically called a bullish climb of the wall of worry.