Yahoo! for Sale, but Is It a Trap?

Amid the fuss surrounding Yahoo! Inc’s (YHOO) ongoing sales process and a large number of companies showing interest in bidding for its assets, the shares of Yahoo have picked up approximately 37% in the past three months. According to Investor’s Business Daily News, as many as 40 groups have expressed interest in buying all or part of its business, including the financially wilting Sunnyvale, Calif.-based Web portal.

The list of interested parties include a few big names such as Verizon Communications (VZ), Microsoft (MSFT), Google (GOOG) (GOOGL) and the media company Time (TIME).

This increase in bidders was despite the fact that Yahoo confirmed its web portal business could see revenue falling to 15%, while earnings fell to the tune of 20% in 2016. Let us find out what makes Yahoo! Inc attractive going forward, regardless of the poor financial performance in 2015.

MAVENS remain attractive

MAVENS (Mobile, Video, Native and Social) recorded significant growth in 2015. Mavens GAAP revenue for the fourth-quarter 2015 rose 26% to $472 million year-on-year basis due to the tremendous traction gained from mobile and native display whose revenue increased 15% and 55%, respectively, year-on-year basis. In fact, for the full year, Mavens produced $1.6 billion in revenue, an increase of 46% as compared to revenue of $1.14 billion in 2014. This accounts for more than one-third of its total revenue at present.

Therefore, Mavens happen to be the most likely driver for acquisition, as it remains a bright spot in Yahoo's overall business. The company is taking various initiatives to further drive growth for Mavens, making them even more appealing in the future. These initiatives include investment in Yahoo Mobile Development Suite, mobile monetization, increased sales efficiency, and refined go-to-market strategies.

In order to increase mobile monetization, Yahoo recently invested in mobile search engines like Gemini and BrightRoll. At the same time, Yahoo expanded its mobile verticals to news, sports, finance and lifestyle in Gemini while expanding BrightRoll to offer programmatic buying and selling for video, display and native advertising.

With these initiatives in Mavens areas across mobile, search, native, social and video, the company expects to deliver additional growth in the aggregate of about $220 million in 2016. Moreover, on account of this additional growth, Yahoo anticipates Mavens’ revenue to grow more than $1.8 billion in 2016, representing an increase of 13% over 2015. In fact, Yahoo expects an adjusted EBITDA run rate of more than $1 billion by the second half of 2016 that will improve its profitability in 2016.

Rising traffic acquisition cost causes concern for its search business

The reason behind Yahoo's poor performance in 2015 is increasing traffic acquisition costs. Its traffic acquisition costs for the fourth-quarter came in at $271 million, an increase of 266% from $74 million in the same quarter in 2014. In fact, its traffic acquisition costs or TAC for the full year rose 303% to $878 million as compraed to $218 million in 2014.

This increase in TAC can be attributed to the fact that Yahoo now has to depend on other search engines such as Mozilla Gemini search and Microsoft’s Bing and BrightRoll program to generate sales traffic for the company. In return, the company pays a lump sum amount to these search giants. This means Yahoo has lost popularity for its own search engine and, depending on other search engines, will likely increase its traffic acquisition costs in the future. Although this move might turn out to be accretive to its top line in the long-run, in the short-term, it will hurt its earnings performance as in the last quarter.

For instance, Yahoo's EBITDA for fourth-quarter was $215 million, a slump of 47% as against EBITDA of $409 million in the same quarter in 2014. As a result of this $194 million drop in EBITDA, the company experienced a significant drop in its earnings that fell to $0.13 per share for the quarter, representing a drop of 57% for the quarter, year-on-year basis.

In order to lower the impact of these growing traffic acquisition costs, Yahoo is planning to reduce its G&A costs. The company reduced its workforce by 15% and closed 5 offices across the world during the ongoing quarter. In addition, the company, by way of more tightly aligning the costs of core technology platforms with the products and businesses, anticipates a savings of $400 million in 2016. These cost reductions across the business should offset growing traffic acquisition costs and improve bottom line performance going forward.


Yahoo actually offers an attractive opportunity to invest in the long-run, regardless of the fuss surrounding its acquisition. Its recent efforts to drive growth for Mavens, as stated above, look splendid and will allow the company to offset the weaknesses in its legacy business going forward.

Published on Apr 18, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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