Yahoo
Great, they are joining another committee. That should fix things.
Honestly, I read the growth plan presentation and came away disappointed. I then read that others like Blodget and Mahaney from Citi thought the plan was actually *too optimistic* and decided not to post. But now, I am sufficiently bewildered that I will bang out this post.
What are the key assumptions?
1. Revenue growth will be disappointing but the company will boost their margin by a third by cutting the fat. Revenue growth in the plan is expected to be 11% (pathetic) this year and 25% in each of 2009 and 2010 (average). But their margin in the mean time will go from 33% to 42%. Because of that margin improvement they can double cash flow (driver of valuation of media companies).
What’s wrong with the assumption? Forecasting revenue growth as anemic as they did, shareholders will almost certainly conclude the firm is in better hands at Microsoft. For fuck’s sake, the sky-diving US dollar will surely add 5-10% yearly revenue growth.
Jerry also doesn’t seem to comfortable wielding an axe and betting that he can restore the margin the company enjoyed from the pre-Panama drunken spending days by laying off thousands is wishful thinking.
2. The nitty gritty of growth. Yahoo helpfully breaks out its expectations around volume and yield growth. Specifically on slide 11. The most depressing quadrant is the lower left: Yahoo expects display impressions to grow with a 12% CAGR. Everything else hangs off this one number. Nobody is confident the firm will grow search (or anywhere close to growing with the market, i.e. Google). But in display, Yahoo is still in a leading position it must lose.
The dynamics are completely out of whack. Volume should be growing from 50-100% a year and yield dropping. Let me explain the yield dropping. Even though on a like-for-like basis most inventory will be going up in pricing, the flood of new inventory around social applications and the demand-supply imbalance will mean the *average* cost of inventory will be going down.
If those dynamics aren’t at play then Yahoo will be exposed to the same ‘premium end’ of the market that CNET is currently enjoying.
I actually think the company would have been better off acquiring Bebo instead of AOL. I am not sure why the firm hesitates on pulling the trigger on these type of deals (Youtube, Facebook, Bebo et al). They honestly need to wade as deep into this type of inventory as possible. It’s crap, it doesn’t get any click throughs, people are looking to communicate etc. They are huge problems. But huge problems are opportunities to be solved and everything has it’s price. Yahoo have been selling email impressions with a straight face for years and they more than anyone else know how to monetize this type of inventory. Or rather they should.
The deck was, in my mind, Yahoo’s last stand. If that is what they came up with, the firm is going to be sold. And soon. After reading it, I don’t even think Microsoft should raise it’s bid. Leave it at $28 or whatever the bid is now valued at. If they still refuse to deal, let them fumble for another year and come back with a $20 bid in honor of the Larry Ellison school of takeovers. Goodbye Yahoo, I loved thee.
