Yahoo’s search advertising business is better than its display ad

Puneet Sikka - Author

Jul. 21 2014, Updated 1:00 p.m. ET

Yahoo’s search advertising business

In the previous part of the series, we discussed Yahoo’s (YHOO) display advertising business and why it continues to decline. Yahoo generates ~41% of its revenues from the search advertising business, while it generates about 38% of its business from the display ad business. Yahoo’s search ad business has done better compared to the display ad business, which is why it’s the most valuable business for Yahoo.

In the second quarter, Yahoo’s search revenue of $428 million increased by 6%. The number of paid clicks increased by 3% and the price per click increased by 15%. Yahoo’s management mentioned that 2Q14 represented its tenth consecutive quarter of search revenue growth.

Overall search market increasing at a faster rate

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Although Yahoo has managed to increase its search advertising revenues, the overall search market is growing at a faster rate. This means Yahoo is losing share in this market. According to a report from Comscore and as the previous chart shows, Yahoo’s market share declined from 10.3% in February, 2014, to 10% in May, 2014. Google (GOOGL) continues to dominate this market, while Microsoft (MSFT) managed to gain some market share during the three months period. Ask and AOL (AOL) continue to be smaller players in this market.

If Yahoo’s search advertising business growth can offset its display ad business decline, it will benefit exchange-traded funds (or ETFs) such as the DJ Internet Index Fund (FDN) and the NASDAQ Internet Portfolio (PNQI), which have high exposure to Yahoo.


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