Wednesday, January 19, 2005

Yahoo! Can Celebrate Success

Yahoo! Inc. will turn ten years old on March 2 of this year. Considering the Q4 2004 results they just reported, Yahoo! will have good reason to celebrate its 10th anniversary. As CNet reports, Yahoo! beat analyst earnings expectations (11 cents a share) with quarterly earnings of 13 cents a share. But, that was before the early birthday present from Google. Yahoo! was an early investor in Google, and was rewarded with an $185 million gain on the sale of Google stock in Q4 2004, which added another 12 cents a share to its quarterly earnings.

Growth in online advertising is the primary factor contributing to Yahoo!'s healthy organic growth. For the year, revenue from the marketing services segment (Yahoo!'s category name for online advertising revenue) more than doubled to surpass $3 billion for 2004, compared to $1.2 billion in 2003. However, Yahoo! is not entirely dependent on online advertising; they also receive fees from paid content. Even though the fraction of revenues from for-fee content is small (less than 12%), it is an important aspect of Yahoo!'s success, since it represents loyal users who find value in the content that is created and packaged on Yahoo!.

Yahoo!'s emphasis on "deeply engaging with users" by providing original content and tools to help users create their own personalized media experiences differentiates them from technology-driven search engine companies or pure online advertising networks. Even though much of their growth in 2005 will depend on duplicating its online advertising success in international markets where the huge surge in growth lags behind the US, longer-term success of Yahoo! will also depend on its ability to present compelling content and entertaining experiences to its targeted user base. The executive team at Yahoo! has an impressive mix of experience in publishing, entertainment, and media companies, along with technology and marketing expertise, which puts them in good stead to continue on a path of success for many more birthdays to come.

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