Novice Investing - Searching for Answer at Yahoo!

Date: Thursday 07th 2008f August 2008 01:43:22 PM

Searching for Answer at Yahoo! - 08/10/2006

By: Novice Investing Staff

Yahoo! Inc. (YHOO) is the second largest search engine in the world behind Google Inc. (GOOG). It provides and owns various properties on the net from news, shopping, sports to online dating. Yahoo! also owns some of the most interesting internet properties such as hotjobs, del.icio.us and flickr, all through acquisitions.

Business-wise, Yahoo! has one of the most diverse revenue generator for the company of its size. No customer accounts for more than 10% of total revenue at Yahoo! between 2003 to 2005. While revenue is concentrated in the United States with 70% total, international revenue has grown considerably to 30% revenue total from 17% two years ago. As with other technology companies, Yahoo! is fairly dependant on stock options to retain its talents. At the end of year 2005, the company has 182.7 Million shares eligible to be exercised. At current stock price of $ 27, it amounts to $ 4.93 Billion or 13% of its total market cap.

Yahoo! divides its business into four segments; search, marketplace, information & entertainment, communication & connected life. Each of this segments, we believe, had impacted your life in one way or another. That is how deeply inrooted Yahoo! is to your everyday's life.

While Yahoo! does not provide the revenue figure for each business segment, we believe that the search business will be the biggest revenue contributor and cash cow for time to come. The search business spans from Yahoo! search to Yahoo! Yellow pages; basically anything you can search for from the internet. Latest figure shows that Yahoo! is second in market share in the search business. Google has a 60% commanding market share versus Yahoo! of 20% share. In 2005, Google managed to produce $ 6.139 Billion in revenue and 58% gross profit with search. With one third of the market share, Yahoo! arguably would have revenue of $ 2.05 Billion or 38% of its 2005 revenue (total revenue was $ 5.26 Billion)

Marketplace consists of businesses such as Yahoo! shopping, auction, autos, travel, personals, jobs and small business. Basically, this is the portal business of Yahoo! which it believes is important in providing useful needs for its visitors.

The next business segment is the Information & Entertainment section. This is your 'free' stuff provided by Yahoo! It ranges from Yahoo! frontpage, sports, news, music, movies, games and finance. While it does not provide huge margin for the company, it can keep Yahoo!'s users content and establish Yahoo's brand name presence in this field. In return, Yahoo!'s visitors are more likely to try out other Yahoo's services such as Yahoo! auction or jobs with great confidence. In marketing terms, Information & Entertainment section is the loss leader for Yahoo!

The last business segment for Yahoo! is the communication & connected life. This ranges from Yahoo! mail, broadband, messenger, photos, mobile and Yahoo! answer. Yahoo!'s broad long term vision has been to provide and build a community-based internet users. This segment will be the future revenue generators for the company as it gains recognition in this field. As you know, community-based themes has a more loyal followings in the internet space. Once you are in the community, it is harder to get out of. (in a good way).

While Google had been gaining favor from wallstreets in recent years, Yahoo! is quietly building a long lasting business. While you would switch to a better search engine in a heart beat, you may not change your email or instant messenger that easily. Google lacks behind in this field and it is trying to play catch up which signifies the importance of Yahoo!'s threshold in this field. Balance sheet is quite strong at Yahoo! with $ 4 Billion of positive net cash or 11% of its market capitalization.

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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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