) competes with Google (
), AOL (
) and Microsoft (
) in the display advertising market. The company's profit
margins from its display advertisement business have declined from
30% in 2006 to around 27% in 2009, due to lower revenue by Yahoo
from every 1000 pages viewed on its owned and operated sites.
We expect Yahoo's display EBITDA margin to increase slightly in
the near-term as a result of revenue growth-driven margin leverage
and expected increases in monetization per page (higher RPM
estimate). However, Yahoo faces heightened pressure from
competitors like Google in the years ahead, and could see margins
come under pressure.
While we believe margins will stabilize around 29% through our
forecast period, the Trefis community anticipates upside to this
metric as Yahoo fends off pressure from competitors. The community
forecasts suggest display ad EBITDA margins will reach 41% in 2011
before stabilizing near 33% going forward. The community forecast
implies a slight upside to our price estimate for YHOO stock.
Our price estimate for Yahoo's stock currently
stands at $18.53
, about 10% above market price.
Increasing Monetization Opportunities for Yahoo…
Yahoo has has undertaken a few initiatives to increase its video
programming content lately. It is improving the amount and quality
of its video content across a variety of media verticals including
sports, news, finance and entertainment. We expect the average
number of monthly Yahoo users to increase from ~550 million in 2008
to 800 million by the end of our forecast period. We further
anticipate higher usage levels as Yahoo's 242 page views per month
in 2008 increases to 272 page views per month by the end of our
As online advertising continues to take share from traditional
media like TV and newspapers, we believe advertisers will
consolidate their marketing around big companies like Google and
Yahoo, which provide unmatched scale and visibility.
… But Losing Ground to Google and Facebook
Although Yahoo's display advertising revenues climbed 17% in Q3
2010 (to $465 million), competitor Google is showing no signs of
slowing. In its Q3 earnings call, Google for the first time
gave a breakdown of its key businesses including YouTube. Jonathan
Rosenberg, Sr. Vice President of product management for
Google, said that the company's run rate for display ad revenues is
approaching $2.5 billion. Much of Google's display ad business
comes from its $3.1 billion acquisition of DoubleClick.
Yahoo is also facing an increasing threat from Facebook, which
is speculated to have earned around $2 billion in revenues in
Trefis Community Forecast
The Trefis community forecasts suggest that Yahoo's display ad
EBITDA margin could stabilize around 34% in the years ahead, off of
an estimated 27% in 2010. Comparatively, our base case forecasts
anticipate stabilization near 29% going forward. The community
forecasts imply slight upside to
our $18.53 price estimate
, which is already about 10% above market price.
To see the impact of various display ad EBITDA trends on
Yahoo's stock value, drag the trend line in the modifiable chart
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complete analysis for Yahoo's stock is here