Google’s amazing year
Google has been the darling of search engines for more than a decade. In fact, some millennials may not be aware that other search engines even exist. But despite all of its success, Google has been difficult for Wall Street to value. That changed in 2015, when it transformed into a transparent and financially disciplined entity called Alphabet. The company drew a clear line between its money-making Google entity and its experimental entity, now known as Other Bets. Even better, with new CFO Ruth Porat at the helm, Google accelerated revenue and earnings growth in Q4 2015, growing paid clicks by 31%.
With outstanding financial performance and a 39% larger market cap than this time last year, Alphabet has even more ability to invest in its search business. The company now has nearly 62,000 employees, up by over 15% in the last year alone. 2016 capital expense (cap ex, investments made for long-term vs. operational benefit) is expected by Wall Street to increase from 2015’s $9.9 billion to over $12 billion. While this will fund Google Fiber, X Labs and various Other Bets, most of it will be focused on the core search business. In other words, Google is stepping on the gas, working hard to keep pace with Apple and its projected $15 billion 2016 cap ex.
Yahoo’s tale of woe
And then we have Yahoo. As a business, Yahoo’s operations are valued at very little based on its current market cap and ownership positions in Alibaba and Yahoo Japan. As opposed to the rapid growth in Google, Yahoo is cutting costs and workforce and will have roughly 9,000 employees by year end: a staggering 42% decrease from early 2012. A recent report suggested a third of employees left both voluntarily and through layoffs in the past year alone. With so many turnovers, it’s easy to see why top employees would want to look at competitors that are growing and investing.
In its Q4 earnings call, Yahoo emphasized mobile search, Yahoo Mail enhancements and its Gemini (paid search and native ads) and Brightroll (programmatic media) platforms. This plan was met with skepticism, as little has happened in CEO Marissa Meyer’s tenure to inspire confidence.
Yahoo has failed to capitalize on its few bright spots. Its desktop search share has grown from 11.8% to 12.4% (2014 to 2015), and it remains among the top three most popular digital media properties in the U.S. Still, it seems unlikely that Yahoo can chip away much of Google’s massive smartphone search market share, especially considering Apple’s mobile foothold.
Bing is a much smaller piece of Microsoft’s business than search is for Google or Yahoo. Its desktop market share continues to increase, up from 19.7% to 21.1% (2014 to 2015). Bing’s financials aren’t often discussed other than the mention in October of 2015 that it had finally reached profitability. As the third largest publicly traded company (Microsoft’s market cap up 28% in the past year), it’s clear that Redmond is well positioned to invest in the industry’s second largest platform, even if it keeps such discussions to a minimum.
The past year has been a roller coaster for two of the three search engines. Google has rocketed in value and nearly passed Apple for overall market supremacy. Despite the fact that Yahoo made a significant investment in becoming Firefox’s default search engine, its core business is under duress; downsizing significantly, shedding offices and employees. This may ultimately prove to be just a last-gasp effort to achieve search relevance, something that seems less and less likely with each passing day.