Yahoo Focused on User Engagement, Eyes 10% Sales Growth

By Clint Boulton  |  Posted 2010-05-27

Yahoo CEO Carol Bartz pledged the company's allegiance to improving user engagement and expressed confidence in reaching as much as 10 percent revenue growth over the next few years.

Yahoo CFO Tim Morse said at the company's analyst day May 26 that Yahoo expects annual sales to increase by an average of 7 percent to 10 percent and operating margins of 18 percent  to 24 percent by 2013.

Bartz and other executives said Yahoo's ability to deliver personalized content and applications experience will create better engagement for the users over time.

Yet Yahoo's management admitted it was challenged in keeping users engaged on its sweeping Website of news, sports, and other consumer content. Few new users are coming to Yahoo.

The Wall Street Journal cited comScore figures that unique U.S. visitors to Yahoo rose only 4 percent from April 2009 to April 2010, compared to 10 percent growth for the Internet overall. Total minutes spent on Yahoo fell 11 percent and page views dropped 13 percent.

The company, which accrued 600 million users over the last 15 or so years because of its quality content and brand, has taken several steps to address this engagement issue.

Yahoo May 18 acquired Associated Content to grab articles, audio and video clips from freelancers all over the U.S. Yahoo May 25 purchased location-based social service Koprol, the Foursquare-like check-in service from Indonesia.

In perhaps its greatest overture toward boosting user engagement, Yahoo said at its analysts' day that it struck a deal with online game maker Zynga. Zynga shot to fame on Facebook, with millions of users playing its games, including Farmville and Mafia Wars.

Yahoo, which already integrates Facebook content and Twitter tweets, is bringing those games to its users through its homepage, Yahoo Games, Yahoo Mail, Yahoo Messenger and other properties in an effort to entice more users.

Some analysts see these moves as positive attempts to gain more users; others see them as an admittance that the company would rather integrate others' technology than build exciting new products.

The greatest example of this is Yahoo's outsourcing of its search engine to Microsoft's Bing, which could make Yahoo a lot of money because Microsoft is paying its partner 88 percent of the traffic acquisition costs. 

Count Susquehanna Financial Group analyst Marianne Wolk among the faithful. Wolk said Yahoo's analyst day was a positive surprise given the low expectations heading into the event.

She said the 7 to 10 percent net revenue growth over the next four years was a nice boost, assuming the company can execute to hit those figures.

She also said the deal with Zynga and the launch of log-in page takeovers in June should boost display revenue by the second half of 2010 and "support a long-term display forecast above 13 percent through 2013.

"Yahoo expects to monetize its log-in page for the first time as of June," Wolk wrote in a research note May 27.

"If it achieves Facebook's recent rates near $300,000 per day, this suggests at least $110 million in incremental revenue potential from the full page, graphical ads reaching one in ten U.S. internet users every day (one in three every month). If it matches the $1 million rates it achieves on the Yahoo home page, a more sizable $300 million $400 million opportunity is possible."

Other analyst sounded more somber notes regarding Yahoo.

"The sole investment issue, in our opinion, remains user engagement, where, outside of a few individual data points, the trends are increasingly negative," wrote FBR Capital Markets analysts May 27.

"Until we see signs that the company's efforts are reversing this trend, we believe the stock will likely continue to underperform."

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