Company Analysis of Yahoo I

Company Analysis of Yahoo

I have chosen Yahoo! because I think that this company should be taken as an example by all young business people out there who are in need of a model for their organization. Yahoo's example is very strong not only because it is the number one Internet-company and it has firmly established itself in the conscience of the consumers, but also because it has never changed its initial concept, because it's growth was based on the original idea, and because the impression that Yahoo! Has left on me is that it is a fresh young company, lead (at least in the beginning) by creative enthusiastic people for whom money was not that important and who tried to present to the world a whole new way to view the Web and the Internet. The result of their ambitious work is the new concept of World Wide Web, which has now entered in the collective conscience of all those who know how to use a computer. I, as a web surfer, have practically grown along with Yahoo! And I don't remember it ever disappointing me.

Therefore, I believe that analyzing Yahoo's history and evolution will make me better understand how this revolutionary concept has grown to be the business that it is today, to understand its current development strategies and to predict, as much as it is possible, its evolution.

A hoped that I could find inspiration in the idea of Yahoo's creators, and indeed I found it. Although there is a lot of patience required, I believe that by having faith in one's principles, by respecting professional ethics and by sticking to the values that made the company move forward in the first place, a very interesting business may be developed, not only from the shareholders' point-of-view, but also from a normal consumer's perspective.

As I have mentioned in the beginning, I am a fan of Yahoo! And that may have influenced my approach. However, it is clear for everyone to see that Yahoo! is, beyond any malicious comment, a very attractive company, from all points-of-view, including the pure scholastic one.

Yahoo! was created in January 1994 under the name of "Jerry and David's Guide to the World Wide Web," by two young enthusiasts, Jerry Yang and David FiIo. FiIo and Yang were back then Stanford Ph.D. students and began experimenting with the future Yahoo! As a hobby.

The company's incorporation was done in March 1995. Thirteen months later, the company went public, and was traded on Nasdaq under the ticker YHOO. The first shares were sold at opening at $13 per share and at closing at $33. Then, the first real breakthrough and the moment Yahoo! started to establish itself in the memory of the people was in May 1996, when the first "Do you Yahoo?" TV commercial was aired.

The following years brought with them the company's growth, at a more and more faster pace. The firs common stock split (3 for 2) was announced in July 1997. This split was followed by three others, in July 1998 (2 for 1), January 1999 (2 for 1) and January 2000 (2 for 1). Let's say that someone bought a hundred shares in April 1996. The shares' cost at the time was $1,300. That person would now own 400 shares in value of more than $55,000.

Growth brought new management. Tim Koogle was appointed chairman and CEO and Jeff Mallett president and COO at the beginning of 1999. Then, in April 2000 Terry Semel replaced Koogle. In the mean time, Yahoo! was added to the S&P 500. The New Yahoo search was introduced in April 2003 and the company was expanding itself all over the world - Japan or India among the destination countries. Kelkoo SA, Paris, a European comparison-shopping Web service was acquired by Yahoo! during the spring of 2004, which strengthened the company's position on the European market. In more recent times, Yahoo! is struggling to maintain its supremacy over arch-rival Google, which is proving a very difficult task.

Regarding Yahoo's current financial situation and comparison with similar company's in the industry, it is worth mentioning that Yahoo's third-quarter earnings more than tripled. A large contribution to that fact was the recent sale of Google share (a quarter of the total amount in Yahoo's portfolio, which resulted in a gain of $129 million. Yahoo has stated that it still owns Google shares in amount of over $1 billion. Yahoo recorded $65.3 million in the third quarter last year, and the profit figure of $124 million this year is nearly two times that much.

Revenue minus fees owed to its advertising partners was expected at $644.7 million. Instead, it reached $655.4 million, up from $356.8 million last year. The company's marketing services segment went up 212%, as a result of the acquisition a year ago of search advertising company Overture Services. As for paid subscribers, Yahoo! recorded more than any other web-based service: 7.6 million paid subscribers. Fourth-quarter revenue is expected to go up from the current estimation of $710 million to an optimistic $760 million.

Yahoo's current Chief Financial Officer, Susan Decker talks in an article about Yahoo's business environment. She argues that it became very tough just after she had joined the company, in 2000, and that there were a lot of unfortunate measures that they were obligated to take, such as downsizing. A consequence is that a company suffering that kind of transformation needs transitional people. By "transitional people" Decker means that type of person who "wants to build on something already started," as the initial Yahoo! team was composed by people attracted to initial growth stage.

As for the environment Yahoo! is conducting its business in, Deutsche Bank analyst Alex Brown said that "Yahoo has assets and the technology to diversify nicely, but it faces an industry environment where it spending is no longer robust.." Although Yahoo is facing difficult challenges, posed by the slowdown in it spending, which severely disrupts its efforts, the company has to go forward. The dot-com bubble exploded a few years ago (revenue declined by 35% in 2001 to $717.4 million, from $1.11 billion in 2000), a fact that, corroborated with an important drop in online advertising, delivered a heavy blow to Yahoo's development.

Competition is also an important factor. Other companies, which are also facing this hostile environment, are constantly presenting new technologies and implementations thereof, and diversification and realignment are usual things. Northern Light and Excite haven't managed to face these conditions. However, Google is on the rise. The most important of Yahoo's competitors was lately in the attention of business reporters world-wide as it has become a publicly traded company. The launch of Gmail, with expected 2GB of storage is very close, which has further deepened the problems of Yahoo! However, Yahoo's email storage capacity was heavily increased, new services - ranging from traditional web based it applications to financial and shopping services are making there presence felt on the market and manager Semel's drastic measures taken a few years ago have produced the desired effects. Yahoo! has important advantages and it will be an interesting fight to watch, at least from a consumer's point-of-view.

As I have mentioned earlier, investing in Yahoo! has been a very profitable business. Even without considering the initial stockholders, Yahoo has experienced a constant rise during the past years. The initial concept has proved very durable and growth - in all directions - was a normal thing for Yahoo! The company's financial data (available on Yahoo! Financials - where else?) is a reminder of the organizations ascending trend. It is worth noticing that, unlike the majority of dot-com companies, Yahoo! has not disappeared during the crisis. It has not only survived but also managed to keep its position as market leader.

Investors are facing now a difficult decision. Although Yahoo's profits are on the rise, I believe it would be safer to wait and see the outcome of the Yahoo-Google contest and the general evolution of the market. After all, Yahoo! is very consumer oriented. The recent rise of the oil price might lead to a general decrease of the consumption level, which would bring many retailers to the ground. Yahoo! is going to do much better. Its growth may easily be associated with one of the best periods (from an economic point-of-view), in America's and the world's history. All that might change. Therefore, caution is advisable.

Yahoo's relationship to customers was always good. Although I didn't have access to study regarding that particular subject, I have conducted a research on my own and asked all my friends what was their opinion on Yahoo. Everyone was completely satisfied. However, Yahoo! had its fair share of trouble, relating for instance to allegations of protecting racist and nazi groups and to withholding information, under the pretext of confidentiality, which might have helped in the endeavor to bring those people to justice. This issue is obviously controversial.

As for other industry members, as detailed above, Yahoo! holds an important stake in Google and is constantly acquiring new companies - especially from the multimedia sector - to improve the composition of its portfolio.

Yahoo is definitely facing difficult challenges in the near future. Consumption is probably going down, but that is not something that will only affect Yahoo! The competition will also be seriously shaken. Another aspect that the firm's managers should consider is the more personalized approach proposed by Google. The G-mail service will be tailored to fit the desires of each and every user. The needs of each person, as manifested in the search conducted with Google's search engine, shall be reflected in the way the email account of that particular person is handled.