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Yahoo’s Aimless Shopping Spree Continues

Posted on Friday, Nov 7th 2014

For the recently ended quarter, Yahoo (Nasdaq: YHOO), surprisingly, reported results that beat the market’s expectations. Since Ms. Mayer took over as the CEO of Yahoo, she has been focusing on building Yahoo through acquisitions. Most of their acquisitions are focused on adding talent and the market remains puzzled about their ability to monetize these deals. Things could become bleaker as Yahoo is expected to step up its already high speed acquisition spree with the $5 billion it got from the sale of Alibaba’s stock.

Yahoo Financials
Yahoo’s third quarter revenues grew 1% over the year to $1.09 billion with an EPS of $0.52. The market was looking for revenues of $1.05 billion with an EPS of $0.32.

During the quarter, display ad revenues fell 5% to $447 million. Display ads sold grew 24% over the year, but prices continued to fall and reported a 27% decline during the period. Yahoo’s Search ad revenues improved 4% to $452 million. The number of paid clicks remained flat, but price per click improved 17% over the year.

Mobile is becoming a big segment for Yahoo as it accounted for more than $200 million in revenues in the quarter. Yahoo expects mobile revenues to be more than $1.2 billion for the year. Yahoo and Tumblr combined reported a growth of 17% to 550 million monthly users on mobile devices during the quarter. Yahoo acquired Tumblr last year for $1.1 billion. In return, the company is expected to deliver a comparatively modest $100 million in revenues by next year. Yahoo has not disclosed detailed financials pertaining to Tumblr. However, they did mention that they were looking at ways to recover their costs and were seeing an improvement in user engagement rates as users were now spending nearly 28 minutes on Tumblr compared with 22 minutes earlier.

For the current quarter, Yahoo projected revenues of $1.14 billion-$1.18 billion. The Street was forecasting revenues of $1.166 billion for the quarter.

Yahoo’s Expanding Services
Yahoo is investing in expanding their service offerings that are focused on mobile and content improvement. They have released several new mobile apps to improve the mobile user experience including upgrades for Yahoo Finance, Yahoo News Digest, and Yahoo Mail. For instance, for their Finance app, they updated the user interface and rebuilt the Android app to focus on the performance and news for the stocks that a user is interested in. The app users will be able to get real-time quotes for their stock watch list, news updates, and access interactive graphs.

Yahoo entered into a tie-up with Samsung to enable Smart TV users with access to Yahoo Fantasy Football TV experience. They also released an NFL-focused app NFL Now on Yahoo across multiple devices including desktop, iPhone, and iPad. NFL Now allows users to access original content including match highlights and replays.

Yahoo continued to build content, and during the quarter, signed up with Taylor Swift and Prince for exclusive content to Yahoo in advance of their album releases. They expanded the reach of their Digital Magazines by launching an Android app and also released Yahoo Style, which boasts of editor-in-chief Joe Zee, who was an ELLE Magazine alumnus. Yahoo strengthened their editorial staff by adding several reputed people as editors-in-chief for various segments including Health, Food, TV, and DIY. The dollar impact of this added content is unclear yet.

Yahoo’s Acquisition Spree
Yahoo also continued their acquisition spree in the recent quarters. Earlier last quarter, they announced the acquisition of Meh Labs, best known for their Blink app. Blink is a mobile messaging app that lets users share self destructing mobile messages. Terms of the deal were not disclosed. The move was part of their acqui-hire strategy as Yahoo shuttered Blink soon after the acquisition.

They also announced the acquisition of video streaming platform RayV for an undisclosed sum. RayV’s platform helps deliver high quality video streams to a large audience. Yahoo is expected to leverage RayV’s capabilities to continue their push in improving their digital media content and video streaming segment. Yahoo had earlier attempted to buy Hulu, but had been unsuccessful.

As part of their mobile focus, Yahoo also announced the acquisition of mobile analytics firm Flurry for an estimated $240 million. Flurry is a leading player in app analytics. They work with over 170,000 app developers to gather data on 150 billion app sessions each month for further analysis. Flurry’s analytical tools help publishers gather information about their audiences along with app usage and performance. The acquisition will help Yahoo continue their push in the mobile advertising market.

To strengthen their ad offerings, they acquired Israel-based startup Clarity Ray, which is an expert ad-malware detection and prevention. But more importantly, Clarity Ray’s solutions help prevent ad blocking so that users are forced to see the ads that they were trying to block using tools like pop-up blocker.

They also added photo ad network Luminate to their portfolio. Luminate is a platform for interactive, tagged images, and is known as AdSense of Images. Terms of the deal were not disclosed.

Earlier this quarter, Yahoo acquired Bangalore, India-based Bookpad, a year-old start-up that provides cloud-based document hosting and editing capabilities for developers. Bookpad has developed Docspad application, which is a developer-based system that is used by organizations to improve the viewing and editing of content online. The deal is estimated to have cost Yahoo between $8.3 million and $15 million. Yahoo is leveraging the talents of Bookpad’s team in “strengthening the Yahoo Mail experience“.

Finally, last month, Yahoo announced the acquisition of Little Inc. Labs, which had developed another mobile messaging system MessageMe. Terms of the deal were not revealed. MessageMe has a user base of over 5 million.

Yahoo’s stock is trading at $47.93 with a market capitalization of $46.92 billion. It touched a 52-week high of $48.28 earlier this week. Yahoo’s stock rise is driven by their stake in Alibaba. Left on their own, Yahoo’s strategy continues to be appalling. Marissa Mayer is on a wild shopping spree picking up startups to build talent but with no definite plans of improving monetization opportunities. This absolutely needs to change in 2015.

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