Plunging ad prices underscore doubts over Yahoo turnaround plan; “This is just the beginning of the trend, of the drop in the price per ad.”

July 18, 2013 Leave a comment

Plunging ad prices underscore doubts over Yahoo turnaround plan

Tue, Jul 16 2013

By Alexei Oreskovic

SAN FRANCISCO (Reuters) – Marissa Mayer’s plan to resuscitate Yahoo seems a simple one: get back the eyeballs, sell more ads and charge higher prices. But the chief executive’s plan seems to have run into a major snag. The price the company charges per ad slid 12 percent in the April to June period, six times the decline just a quarter ago – a fall that some say highlights how Yahoo has been caught unprepared for the industry shift to automated, programmatic ad buying. Marketers increasingly prefer to buy online advertising space through automated exchanges, where prices are significantly lower, rather than paying top-dollar for premium ads sold by a Web publisher’s salesforce. Ads offered by exchanges also allow marketers to aim ads in real time at specific audiences, such as by gender or age.Yahoo’s ad focus has, however, centered on “on developing media units that were much better for premium buys,” said Shar VanBoskirk, an analyst with industry research firm Forrester Research.

Yahoo has its own programmatic ad technology with its Right Media exchange. But analysts say the exchange is not as popular as rival offerings, such as Google’s DoubleClick exchange, which is considered the industry standard.

Google, the world’s No.1 Web search engine, will report its second-quarter earnings on Thursday.

For many on Wall Street, the industry shift is one more reason means Yahoo’s turnaround remains “an open question”, especially given that Mayer has said the company remains first and foremost an advertising company.

During Tuesday’s post-earnings conference call with analysts, Mayer said Yahoo was bullish on its advertising technology and that it planned to focus on improving various aspects of it in the coming quarters.

But even if Yahoo’s ad exchange becomes more competitive, the broader trend of programmatic advertising will continue to pressure its business.

“Programmatic advertising technology continues to have a downward bias to pricing in display advertising and I don’t expect that to improve anytime soon,” said UBS analyst Eric Sheridan.

ONE YEAR MARK

Mayer took the reins at Yahoo in July 2012 after a tumultuous period in which the company churned through several CEOs and many of its top executives and engineers jumped ship.

She has revamped key products such as mail and the Yahoo home page and jumpstarted acquisitions. Last month, Yahoo closed its $1.1 billion acquisition of popular blogging service Tumblr.

Yahoo’s stock has surged roughly 70 percent since Mayer took the helm but much of the gain has come from stock buybacks and from Yahoo’s Asian assets, including a 24 percent stake in Chinese e-commerce giant and potential IPO debutante Alibaba Group.

Ad numbers, however, remain dismal. Apart from pricing, display ad volumes and paid-clicks for search ads – an important measure of viewers and readers’ responsiveness to marketing – continue to shrink.

Yahoo’s share of the $17 billion U.S. display ad market is expected to decline to 7.9 percent in 2013, down from a 9.2 percent share last year, while Google’s share is expected to grow to 17.6 percent. Facebook is likely to expand its market share to 16.5 percent, research house eMarketer estimates.

“This core business is going to be ugly for quite some time before it gets better,” BGC analyst Colin Gillis said of Yahoo.

“This is just the beginning of the trend, of the drop in the price per ad. You still have a pretty big gap between what you can get direct and what you can get selling on an exchange.”

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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