) is scheduled to announce its Q2 2011 earnings on July 19th,
2011. We would focus our attention this quarter to developments in
Yahoo's search advertising business as well as the Yahoo-Alibaba
dispute and the potential effect it can have on Yahoo's
stock. Yahoo has faced recent struggles in the online
advertising market at the hands of increased pressure from players
like Facebook, Google (
), Microsoft (
) and AOL (
We currently maintain a
$17.30 price estimate for Yahoo stock
, which is about 15% above the current market price.
Yahoo's Search Share Still Lagging, But Some Signs of
Recovery in U.S.
While Google dominates U.S. search engine market with over 60%,
Yahoo's woes seem to have reduced this quarter as Yahoo's total
core search share rose from 17.9% in April 2011 to 19.6% in May
2011. The company's revenue sharing arrangement with Microsoft
where Microsoft will provide the search technology to power Yahoo's
search engine likely helped these gains. While we don't expect
this to cause significant upside to Q2 2011 search revenues, it is
certainly a positive step towards reviving Yahoo's search
advertising business as the company expects higher search market
share as well as higher revenue per search (RPS).
Alibaba is Crucial to Yahoo's Stock
Yahoo's strategic investments constitute almost 35% of our stock
price estimate. These investments include a 35% stake in Yahoo
Japan and a 43% stake in the Alibaba Group - a privately owned
family of Internet businesses that includes e-commerce services for
small businesses, a consumer-to-consumer online shopping a business
to consumer online shopping mall and other services.
Yahoo, Alibaba Group and Japan's Softbank Group are currently
engaged in a settlement dispute over the transfer of Alipay
(Alibaba's e-payment unit) to a company wholly owned by Alibaba
Group's CEO. The decision for the transfer has reportedly been
made in order to comply with Chinese regulations, which restricts
foreign ownerships in e-payment companies. Considering the
contribution of these investments to Yahoo's valuation, an
unfavorable settlement decision over Alipay could have a
significant downside to Yahoo's stock.
See our full analysis and $17.30 price estimate for