Online Global Trade Ads
International Yahoo Sites Feed Web Finance, News & Internet Shopping
Yahoo is a leader in Web advertising. The firm generates ad sales from sites in 35 countries around the world in 21 languages.
Each month, more than 500 million visitors use Yahoo online services ranging from email, news, music, kids entertainment, travel, sports, real estate and finance. Advertising accounts for most of Yahoo's revenues principally from non-search forms of online marketing including banner and video ads.
Yahoo's approach is to use content to attract and keep consumers on its branded sites while they buy as many advertised products as possible. In contrast, Google offers high-quality search results that encourage Web surfers to leave their search engine URL but to return frequently.
Yahoo's suite of 35 international Web sites offer email, news, financial tools, social networking, photo sharing, personalized home pages, mapping, shopping and voice communications. Yahoo is the world's largest free email provider, with some 43% of the U.S. market compared to Google's 2.5%. The firm also dominates online finance controlling 35% of the American market compared to less than 1% for Google. Yahoo is also a respected player in major online news services with a 6% market share, more than triple that of Google.
So why has Yahoo's stock recently plunged more than 13% to about US$25.30, within 2% of its 52-week low of $24.91?
At a September 19 conference, company CFO Sue Decker told investors that third quarter sales would be about $1.1 billion, at the low end of the company's forecast in July and about 5% less than what analysts had expected. Decker blamed weak sales of financial and automotive ads during the last 4 weeks in September. Yahoo's stock price slid because some fear that Yahoo's recent online ad weakness is part of a broader problem. Financial ads comprise about 12% of overall Internet ad spending while online auto ads account for 10%. Worried investors say that these two sectors provide up to 20% of Yahoo's sales in the United States. Another cause for concern is the launch of Google Finance back in March, which threatens to take away Yahoo customers.
And The Winner Is...
From an international trade perspective, the "wall of worry" thinking may be short-sighted. First, the 4-week slowdown in auto ad sales may have resulted from a dip in the number of new autos released in the second and third quarters this year. With fewer new lines to market, the reduction in online ads looks like a seasonal discrepancy. Since the number of new cars is expected to rise in the fourth quarter, Yahoo may well benefit from increases in online auto ads later this year.
And remember that the slowdown refers to online ad sales in the United States. In international markets, Yahoo's revenues surged more than 32% from $738 million in the first 6 months of 2005 to almost $1 billion for the same period in 2006. Yahoo's U.S. sales for the first 6 months of 2006 grew by 28% continuing a trend of slower growth than the international operations. Yahoo's foreign customers now generate 31% of total company revenues, with the foreign ad business 45% more profitable in the first 6 months of 2006 than it was last year.
The real question here is whether Yahoo can continue its success in global markets. Yahoo has undertaken aggressive initiatives to expand its online ad muscle in Asia (notably China and Japan), South America and Europe by adding more sales-generating options.
Yahoo's innovations include:
- Webcasts for NFL games delivered outside of North America
- In exchange for using eBay's PayPal online payment system when selling Yahoo Web services to users, eBay will display new graphical ad banners from Yahoo sites in North America.
- A mapping feature that enables users to tag specific locations on a Yahoo map with text, which allows searches by text, topic, time or location.
Yahoo is also launching a new search platform Panama. Although Panama's launch has been delayed until 2007, this advanced search engine is said to deliver more advertising revenues per click in search results. The company also plans on more video and social search questions and answers through its Yahoo Answers, which already has 50 million users. Yahoo is also adding a mapping feature to its email calendar, which allows worldwide users to visually record the location of events and meetings.
No one says that Yahoo is going to beat Google in the Internet search market, as Google continues to dominate online ads sales from online searches. Few analysts think anyone can beat Google's superior search technology and robust sales growth in online ads from targeted audiences that prefer Google Web searches.
On the other hand, Yahoo sells its online ads on the basis of its worldwide reach. Yahoo international sites continue to generate healthy sales and the firm remains profitable. With foreign economies like Brazil and China growing at a remarkably fast clip, Yahoo stands to benefit from increased ad revenues that global online trade from these fast-expanding markets can drive.
The market already recognizes the superiority of Google's stock with a price-to-earnings ratio of 60 compared to 30 for Yahoo. If you believe that Google is twice as good as Yahoo in international trade, then fine. If not, Yahoo warrants consideration for a modest investment at a current price of about $25.
Note: Suite101 does not offer investment advice. Instead, we seek to educate and inform our readers by writing about the latest trends in world trade. Armed with these insights, you are in a much better position to make your own decisions. We encourage you to add your thoughts to our analysis by starting a discussion below.
