The U.S. online display advertising market saw a revival in
2010, with an estimated growth of 17% over 2009. Continued growth
means greater competition amongst players like Yahoo (
YHOO
), Facebook, Google (
GOOG
), AOL (
AOL
) and New York Times (
NYT
).
We currently maintain a
$17.88
price estimate for Yahoo, in line with market price. Display
advertising accounts for roughly 18% of Yahoo's stock value by our
estimates.
Bright Outlook for Online Display Advertising
Market
According to eMarketer, the online display advertising market
could record consistent double-digit growth over the next few
years, as illustrated in the chart below.
Facebook Closing the Gap with Yahoo
Facebook, in particular, has seen substantial growth in the
online display advertising market. Facebook's share of the U.S.
online advertising market nearly doubled from 7.3% in 2009 to 13.6%
in 2010, while Yahoo's share declined slightly from 16.5% to 16.2%
during the same period. Facebook's momentum means that it could
soon topple Yahoo from its position atop the online advertising
hill.
What can Yahoo do to overcome this threat? It has started to
leverage Facebook's large user base to attract more traffic to its
own sites by installing tools such as "Like" and "Share". These
tools will enable Facebook users to share Yahoo content with
their friends, and create a viral effect through which Yahoo can
attract more traffic.
Facebook has a substantial user base of around 600 users million
worldwide. Its monthly unique visitor totals have increased
exponentially over the past few years from about 120 million in
2008 to 540 million in 2010. We expect this growth to continue in
the years ahead, with the number of monthly unique visitors hitting
2 billion by the end of our forecast period.
See our full analysis and $45 billion market cap
estimate for Facebook
Comparatively, we anticipate more moderate growth for Yahoo,
with unique visitor totals increasing from around 620 million in
2010 to nearly 800 million by the end of our forecast period.
See our full analysis and $17.88 price estimate
for Yahoo
Upside to Yahoo from Facebook Tool
Implementation
Acceleration in traffic growth is critical for Yahoo to overcome
the threat created by Facebook. Leveraging Facebook's user base
would be one such way of achieving that. However, Yahoo also needs
other supplementary avenues to drive more traffic to its site. A
few months back, Yahoo announced the launch of Local Offers to
cater to the needs of users looking for the best deals in their
area (see Yahoo Enters the Local Marketing Arena). A separate
initiative has led Yahoo to partner with mobile phone vendors like
Nokia (
NOK
) to integrate content on smartphones (see Mobile Initiatives
Could Boost Yahoo by 10%).
What effect could these initiatives have on Yahoo's stock value?
To demonstrate the sensitivity of Yahoo's stock value to visitor
traffic, we see a potential 5% upside to our
$17.88
price estimate if Yahoo's monthly unique visitor total reaches 1
billion by the end of our forecast period (vs. our base estimate of
roughly 800 million).