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The Road To Mayer's Turnaround At Yahoo! Looks Longer
Recent reports from Comscore show that new CEO, Marrissa Mayer's job of turning around Yahoo! ( YHOO ), just got harder. According to the research firm, the traffic to two of the company's core products, search and mail, was down 24% and 12% each in December 2012 when compared to December 2011.
This new data is troubling for the CEO because her turnaround strategy hinges on driving growth by leveraging the existing user base on Yahoo!'s platforms. If search and mail traffic are declining, Mayer's strategy is likely becoming moot. We think that Mayer needs to come out with new products quickly if she intends to keep Yahoo!'s services relevant in the highly competitive Internet industry.
Relying on General Unique Visitors Much Riskier
Yahoo! has a solid unique visitor base at approximately 114 million visitors per month who visit their homepage in the U.S. While this is a good starting point, we think that a decline in the core group of mail and search users, poses risks for Yahoo!. Since e-mail has become such a central part of an Internet user's life, the fact that users are leaving Yahoo! mail means that Yahoo! is losing a relatively sticky user base, who are compelled to come to the site to check e-mail. A general visitor on Yahoo! sites will probably not have the same investment in Yahoo!'s services like an e-mail user would. This makes Yahoo! more susceptible to firms such as AOL ( AOL ) and Google ( GOOG ), who have products that can attract users from Yahoo!. An example of such a situation would be a Yahoo! news user switching to Huffington Post, Google News or CNN for their news needs instead of visiting Yahoo!.
Mayer Must Release New Products Quickly
Due to the fall in the number of mail users, we think that Mayer must increase the pace at which Yahoo! releases products. During the last six months, Yahoo! has only released two major redesigns to mail and Flickr. We thought that Fickr redesign was a good way for Yahoo! to get new users onto the mobile platform, but because Flickr is not a core Yahoo! product, the redesign will not necessarily drive traffic to other Yahoo! services. We think that Mayer needs to release more products which drive traffic to Yahoo!'s core services because this seems to be the only way to increase user engagement on its platforms.
Yahoo! Needs to Look to Emerging Markets To Drive Growth
Since Yahoo!'s business is in decline in the U.S., we think that the company should look overseas to grow its business. However, the international markets are also highly competitive and Yahoo! will have a tough time gaining market share in the emerging markets. We think that despite this competition, the growth in emerging market Internet users gives Yahoo! an opportunity to capture a some of the growth potential in the international market. We think that lack of Internet penetration in the Asian and African markets (28% and 16%), and the fact that most of these users will first access the Internet via mobile phones, gives Yahoo! an opportunity to increase the number of users on its platform. We think that approximately 1.25 billion new individuals will start using the internet if penetration on these continents hits 50% over the next 5 years, which is lower than the 75% penetration in North America at present. If Yahoo! can capture even 10% of this with a sound mobile product suite, it would add around 125 million users to its platforms.
We currently have a $21 price estimate for Yahoo! , which is around 15% above the current market price.