Why Marissa Mayer’s Yahoo (YHOO) turnaround shows signs of life

Market Realist

Investing in content

Since taking over as Yahoo (YHOO) CEO, Marissa Mayer has adopted several strategies in an attempt to return the company to growth by increasing the popularity of the company’s web properties. These strategies include a redesign of the web portal, a renewed emphasis on mobile sites, an expansion into social media through the $1.1 billion acquisition of Tumblr, and increased investment in creating attractive content. Under her tenure, the stock has more than doubled, from $15 per share to nearly $37 today. Yahoo is part of the First Dow Jones Internet Index ETF (FDN), whose primary objective is to reflect the performance of the Dow Jones Internet Composite Index.

Yahoo has recently exhibited a more intense drive to develop original content that’s more appealing to web surfers. Improving content can make Yahoo’s web properties more attractive to advertisers by bringing more users and keeping them more engaged. In this regard, the company recently announced the signing of well-known TV news anchor Katie Couric to lead Yahoo News, along with previous signings such as Megan Liberman, David Pogue, and Matt Bai. Mayer hopes the investment in content pays off with increased traffic and engagement, saying, “At Yahoo, we are investing in bringing our users the absolute best content and video experiences available.”

Early signs of improvement

Improved audience metrics such as those discussed in Market Realist’s earlier series, Evaluating Marissa Mayer’s Yahoo turnaround, are a necessary foundation for eventual revenue growth. Investors should pay careful attention to how a better and larger audience actually translates to increased growth for Yahoo!’s core business, the sale of display ads. The graph above depicts growth in the number of ad sales for Yahoo, which have been in decline for two years. However, sales have returned to positive for the last two quarters, and although it’s early to draw a concrete conclusion, this may be the beginning of a sustained trend. If the trend continues, Mayer’s Yahoo turnaround will prove successful, as a higher volume of ad sales will produce higher earnings over time.

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