Is Yahoo A Good Pick For Long-Term Investors?

10/23/13 12:29PM EST

Is Yahoo A Good Pick For Long Term Investors Is Yahoo A Good Pick For Long Term Investors?

Image via Flickr/ Ferran Rodenas

Yahoo’s (NASDAQ: YHOO) main agenda over the past several years has been to reverse its fortunes and reassert its dominance. Marissa Mayer, who stepped in as CEO last year, has not only been vocal about this, but has gone to great lengths to revive growth. Data released by comScore indicates that for the month of September, Yahoo! Inc. (NASDAQ:YHOO) received more American visitors than its peer, Google (NASDAQ: GOOG). Yahoo! had 197.8 million unique visitors during the month, while Google had 191.4 million. This paints a familiar picture considering Yahoo! toppled Google in August and July too.

What is Yahoo!’s secret to great traffic?

Unlike Google Inc. (NASDAQ:GOOG), which mainly relies on user generated content, Yahoo! Inc. (NASDAQ:YAHOO) has in-house content creation and in cases where it outsources content, sets high quality checks for its suppliers; for instance on Yahoo! Finance. Because of this, more users find Yahoo! to be more authoritative and emphatic on quality. Indeed, Yahoo’s recent move to hire renowned tech columnist David Pogue is a testament to its commitment to quality. Pogue, who has been with the New York Times for the past thirteen years, not only brings experience, but is also a great authority in the tech space. This well calculated hire, which CEO Mayer also commented about on Tumblr, indicates that Yahoo wants to reassure its users that it prioritizes authoritativeness.

Looking at Yahoo’s acquisitions, it has taken an undisguised slant toward mobile. Not only that, but it has shut down most of the companies it acquired and aligned their employees with the underlying strategy. The only exception is Tumblr, which is supposed to nest the younger demographic and act as a conduit once its youthful users gain more interest in authoritative content.

Even with Yahoo’s acquisition strategy, and not to mention impressive traffic, Google still takes the lion’s share of digital ad spending. According to research firm eMarketer, Google will receive $38.83 billion in ad revenue this year, followed by Facebook’s (NASDAQ: FB) $5.89 billion and Yahoo!’s $3.63 billion.

How will Yahoo gnaw into Google’s share?

When the time comes, Yahoo will use its expansive user base as leverage. Content curation, which is the process of combing through immense amounts of information and sorting it into meaningful themes, is the next big stage as far as the Internet goes. Curation, quality, and authoritativeness are the secrets to winning the race to delivering a personalized web.

Both Google and Yahoo are doing in-house curation. However, Yahoo has an edge considering that it not only has a huge team of software experts (from its acquisitions) who can step up curation, but it also presents more authoritative content. This mix of variables sets Yahoo! ahead as far as achieving web personalization goes. This will allow Yahoo to serve up ads that are not merely linked to your activity on the web, but rather present a service. It goes without saying that Yahoo will charge a premium to advertisers for such ingenuity. If it charges a premium, it won’t need overwhelming sales volumes, but rather a section of dedicated advertisers who see the value in its service.

Conclusion

In its past third quarter earnings report, Yahoo’s posted sales of $1.08 billion, dropping 1% year-on-year. EPS also fell 3% year-on-year to $0.34 a share. Despite the relatively flat earnings, there is still immense positive investor sentiment toward Yahoo as signaled by its share price of $33.27, which is still intimately close to its 52 week high of $35.06, having risen from $16.48 a year ago.

Yahoo is a good long-term play for an investor who understands its business model and more importantly, the great potential it has.

Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.

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