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Yahoo! Continues Aimlessly On

Posted on Friday, Jul 23rd 2010

Yahoo! (NASDAQ:YHOO) continued its struggle to grow during the second quarter. While earnings managed to exceed market projections, the fact that revenue is not growing as strongly as it should remains a cause for concern. Q2 revenues of $1.13 billion fell short of the market’s projected $1.16 billion. EPS of $0.15 grew a whopping 50% over previous year’s $0.10 and also managed to exceed the market’s target of $0.14.

The company continued its focus on video and social, which are part of its “four o’s” of user engagement – video, social, mobile, and local. To improve the social aspect, the company tied up with Facebook to enable users who are on both Yahoo! and Facebook to link their accounts to view and share updates with friends across these networks. In recognition of the importance of social gaming, Yahoo! announced its partnership with Zynga which will integrate Yahoo! IDs with Zynga and publish updates into Yahoo! and notifications into Yahoo! Mail. Toward the end of the year, the Yahoo! network will begin to host games such as Farmville.

Within mobile, the company saw 15% sequential growth in the United States with 45 million users and a 52% reach. It recently launched Yahoo! Mail and Yahoo! Messenger apps for Android, as well as HTML 5-based Yahoo! Mail and Yahoo! News sites for the iPhone. It is also working with Nokia to leverage Nokia’s strengths in maps and navigation to enhance its own products and to gain access to Nokia’s users in emerging markets.

Within video, Yahoo! is exploring options to increase engagement and monetization opportunities. Its Front Page now points to video with pre-roll ads. And next month, the video that appears in line on the Front Page will have a new interactive ad format. The company will also original video content and recently launched the Newsmakers series on Yahoo! News, where the first video in the series about Warren Buffett generated more than 2.3 million video streams.

Yahoo! wants to improve its original content and recently acquired Associated Content, a website that uses over 380,000 contributing freelancers to develop content. The market estimates the deal to have cost the company $90 million to $100 million. Yahoo! also launched The Upshot, a blog that focuses on politics, the media, and breaking news, to increase political news viewing on the site.

Lifestyle is a recently launched Yahoo! site in the U.K. and had 7.8 million page views and 2 million unique hits in the first five days of launch. Yahoo! is planning to roll out similar sites using the same platform in France, Germany, Italy, and Spain in Q3 and later in Latin America and Asia.

Yahoo! projects revenues for the current quarter to be $1.09 billion–$1.19 billion compared with the market’s projected revenues of $1.17 billion.

Yahoo!’s stock is currently trading at $15.20 with a market capitalization of $21 billion. It touched a 52-week low of $13.75 earlier this month.

While it is good to see Yahoo! trying to add to its content to drive user engagement, I still believe it needs to take some more concrete measures. Yahoo! is rumored to be looking at acquiring bit.ly, a Web address shortening service widely used on Twitter. It is sad to s the company waste resources making these less critical acquisitions while competitors such as Google run off with deals such as ITA software.

For years, I have suggested that Yahoo! focus on vertical search [Read: Yahoo!, Please Put Up A Fight and Google’s Achilles’ Heel, both written in early 2008], an area that Google had left open. But not anymore: Google has now entered vertical search and by all indications will enhance its portfolio in other verticals besides travel, its first. Yahoo! languishes without strategy, without direction, doing things that do not address its fundamental dysfunction.

I have to say, Carol Bartz, a widely admired CEO in the Valley, has done a miserable job with the company!

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