The Yahoo-Microsoft search alliance hasn't really taken off as
per expectations causing a drop in Yahoo's (
YHOO
) revenue-per-search. This was one of the key reasons for a
lackluster Q2 2011 performance by Yahoo. (See
Google & Facebook Give Yahoo a 1-2 Combo in
Search & Display
). We estimate that search advertising in the second most valuable
division for Yahoo at 13.2% of our stock price estimate, and a
declining search market share is likely to have a significant
impact on its stock price. Yahoo has traditionally been unable to
compete strongly against Google's (
GOOG
) superior search algorithms, and now faces threat from Facebook in
its core display advertising business.
While we expect Yahoo's search market share will decrease from
5.9% in 2011 to 5.2% by the end of our forecast period, Trefis
members predict an increase from 7.5% to 8.8% during the same
period. The member estimates imply an upside of 10% to the Trefis
price estimate for Yahoo's stock, and this upside is warranted only
if Yahoo's search partnership with Microsoft (
MSFT
) produces results and if yahoo is able to build search algorithms
comparable to Google's.
We currently have a
Trefis price estimate of near $17 for Yahoo's
stock
, about 16% above the current market price.
Yahoo's Search Engine Lags Google's
Google has an all-pervasive reach in Internet search business
leaving a small share of market to players like AOL, Microsoft, and
Yahoo. With a market share of around 70%, Google undoubtedly
dominates the search market, and any player truly looking to
challenge Google's market position needs to match up to the search
Goliath in technical expertise and brand power. Although Yahoo has
made efforts to improve its search algorithms for both paid and
organic listings, they are still arguably less relevant than
Google's.
Yahoo-Microsoft Alliance Needs More Steam
With the aim to improve web search experience for users and
advertisers and stage a formidable threat to Google, Yahoo and
Microsoft formed an alliance wherein Microsoft Bing's search
algorithm would power searches on Yahoo, and Yahoo's search ad
rates could improve drastically. However, the partnership hasn't
been producing results as expected. Technical issues in Microsoft's
adCenter platform have resulted in lower-than-expected
revenue-per-search (RPS) for Yahoo in Q2 2011, and has also lowered
Yahoo's search market share in the U.S., from 19.6% in May 2011 to
17.5% in June 2011.
Our
complete analysis for Yahoo's stock is here
.