Novice Investing - Yahooo Quarter for Yahoo!

Date: Monday 13th 2008f October 2008 10:45:00 AM

Yahooo Quarter for Yahoo! - 04/19/2006

By: Novice Investing Staff

Yahoo! Inc. (YHOO), the number two search engine in the world, wowed investors with the release of its first quarter earnings. Yahoo! reported that earning for the quarter ending March 31st 2006 is $ 159.9 Million or 11 cents per share while sales rose 34% to $ 1.57 Billion. That compares with its archrival, Google Inc., which has sales of $ 1.38 Billion recently.

Between the two, Yahoo! has a more diverse revenue stream. While Google derived 99% of its revenue from online advertising, Yahoo! is quite a different beast. Yahoo!'s fee based revenue rose 25% to $ 186 million. This includes its partnerships to provide DSL with telecom companies. That is about 12% of total revenue. Meanwhile, search only represents 10% of the whole industry's page views. It can be said that search business that is conquered by Google currently, is a 'mere' 10% of Yahoo!'s potential revenue. While search is easier to monetize, we believe that when Yahoo! can convert 90% other visitors into more buyers, the company will earn far more than it currently does.

Yahoo! is currently in a favorable industry in the medium term. More and bigger advertising dollars will shift online for the next five years. The trend has been in place a couple of years ago when Google popularized its text-based adsense to the public. The challenge, however, to duplicate its success to the entire world. It is still up for grab for Yahoo! or Google of the world. Currently, only about 16% of the world population (or 1 Billion people) has ever visited the internet. About 90% of the Asian population has never used the internet. This is up for grab and the winner isn't clear. But with Yahoo! has plenty of experience diversifying its revenue streams, it is poised to do well in developed world.

With 3.8 Billion pages view daily, we can see that Yahoo! users are willing to pay a premium. If we use Google's pay per click model where one click averages $ 0.70 and around 0.5% of page views will translate into clicks, Yahoo! is expected to generate revenue of $ 13.3 Million daily. For the quarter, revenue should tops $ 1.2 Billion. Meanwhile, Yahoo! reported

revenue of $ 1.57 Billion for the quarter. This is about 31% higher should it use Google's based advertising model. Thus, you have seen the difference of using content to charge a premium to users, instead of merely providing search result.

The battle between Google and Yahoo! is far from over. At this point, Yahoo! seems poised to monetize its web properties. It has already earned a premium based on the above calculation. When it can charge users to some of its free-based services (think Yahoo! Finance or Yahoo! shopping), well, there is no doubt who the king of the hill is.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Yahoo! Inc. (YHOO) or any other securities.

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