Yahoo slowly turning ad revenue ship around

Though its share of ad revenue will decline in 2013, Yahoo is moving to compete in the coming years

Ever since Marisa Mayer became the head honcho at Yahoo, the once-troubled-and-wayward Internet giant seems to have been slowly making progress. Just look at the price. At the time Mayer was announced CEO, the stock traded around $15. Now it's nearing $24, up 60%.

Part of that enthusiasm has to do with the direction Mayer is taking the company. Apparently, her decisions so far have analysts and research firms betting Mayer can revive Yahoo's once declining advertising revenue. 

Yahoo ad revenue in the United States is projected to grow 3.2% to $3.18 billion this year, according to a new report from eMarketer released Friday. It's a slight improvement over eMarketer's projection of 2.2% for this year.

So why is 3% something we should care about? It's not exactly hyper-growth compared to Facebook, whose advertising revenue for 2013 is expected to grow by 30% in 2013, and Yelp, whose local advertising revenue is expected to jump 68% according to JP Morgan analyst Doug Anmuth.

It's also faster growth than Yahoo's total revenue, which is the company is estimating will grow less than a percent to $4.5 billion to $4.6 billion from $4.468 billion last year.  

Turns out Yahoo hasn't really seen ad revenue growth in years. Looking back, Yahoo's ad revenue in the United States had seen two years of big declines, 5.2% in 2010 and 8.4% in 2011, according to data supplied by eMarketer. The company finally saw its ad revenue in the United States grow 3.2% in 2012, and it is expected to continue to grow for the next three years.

So while 3% growth does not seem like much, it is a sign that Yahoo might finally be turning the ship around, albiet slowly.

"The revised figures come after Yahoo!’s search revenues came in far higher than expected in Q4—a sign that management restructuring and investment may continue to propel search revenues higher than previously estimated," wrote eMarketer.

Yahoo's ad revenue from its search business in the United State is expected to grow by 7%, to $1.23 billion from $1.15 billion last year, higher than eMarketer's last projection of $1.16 billion.

Search advertising includes contextual text links, paid inclusion, paid listings/search and SEO.

While search revenue is going up, eMarketer revised its projections for display advertising down slightly, "to reflect lower inventory levels and short-term revenue losses" from  "the company's restructuring efforts and cuts to various product groups."

Earlier this month, Yahoo announced that it was closing seven projects to become more focused: Yahoo Avatars, Yahoo app for Blackberry, Yahoo Clues, Yahoo App Search, Yahoo Sports IQ, Yahoo Message Boards website and Yahoo Updates API.

In the long run, though, these changes should benefit Yahoo, according to eMarketer, which expects that "as the company removes clutter and increases prices with higher-quality inventory," ad revenue should improve.

Display advertising includes banner ads, rich media, sponsorships and video.

Search share shrinking

Even though both search and display revenue are expected to go rise this year, Yahoo is expected to lose its market share of the dollars going into search advertising, while Google, Facebook and Microsoft gain. 

For search dollars, Yahoo's share is expected to drop to 6.2% from 6.5% in 2012. By 2015, its share of of search ad revenue is expected to dip below 6%.

Similarly, Yahoo has made a similar projection for display advertising, which it expects to fall to 7.7% this year from 9%, and will be down to a 6.1% share in 2015.

This an even more devastating drop for Yahoo given that it accounted for 18.4% of all US display ad revenues in 2008. Since then, it has been surpassed by Google's success in video and Facebook's success in mobile.

Google's success in display advertising is attributed to YouTube, which recently reached the one billion monthly viewers club, joining Yahoo's other big rival for display advertising: Facebook, which eMarketer says will gain due to its shift to mobile and the success of its newsfeed ads.

The Marissa Mayer effect?

Yahoo CEO Marissa Mayer has to get some of the credit for turning the company around. Since taking over the job in June 2012, she has been vocal about taking the company forward, updating some of its old standbys and getting rid of dead weight.

The company's current strategy is to make the move to mobile and it has done this by buying a series of companies  Stamped, the Justin Bieber-backed mobile app that lets users “stamp” and share their favorite restaurants and OnTheAir, a video chat service that can be used for casual hangouts or to organize largish webinars. It also purchased location discovery app Alike and it acqu-hired the team at personalized recommendation service Jybe, giving the company both a location service, and now a team with knowledge in personalized recommendations.

Most recently Yahoo bought mobile news summarizer Summly.

 The company might also be getting into the video business, reportedly looking to buy a 75% stake in user-generated video website Dailymotion. 

In December, Yahoo updated its Flickr app with high resolution filters that users can apply after they have taken the photo/ Additionally, the new Flickr app lets them share the photos on Facebook, Twitter, Tumblr, and email. They can also upload multiple photos from their camera roll to the Flickr site and tag people and add locations from Foursquare.

If Yahoo can successfuly challenge Google on video and Facebook in mobile, it has a good shot of getting its share of ad revenue back.

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