This article originally appeared on Jan. 29, 2014, on RealMoney.com. To read more content like this plus see inside Jim Cramer's multimillion-dollar portfolio for FREE... Click Here
Last night Yahoo! (YHOO) reported its fourth-quarter quarter results and, after being in the CEO hot seat for 18 months, we are still asking Marissa Mayer the same question: Where's the growth?
Revenue for the quarter continued the trend of year-over-year declines we've seen over the last few quarters and both EBITDA and operating income fell year over year. Digging through Yahoo!'s financial highlight slides, we see the company is making progress in growing its paid clicks and the number of ads it has sold. Better volume, but as we know revenue equals volume multiplied by price, and that is where the problem is.
Of all the slides in Yahoo!'s presentation, one of the most glaring is Slide 7 because it shows the negative trend in price-per-click (PPC) and price-per ad (PPA) the company has been dealing with over the last year. It could be that Yahoo! is getting aggressive on pricing to take share or the continued proliferation of online properties that stretching advertising dollars. While Yahoo!'s results reflect more recent pricing pressures, it has been a longer-term trend and has, according to some, resulted in standard banner display ad pricing falling between 30% and 40% over the last several years. Simple math tells us that for every 20% drop in price, volume has to grow 25% just to keep revenue flat.As today's Wall Street Journal points out, we are seeing a number of new online properties being launched, like the high profile Re/Code from Kara Swisher and Walt Mossberg that has the backing of Comcast (CMCSA) and NBCUniversal. Another example can be found from former Washington Post journalist Ezra Klein, who's been tapped by Vox Media to launch a general news site. Those are only two examples, and there are others such as Business Insider, BuzzFeed, and more. Factor in growth initiatives that center on advertising revenue growth from legacy platforms as well as video and mobile for Facebook (FB), the need for Twitter (TWTR), LinkedIn (LNKD), AOL (AOL) and others, and the competition is only going to be fierce for the slice of advertising dollars that are spent online and on mobile. Granted global display advertising across the Web, mobile Internet and apps collectively grew by 32.4% in 2013 -- by far the biggest leap of any media -- but that still worked out to a 4.5% share of the overall spend in ads. And, yes, there will be continued growth in online ad spending this year -- ZenithOptimedia forecasts 15% growth -- but it won't be until 2015 that spending on digital-media ads will surpass the combined total of ad spending on newspapers and magazines ads in 2015. That tells me it Yahoo! won't be the only Internet property to have advertising revenue issues in the coming quarters. The ripple effect, however, will spread well beyond those companies. Magazines such as Forbes, Time, and Newsweek, as well as newspaper operators such as New York Times Co. (NYT), Gannet (GCI) and Washington Post, and properties from McClatchy Co. (MNI) are already struggling with the shift away from to online from a print-subscription model. The upped ante is only going to make a rough road that much worse, and that makes owning newspaper stocks all the more unlikely for me.
At the time of publication, Versace had no positions in the stocks mentioned.
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