) Mail, which is the second largest email provider behind
) Hotmail, has seen higher competition from Google (
) Gmail email service in the last few years. Although Yahoo
does not face much competition from smaller players like AOL (
), it certainly sees more competition from newer players like
Facebook, which has recently entered into the email service.
We estimate that Yahoo Mail users, a key metric for Yahoo, have
shown declining growth over the last few years. If Yahoo does not
innovate to cope up with increasing competition in email service,
there may be downside to the
$18.53 Trefis price estimate for Yahoo stock
, which is about 12% higher than the current market price.
Competition taking users away from Yahoo
In the past Yahoo has faced higher competition from Microsoft
Hotmail and Google Gmail email service. Microsoft showed 3% growth
and Gmail grew at 22%, compared to the 7% decline for Yahoo mail
users during the period from July 2009 to July 2010.
Recently, Facebook unveiled an email service, which is expected
to be tightly integrated with the existing Facebook features. For
example, it will automatically sort communication into groups,
giving priority to messages from a person one has already
identified as a friend on the site. Facebook's unique visitors has
increased at a fast pace in the past and recently overtook Yahoo,
which means that it's new email service could pose another major
threat to Yahoo.
Yahoo Mail growth has slowed and needs
Due to higher competition from Gmail, Yahoo's unique visitor
number has declined from 302 million in July 2009 to 281 million in
July 2010. Yahoo mail users' number are important to Yahoo's
display advertising business, which constitutes around 22% of our
estimate for Yahoo stock.
We estimate that the average monthly unique visitors on Yahoo
properties have increased from around 475 million in 2006 to around
620 million in 2010, and we expect this growth to continue to
702 million by 2013.
As Yahoo mail users constitutes around 45% of the total users
that visit Yahoo properties, which includes Yahoo News, Yahoo
Finance, etc., it becomes important that Yahoo continues to
innovate in the email market, otherwise it provides a risk to our
estimate for Yahoo users forecast.
To show the sensitivity to Yahoo's stock price estimate,
there could be potential downside of 5% if its average monthly
unique visitors does not grow and remains constant at 620 million
over the Trefis forecast period.
You can see the complete $18.53 Trefis Price
estimate for Yahoo stock here
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