Losing market share could impact Yahoo’s 2Q14 earnings
In the previous part of the series, we discussed Intel’s 2Q14 earnings, which will be reported on July 15, 2014 after market close hours. Yahoo (YHOO) is also expected to report its second quarter earnings on July 15. The 1Q14 earnings for Yahoo were slightly better than analysts’ expectations. The company earned $0.38 per share on $1.087 billion in revenues, while analysts were expecting Yahoo to report earnings of $0.37 per share on revenue of $1.08 billion. Most importantly, 1Q14 was the best quarter in terms of revenues since 2010. This highlights that the company is showing the initial signs of coming back to growth under the leadership of CEO Marissa Mayer.
Yahoo continue to lose share in search advertising market
Yahoo expects the ex-traffic acquisition cost (or ex-TAC) revenue to be in the range of $1.06–$1.10 billion in 2Q14. The search advertising business has been the most important business for Yahoo. It contributes ~41% to Yahoo’s overall revenues. However, the last quarter hasn’t been that great for Yahoo in the search advertising market. According to a report from Comscore, and as the previous chart shows, Yahoo’s share in the U.S. explicit core search market declined from 10.3% in February, 2014, to 10% in May, 2014. Google (GOOGL) continues to dominate this market, while Microsoft (MSFT) managed to increase its market share. Ask Network and AOL (AOL) continued to have their market shares below 3% each.
Yahoo continues to focus on mobile and video display ads
The display ad business contributes about 38% to Yahoo’s revenues. During the second quarter, Yahoo mentioned that it will start getting more traffic from mobile than desktop by the end of this year. However, Yahoo is still behind in mobile compared to Facebook (FB) and Twitter (or TWTR). Facebook earns about 59% of its revenues from mobile, while Twitter earns about 80% of its revenues from mobile. Yahoo has also been trying to leverage the growth of the video ad market. During the quarter, Yahoo started to offer an online comedy series and also forged a partnership with Live Nation to stream concerts on Yahoo. However, all these efforts need to materialize into revenue growth, which is what’s currently missing.