Wednesday, January 18, 2006

Yahoo takes a tumble

Last night Yahoo announced that they had missed analyst forecasts in Q4 2005 and their shares immediately tanked. For it seems Yahoo's battle with Google is getting expensive.

Yahoo revealed that since last Autumn they have been spending more in an effort to meet revenue targets, eating into their profits in the latest quarter and their earnings forecasts for the rest of 2006.

Yahoo outlined higher spending plans in an attempt to keep up with Google and prepare for the next wave of growth outside the US. Building new data centres and other facilities to house the internet company's growing staff.

It also looks like they need to improve their search based and text advertising as Google ads apparently have double the click through rates of Yahoo's. And Yahoo can't rely on their banner ads too much, as Google etc will soon take them on here.

Interesting that Yahoo stumbles as MySpace, the hottest and latest portal keeps flying. And Yahoo have made social networking a key pillar of their strategy going forwards. Maybe they should have bought MySpace??

Investing to grow internationally makes a lot of sense. For their US user numbers are levelling off. Google will no doubt be firing on multiple cylinders abroad as well.

I guess the real challenge for Yahoo is deciding how much of a destination site they really want to be. And as they pile into TV and mobile phones, you have to wonder whether they should start generating more of their own content to differentiate further from Google and improve margins.

To be the internets portal of choice for third party and original content as well as user generated content, now that would be a powerful position to hold. But it would cost investors end Yahoo even more in the short term.

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