Today, Yahoo filed a presentation detailing its three-year financial plan that management gave to its board of directors in December, before Microsoft’s unsolicited bid. These rosy projections should be read in the context of that ongoing battle and Yahoo’s attempt to get a better price out of Microsoft. But this presentation also sheds some light on where exactly Yahoo sees its strengths. After going through it, vote what you think Yahoo’s board should do.
Yahoo is projecting revenues after traffic acquisition costs (TAC)—i.e., what it shares with other Websites that run Yahoo ads—to grow from $5.1 billion in 2007 to $8.8 billion in 2010.
How does it plan to grow revenues by 73 percent over that period? Here are some slides from the presentation (which you can find here at the SEC’s EDGAR Website, or just search for Yahoo).
Yahoo argued to its board that it could exceed Wall Street expectations and accelerate revenue-growth to 25 percent in 2009 and 2010 and increase its operating cash flow from $1.9 billion this year to $3.7 billion in 2010:
Notice that for these projections to come true, Yahoo needs to increase its operating cash flow margins to 42 percent from 33 percent. That seems overly optimistic, especially now that the economic outlook is so uncertain.
To justify its projections, Yahoo is counting on better clickthrough rates on its search, display and video ads.
This next slide captures how that strategy has played out over the past couple years, with initiatives and deals categorized as either helping to build Yahoo’s audience or monetize that audience. (Notice the emphasis on Yahoo Buzz, Open Search, and Mobile—these are the things Yahoo is highlighting as growth drivers to its board. With mobile, in particular it feels like it does not get enough credit, and in another slide it notes that it has more than 600 million mobile subscribers have used its OneSearch product):
It sees its big opportunity in display advertising, where the top 10 players still control less than a quarter of the market and there is a lot of room for ad rates to go up:
At the same time, it believes that it can continue to close the gap on its revenue-per-search, which it estimated to be 60 to 70 percent lower than Google’s at the end of 2007 (so it still has along way to go, see comScore data here on comparable clickthrough rates):
Yahoo’s overall strategy boils down to two things: attract an even bigger audience, and sell that audience to advertisers:
Finally, Yahoo is not timid about investing in the future. It wants to nearly double capital expenditures to $1 billion by 2010, with 70 percent of that going to “innovation and production infrastructure” (not that they have much of a choice there. Google’s CapEx in the fourth quarter—$678 million—was more than Yahoo’s for the entire year):
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Sell Now, Before Microsoft Changes Its Mind
- Go It Alone. Yahoo’s Greatest Days Are Ahead of It.
Total Votes: 788
Started: March 18, 2008
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From what i’ve seen so far from yahoo’s display side they can steam roll over google. In the last year they have come from not having a adnetwork that third parties can use to one that pays 5 to 6 times that of google, only problem is they can’t handle tons of volume yet.
Are these reports for us to check out or for MS?
Love those web 1.0 style projections.
Display ads, mobile, and search are certainly important areas for revenue.
Sounds like the same pitch Yahoo has been giving for the *LAST* three years! The only difference is instead of wonder and miracle happening a year from now, they are giving themselves three years.
When is the new leadership team coming in? Soon Please!
This indirectly says that there are no chances for MS to buy Yahoo! for next 3 years
MS can come up with with their revised bid offer after 3 years..!! Yahoo! will again reject it and will show their next 3 years plan..
good graph, but I wonder if Yahoo has the ambition to accomplish it.
It is funny what will happen when someone is trying to buy your business. It is also somewhat comical to see what happens when people know their jobs are on the line and will do anything to keep them.
thanks jerry yang..lol
kelsey
http://www.helpuu.com - google-powered search engine that helps
Well, good luck trying to grow CTR that much.
Even Google is experiencing a downturn in CTR.
Of course, it’s a good way to try to wring a few more $ out of Microsoft, and to help curb the shareholder lawsuits that are already beginning against the Yahoo Board.
someone’s going a bit crazy with the powerpoint graphs today….
The key determinant of the success of yahoo will be its ability to increase the click through rate on its advertisements. To be able to do so yahoo shall have to
1. Understand the customers better i.e know what I am looking for
2. Develop the technology to match advertisement to the context
These 2 are technological challenges and I am pretty sure that yahoo shall manage to get them done now that its survival depends on it.
However there is a third requirement. Having enough advertisement inventory to show up on the page after step 2. That will be toughest problem for yahoo to solve. Even now they have not opened their advertisement network to third party publishers in many countries. Hope they do so soon.
I guess this is a sign the Google upward cycle may have hit its apex. First Google’s announces not so impressive future earnings, and their stock drops.
Now the second coming of Yahoo! If AOL can have several revivals and lives, why can’t the company that created the first search engine with critical mass? As far as MS, make them pay 10 times for the company at a peak… if they really want them. I say look for a better partner with more class like Disney or Universal, one which doesn’t want to just turn off the lights…
are banner ads really the way to get back on the path to dominance? They are getting waxed on search ad revenue and are just looking for suckers to give them $ so they can get .01% ctrs.
I think that Yahoo could be a great company. I do like Microsoft (I know, weird isn’t it?) but I really think that Yahoo should fight off the acquisition. And that probably starts with a new management team.
Over the past 3 years, YHOO revenue growth has been roughly 33% (taken from http://finance.yahoo.com/q/is?s=YHOO&annual). Now, they’re going to more than *double* that growth over the next 3 years, in the current economic climate?
Obviously difficult to predict the future, but banking on higher clickthroughs and the unfettered success of just-recently-announced offerings (Buzz, Open Search) is asking reasonable people to swallow a LOT.
Great goals, but any healthy skepticism cuts these projections dramatically.
Now this is Great
Hmm. If they told their board this, then it MUST be true.
Wait. Actually, Yahoo has had years to get themselves in gear and do something. But all they’ve done is milked a declining asset. I don’t think they have what it takes to get this done anymore.
Yahoo! would certainly need to continue adding more assets… look at EMC, eg., they’ve added quite a bit of assets these days, ie., Mozy, PiCorp, Iomega, etc.. and not to mention their VMWare investments…!!
Revenues are certainly important.. but retaining the hard-earned user base is all the more important, too.. for if you don’t keep them, others will take them.. see Gmail gained all these near 100M users in slightly 3.x years time.
They need to focus on customer service asap.
It is unbelievable after a week emailing them I haven’t received a single reply for a problem I have with their web hosting service.
My site is down, I am losing revenue and they don’t seem to care.
Be careful who you trust your business to.
I believe Yahoo! will do much better in the near future.
I think Yahoo! still attracts major traffic to its sites and that if it focuses on translating that traffic into revenue, they have a good chance of succeeding.
I think the Microsoft threat will serve as an accelerator and that they will simply do more because of it. They now know that they simply do not have a choice in the matter.
The question is not about Yahoo’s potential, it is about its capabilities. I believe Yahoo! is still capable of doing better.
The recent layoffs Yahoo! has undergone will help reduce some of its overhead and will create better revenue, as well.
How can I see the similar filings for Google and Microsoft? I searched for 8-k forms on Edgar website. But, it seems that Google uploaded only their financial information (no presentation / gif files similar to what Yahoo did).
Any ideas?
-Ankur
Wow, that’s presentation from an ex-McKinsey consultant if I’ve ever seen one.
Good for YOU! Forget Microsoft!
i don’t think the graph work for yahoo because yahoo don’t have any improvement in their ad network at all. they can only achieve the revenue using stock but not ad!
Apparently Jerry and crew have been hanging out at the medical marijuana places around the bay…
Yahoo! is a great company and the plan is optimistic. Growth in search is possible, but mobile advertising in North America has gone nowhere to date. On the flip-side, that can only mean that mobile in the US *can* go somewhere.
I would like this graph and info