Commentary

Yahoo's Innovation Dilemma

Yahoo's traffic trends continue to show improvement, but not yet quite enough to make a long-term impact for search marketers. The biggest obstacle is the momentum of Google's innovation.

Yahoo's improvements should bring a glimmer of hope to marketers trying to solve the search dilemma, at least in the short term. The company's properties support more than 800 million monthly unique users -- up 20% in the last 15 months, but it still lags in search query rates. Yahoo sites took about 11.3% core search September market share, per comScore -- down slightly from 11.4%, sequentially.

Yahoo announced Q3 2013 earnings Tuesday. Search contributed $426 million, up 2.9% year-on-year, to Yahoo's $1.08 billion Q3 2013 net revenue. The uptick fell short of Q2 results -- up 4.6% YoY, but in line with analysts' estimates, as search improvements were lowered by overall profitability in display.

The company has made a slew of acquisitions in the past year, but none substantially moving the needle on search engine marketing. During the quarter, Yahoo purchased eight companies -- Bignoggins, Qwiki, Xobni, Admovate, Ztelic, Lexity, Rockmelt and IQ Engines--for a total of $163 million.

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Mobile use showed improvements in the quarter. Yahoo reported 390 million mobile users in Q3, compared with 340 million users, sequentially. Raymond James Equity Analyst Aaron Kessler wrote in a research note that on a normalized basis, Yahoo search metrics grew 16% in click revenue, compared with 14% y/y in Q2.

While Microsoft will announce Q3 2013 results next week, Search Network GM David Pann penned a post to remind us about recent enhancements to the Yahoo Bing Network such as local extensions, Bing ads express, and compatibility.

An IgnitionOne report released in September notes that The Yahoo/Bing Network regained most of its market share losses in Q3, sequentially -- bouncing back to 22.6% of share, compared with 20.8%. The duo are still shy of the 24.4% generated in Q1.

Pivotal Research Analyst Brian Wieser notes that Q4 2013 guidance looks weak, and it remains the weakest part of Yahoo's earnings announcement. "While 3Q itself was in-line with 2Q's guidance overall, full year 2013 guidance was reduced with yesterday's results and were below our estimates, with revenue guidance falling from $4.69bn-$4.82bn to $4.65bn-$4.71bn ... ." he wrote. "We remain pessimistic about the core display business, and continue to believe that display-based growth will prove next to impossible without significant acquisition activity."

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