A declining advertising market means Yahoo! will now focus on business services for revenue growth.
Last Wednesday’s earnings report was not good for leading web portal Yahoo! – its earnings only just met analysts predictions. Worse, the company will face lower revenues and profits than expected for the coming year, due to the global economic slowdown. Its Q4 profit of $80.2 million on sales of $310.8 million met the consensus profit estimate but missed sales expectations. The company now expects sales of only $1.2-1.3 billion in fiscal 2001, below previous estimates of $1.42 billion.
Over the next few years, the Internet as a medium will become hugely valuable to marketers and businesses worldwide, gaining a larger share of overall advertising dollars. At the same time, advertising spending will consolidate among the largest portals. Yahoo! is maintaining its market share among users – it averaged more than 900 million page views a day in December, comfortably above the 865 million previously expected, so it is in a good position to build its share of spending. However, many companies have scaled back their marketing budgets already and if the US economic slowdown continues, this will get worse. Yahoo! looks set to gain a larger share of a declining market.
However, to build revenues further, Yahoo! must move away from its reliance on online advertising, turning its customer companies into business partners to acquire secure revenue streams outside advertising. Yahoo! plans to expand its B2B operations substantially, in the form of corporate business portals – it should be able to build on the one million corporate desktops already signed up for portals based on its platform. Corporate webcasting is expected to become the largest single revenue source within Yahoo!’s services business this year; the company also aims to enhance its marketing consultancy offerings to drive its services segment further. Overall, Yahoo! aims to increase services as a percentage of total revenues to 15-20%, which represents a doubling of its current non-advertising revenues.
Yahoo! has the flexibility, the scale and the management to achieve this target. However, the company will have to tread very carefully given the current economic conditions.
