Can Yahoo take on Google?

Yahoo's profits fall 93% as it scrambles to take market share in search from Google.

by Adam Gale
Last Updated: 25 Apr 2016

From the days of the dot com bubble onwards, the tech sector has tended to lean in favour of revenue growth over cold, hard profits. Yahoo had been something of an exception in recent years, but it appears no longer. As revenues rose 8% to $1.2bn (£800m), profits collapsed. The firm made $21m in the three months to March 31st, down 93% from last year from $312m. Ouch.

The top line rise and bottom line fall were at least in part deliberate. Yahoo recently made a deal with Mozilla to make Yahoo the default search engine on its Firefox browser, which boosted Yahoo's market share to over 10% and contributed to a 20% rise in search revenues, but it didn't come for free. 

Yahoo boss Marissa Mayer has said the firm is ‘in the midst of a multi-year transformation’. In part, that means a move towards industry growth areas – advertising on mobiles and on its blogging site Tumblr, as well as video and native ads. Increasingly, however, that also seems to mean taking on Google in the search game.

When asked by an analyst where she saw Yahoo’s revenues coming from over the next few years, Mayer said she wanted it to be ‘the indispensable guide to digital information, yours and the world’s’. Not exactly what investors probably want to hear, but more to the point a direct challenge to the supremacy of Google.

Does Yahoo have a shot? No, is the quick answer. Google’s revenues last year were $66bn, 15 times higher than Yahoo’s. Despite Yahoo’s alliance with Mozilla and its older deal with Microsoft to share advertising on its search engine Bing, Google still has 79% of the US search market, 92% of Europe’s and – just for good measure – 97% of India’s.

To make matters worse, Google is even stronger in the growing field of mobile advertising, which some argue is the direct result of the dominance of its Android operating system. Successfully challenging Google seems all but impossible, unless of course the EU decides to break it up in its biggest market.

This doesn’t mean Yahoo can’t do well, of course. Several key areas of its businesses are growing rapidly - mobile advertising revenues for instance were up 61% on last year, now representing a fifth of total revenues, while Tumblr now brings in $100m (up from $13m in 2012).

Yahoo doesn’t, however, look like it’s a company on the up. It’s closed its offices in China as it retreats from that market to cut costs, and has announced it’s going to sell its $32bn stake in Alibaba at some point later this year. Mayer also hinted that its approximately $9bn share in Yahoo Japan could be sold as well.

These assets are worth more combined than Yahoo’s own market capitalisation, so whatever happens the company is going to get smaller before it gets bigger.

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