Why Yahoo still struggles in the display advertising business

Puneet Sikka
July 21, 2014

Why did Yahoo's 2Q earnings disappoint? (Part 3 of 8)

(Continued from Part 2)

Yahoo’s display advertising business continues to decline

In the previous part of the series, we discussed how Alibaba’s decision to reduce the number of shares that Yahoo (YHOO) is required to sell at the initial public offering (or IPO) is good news for investors. However, Yahoo’s core business is digital advertising, which by Yahoo’s own admission hasn’t been doing well. Yahoo’s display ad business suffered from a 7% year-over-year (or YoY) revenue decline in the second quarter. Yahoo achieved a 24% YoY increase in the number of ads sold in the second quarter, but the pricing of the ads declined by 24%. In the first quarter, the pricing of ads fell only by 5%. As a result, a 24% decline is a worrying factor for Yahoo investors.

Yahoo is way behind in the U.S. digital display ad market

According to a report from eMarketer and as the previous chart shows, Yahoo’s U.S. digital display ad market revenue growth is only expected to be 2% this year. This is the worst growth rate among other Internet players such as Twitter (TWTR) and Facebook (FB). Amazon (or AMZN), Google (GOOGL), and LinkedIn (LNKD) are some of the other players that could show a much faster growth rate than Yahoo.

Yahoo’s Digital Magazines driving its display ad inventory growth

As discussed above, Yahoo achieved a 24% YoY increase in the number of ads sold in the second quarter. According to Yahoo, Digital Magazines are the one of the driving factors behind its display ad inventory growth. During the second quarter, Yahoo launched three digital magazines—Yahoo! Movies, Yahoo! Travel, and Yahoo! Beauty. Recently, it also launched Yahoo! Health. Yahoo also integrated Tumblr into its digital magazines, which Yahoo acquired for $1.1 billion last year. Tumblr is a social networking site that brands use to create and share content.

Continue to Part 4

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