BUSINESS BLOGS
BUSINESS BLOGS
category: business
22 Apr 2008

Everyone and their uncle is expecting YHOO to report a strong Q1, which let’s face it, is a surprise considering just how woeful Q4 2007 was and how tepid guidance for 2008 was. What could have possibly happened for YHOO to become so bullish on its forecast, that in a cooling economy?

Here’s what I think:

Once MSFT unleashed an unsolicited bid, YHOO talked to the usual suspects for an alternative, seeing that there were no takers, it decided to employ a scorched-earth, all cards on the table kind of strategy for Q1.

In other words, it said to itself “the writing is on the wall, how do we maximize share price?” How could they prop up Q1 revenues? Here’s what they did, I suspect:

1- On the high end of the advertiser spectrum: I think what they did is basically get advertisers who had committed to ad deals for Q1 and beyond to allocate budgets to Q1, to make up for the missing Q2 and beyond ad spend, I suspect YHOO probably gave makegoods and value-add placements.

For example, say AMEX agreed to spend $500,000 from February to May (or $125,000 over 4 months). Yahoo went back and asked AMEX if they could book all $500K in Q1, so February and March, and then gave AMEX $250,000 in make-good for March and April. This is not illegal or even unethical. It’s dangerous because it cuts into eCPM, but in the context of MSFT’s acquisition efforts - and having seen CEO Yang dole out expensive severance packages - I suspect this is nothing.

2- Then on the low-end of the advertiser spectrum: I also suspect YHOO dropped its minimum requirements for ad deals size or CPM rates to get more money in the door. Such tactics are great for short term revenue spikes, but they come at the expense of long term revenue strategy positioning.

For example: YHOO might usually ask for $20 cpm on main page or $1 cpm on long tail inventory, or minimum ad deals of $10,000… it is plausible that YHOO got everyone’s money no matter what… to boost revenue even though this meant chasing smaller peanuts that it would usually not consider to be worthwhile.

I could be wrong: but it’s clear that YHOO will report a strong quarter… I just don’t know what happened between January 29 (earnings call) and today to have merited this added bullishness, other than what I outline above.

Any thoughts?

Note: Long YHOO