Yahoo’s Revenue in bottom half of forecast

September 27, 2006

Yahoo’s Q3 revenue is going to be in the bottom half of the forecast range. Yahoo has attributed this to a drop in online advertising revenue from its automotive and financial services clients.
Does this mean a slowing of growth for the online advertising as a whole? I don’t think so. As the WSJ (subscription reqd) notes, a confluence of factors may have made Yahoo more vulnerable than its competitors to the slowing growth of ad revenue from the auto and financial industries.
It is interesting to note that the slowdown was largely in the dispay ad areas. Yahoo’s Search advertising is growing at expected levels. This suggests that US auto makers (think GM) who have been having financial difficulties may have cut down on branded advertising. These ads are generally more expensive and it is harder to pin-down the ROI from these ads.
Another factors may be the delay in the release of Yahoo’s new ad platform. The market thought so too and amply demonstrated its displeasure by hammering Yahoo’s stock by more than 22% last month. Yahoo’s existing ad platform is incredibly difficult to use, especially when contrasted against Google Adwords. I expect that Google and its online ad revenues will continue to grow at expected levels.
What Yahoo has going for it is its strong presence in content. Yahoo properties like deli.cio.us, Yahoo finance, photos and others have tremendous amount of traffic. With a more effective ad platform (due for release in early Q4), online advertisers will be able to leverage this audience better.
Google, while having a strong presence in search, lags behind on the content respect. Google Finance, Video and gmail have gained significant traction, but do not have #1 position in most areas.

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