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Yahoo!’s Godot-like Wait for a Compelling Vision

Posted on Wednesday, Apr 22nd 2009

Like its peer Google, Yahoo! (NASDAQ:YHOO) seems to be suffering from the window-shopping phenomenon that has touched online consumers as was reflected in yesterday’s Q1 results announcement.

Total revenues for Q1 of $1.580 billion recorded a 13% decline over the year and a 3% decline on a constant currency basis. Worldwide owned and operated search revenue declined 3% to $0.40 billion while US owned and operated search revenue grew 3%, with query volumes growing 11%. International search revenue fell 29% over the year and 12% on a constant currency basis. Revenue from the affiliate business declined 16% to $0.51 billion.

Worldwide owned and operated display revenue declined 13% over the year to $0.37 billion with both US and international businesses recording the same decline. On a constant currency basis, international display revenues grew 6% over the year. Listing revenue was also down 22% to $0.10 billion while Fees revenue fell 20% to $0.20 billion.

Revenues net of commission paid to ad partners stood at $1.16 billion, nearly $0.05 billion short of analyst estimates of $1.20 billion, and recorded a decline of 15.9% over the year. EPS of $0.08 was in line with analysts’ expectations and recorded a fall of 27% over the year.

Last week Yahoo! announced the sale of their 10% stake in Gmarket, their Korean presence, to eBay for approximately $120 million at a cost of $24 per share.

Yahoo! US continued to be the top-ranked user site across 13 categories including destinations like mail, finance, news and sports. Even though worldwide page views grew by 8% in the quarter, this increase was the lowest in five quarters for the company.

Yahoo!’s appeal to the masses can also be gauged by the fact that this year, the television audience for the Oscars was at its lowest level ever but unique visits to the company’s Oscar site more than tripled.

Yahoo! continues to improve on its mobility features through initiatives such as the the NCAA basketball tournament, where they created an integrated experience to provide fans with access to breaking news at any time via their PCs and mobile devices. At the recent CTIA Wireless Conference, Yahoo! received positive responses from users and press on the Yahoo! Mobile for Web and Yahoo! Mobile and Messenger iPhone apps for their “simple and clean design” and “easy customization”.

Going forward, they expect Q2 revenues to be in the range of $1.425-$1.625 billion with TAC of nearly 26% of revenues. They project operating cash flows to be in the range of $0.375-$0.425 billion.

Following Carol Bartz’s appointment as the new CEO earlier this year, Yahoo! is going through multiple senior management level changes. The company recently combined technology and products under Ari Balogh as VP of Products and CTO. They added a SVP for Service Engineering and Operations to focus on managing technical infrastructure and data center assets. They divided their geographic structure into the North American Region and International Regions both of whom will report to a new CMO, Elisa Steele. They also created a new senior role for customer advocacy, which will be led by Jeff Russakow. Finally, they are searching for a new CFO. In the coming quarters, Yahoo! is looking at nearly 700 job cuts to align the entire organization with this new reporting structure.

The company is also looking at strategic investments and is focused on three key goals for the year. First, they are globalizing their platform so that they can innovate more quickly at a global level. Second, they are building products on platforms that deeply engage users and finally, they plan to increase the monetization of their engaged user base through investments in industry-leading advertising platforms and services.

While Bartz might be right to restructure the organization to make it more reactive to the current conditions, she also needs to focus on strategy. There are talks of Yahoo! wanting to sell off properties like Yahoo! HotJobs and Yahoo! Personals, which have not done so well in the past. I am not in agreement with selling HotJobs.

I have said many times that Yahoo! needs to focus on being the market leader in multiple key verticals and either drop the slow-growing ones or make the right acquisitions. Yahoo! is the number one online destination for news, sports, and finance in terms of both audience size and engagement. It needs to develop more of its verticals as top destinations.

Yahoo! HotJobs could be sold off on account of its poor performance, but it is one of the key verticals that Yahoo! should be developing instead. Yahoo! talks about the need to do more interesting things in verticals like sports and finance through improving content and editorial on these sites. But, they need to realize that sports and finance are not enough.

The stock is trading at $14.38 with a market capitalization of slightly more than $20 billion. I am so far underwhelmed by Carol Bartz’s leadership. Where is the vision? Where is the strategy?

The Godot-like wait continues, it seems!

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