Yahoo to spend cash pile on mobile, video

Phil Hunter/Faultline
23 Jul 2014

It is a long time since Yahoo was a serious contender to become the world’s favorite search engine rather than Google, but it has hung around and now has one last slight chance to climb right back onto the high table of internet players.

On the surface, Yahoo looks still to be struggling as its long-term decline in search continues, on the verge of falling below 10% in the US market for the first time, according to comScore, with Google top at 67.5% and Microsoft now well entrenched in second place at 18.4%. Yahoo is also losing ground to Microsoft in the $140 billion worldwide digital advertising market, according to estimates just released by research firm eMarketer released on Tuesday. The forecast is for Microsoft's global ad revenue share for 2014 to reach 2.5%, nudging just ahead of Yahoo. Admittedly these are both small shares beside leader Google on 31.5%, followed by Facebook at number two and rising on 7.79%.

But Yahoo has one big card up its sleeve as a result of an investment decision it did get right, acquiring 40% of Chinese e-commerce company Alibaba for $1 billion in 2005. It made a small mistake by selling 17% of this for $7 billion but its remaining 23% is now worth around $46 billion given Alibaba’s estimated value of $200 billion – more than Yahoo’s own market capitalization of $40 billion.

Alibaba is going for IPO and Yahoo will be required to offer at least half its holding, so even though it will be under pressure to return a substantial proportion to shareholders as it did before, it should be looking to increase its cash mountain to well over $10 billion. This at least places it well to make some more sizeable acquisitions, adding to the $1.1 billion it spent on social blogging platform Tumblr in May 2013. That has not so far proved a great success as traffic to that platform is actually falling and now CEO Marissa Mayer has highlighted the expansion of digital publishing around video and mobile as the principle targets in a bid to regain revenue growth and reverse the long term decline. Yahoo is also getting into OTT video, having just acquired streaming startup RayV for an undisclosed sum.

Yahoo has long been pursuing the online magazine market and aiming to put video at the front, but like others has found that field hard going. Yahoo in October 2011 rebranded its existing video-sharing service and refocused it from user-shared content to an on-demand streaming service, Yahoo Screen. The aim was to switch to competing with Netflix instead of YouTube, but in this regard Yahoo Screen proved no more successful than its predecessor and is hardly a household brand.

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