Forbes.com has an interesting piece on Yahoo! - breaking up the sum of the parts and stacking each one up to the market it competes in.
The author, Sramana Mitra, compares Yahoo! to newspapers because both strive to be the starting point of readers/visitors’ days.
She writes:
Newspapers are organized in sections: news, including politics, business and finance; sports; and classifieds, including real estate, personals, jobs and autos. On weekends, highlights include travel, arts and entertainment.
Yahoo!’s market cap has fallen to $27.85 billion–more than a $20 billion drop in three years. The widespread speculation about how many people Yahoo! will be laying off this week is keeping Wall Street busy. Wrong thing to focus on, if you ask me.Forget about how many people get laid off. Forget about how Yahoo! reports its numbers. Analysts should be asking Yahoo! for the minute details of the verticals–and their workings, including leadership, organization structure, profit and loss statements, market share and acquisition strategy.
The Web is broken down in the following categories:
She offers some good tidbits on Yahoo!’s key verticals (I presume jobs would be under Finance, and Real Estate other etc. if I were to transpose the graph I added above with her analysis and Yahoo!’s structure).
Sports
Yahoo! has also cornered a big share of the $548 million market for online ad revenues for sports sites in 2007, beating both ESPN and Sports Illustrated. According to eMarketer, this market is expected to grow to $1.1 billion by 2011.
Finance
Yahoo! Finance, in particular, is a starting point for our days. We check market information, our portfolio movements and related news. UBS media analyst Michael Morris estimates Yahoo! Finance should log $250 million to $300 million in ad revenue this year.
Jobs
The online jobs market has continued to grow rapidly: Online recruitment advertising ($5.9 billion) surpassed newspaper job ads ($5.4 billion) in 2006, according to media research firm Borrell Associates. Yahoo! bought HotJobs, thwarting Monster’s effort to consolidate the space.
Today, employment ads are one of the top online segments, constituting around 25% of U.S. Internet ad revenues. The top players in the online jobs market are CareerBuilder, Monster, Yahoo!’s HotJobs and vertical search engines like Indeed and SimplyHired. HotJobs has approximately 9% of today’s market.
Monster, meanwhile, is an independent, public company, with a market cap of $3.5 billion and revenue of $997 million for the nine months ended Sept. 30, 2007; Rupert Murdoch is rumored to be mulling an acquisition of it. Monster had 60% market share in 2001, but fell to roughly 30% in 2007. Still, put HotJobs and Monster together, and Yahoo! would have close to 40% market share in this important vertical.
Pictures
In the U.S., the top 10 photo-sharing sites draw around 50 million visitors each month. Monetization happens primarily through hosting fees and photo printing and merchandising services.
Flickr, a wonderful property that Yahoo! already owns, has figured out the hosting bit, but its monetization strategy does not include an in-house printing and photo merchandising service. To close this gap, Yahoo! should buy publicly traded Shutterfly, which expects to post revenue of $180 million for the full-year 2007 period, but whose market cap has recently dropped to around $500 million.
Travel
Yahoo! has also made a move in online travel, but is not a top performer. Priceline.com, Expedia and Orbitz are all monetizing the segment. Yahoo! should acquire one of them, and become a serious player. Or it can buy Kayak.
Real Estate
Yet another segment that is moving online is real estate classifieds. Borell Associates predicts that by 2012, newspaper real estate ad revenue will hit $3.2 billion, while online real estate ad revenue will surpass that at $3.4 billion. In 2007, total ad spending on real estate dropped 3%, but online advertising soared 25.8% to $2.6 billion, due to a shift to online from print. Yahoo doesn’t have much of a presence in online real estate–ZipRealty is a ripe and cheap acquisition target.
Online Personals
Buy eHarmony.
I’ve read the odd piece by Mitra here and there, while I don’t always agree with everything she says (and not everyone agrees with me all the time, etc.) I do find her analysis interesting in a landscape of bloggers who simply regurgitate what others publish. Her piece on IAC, for example, was particularly prescient since Barry Diller went on to smash IAC into five smaller pieces. But having looked at Yahoo!’s options, a few things are bizarre in her assessment (but bizarre is good and that’s the kind of thinking Yahoo! needs more of).
By the end, Mitra seems to get tired of writing and simply suggests that Yahoo! acquire eHarmony… which is odd for three reasons:
- Subscription services is not where the action is at (and eHarmony is not a free site) in online advertising, the action is in free, ad-supported plays. Why not buy PlentyofFish.com? See more of my comments on the online personals space here and a write up on Plenty of Fish here.
- It’s interesting and odd that she starts off saying that analysts are focusing on people (layoffs) whereas they should be focusing on their verticals, only to conclude that it boils down to… people (management).
Can Yang and Yahoo! do this on their own? I’m not convinced. Private-equity investors might be better suited to step in and make some hard calls–including recruiting a turnaround CEO of the caliber of Mark Hurd, who’s done a splendid job at Hewlett-Packard.
- Third, she was right to suggest that IAC was a vast and complex mess that should be smaller and less complex, I find it surprising that she’s advising Yahoo! to get more complex via acquisitions. Sure, what applies to IAC and Yahoo! should be different remedies, and IAC was far more convoluted than Yahoo! is today or would be after a handful of acquisitions… but Yahoo!’s problem is that it’s a big machine taking on more nimble competitors in high-growth and dynamic segments…
I’ve looked at every conceivable option for Yahoo! (see below) and I too think that a PE acquisition is easier and cleaner while the end-result will be a much leaner and smaller company, but potentially, a more valuable sum of the parts.
Related:
- status quo (a $100B market cap by 2010?)
- merger with eBay
- merger with Viacom
- merger with CBS
- acquisition by/merger with Microsoft
- taken private
- sale to AT&T
- can Google buy Yahoo!?
- Spin off ad network unit
Disclaimer: I own shares in YHOO
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