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TheStreet Open House

How Video Can Propel Yahoo!'s Growth

Stocks in this article: YHOO AMZN NFLX GOOG

NEW YORK (TheStreet) -- Yahoo! (YHOO - Get Report) can seriously grow its video views by more than double in the coming months thanks to two major developments: four original Web series and a major acquisition.

The company has recently released its quarterly results, in which it managed to increase its search as well as struggling display revenue. Earnings were also better than market expectations.

Since the earnings release, Yahoo!'s shares are up 3% although, at around $34 now, they are down 15% for the year to date.

Interestingly, this improvement comes just a couple of months after Henrique De Castro, Yahoo!'s former COO and sales chief, left the company after he failed to increase ad sales.

Yahoo! is now reportedly working on four high-quality Web series and is in talks to acquire News Distribution Network, or NDN, one of the biggest players in online videos. I believe Yahoo! could spend roughly $340 million on the Web series and acquisition.

Through these efforts, Yahoo! could easily post triple-digit growth in its monthly video views. Consequently, the relatively higher-priced video ads can increase Yahoo!'s display revenue.

Although Yahoo! has not confirmed its Web series or its acquisition plans, investors should watch out for the NewFronts event starting from Monday. Rumors abound that Yahoo! will use this opportunity to give a taste of its original video offerings to advertisers.

During the previous quarter Yahoo!'s revenue, excluding traffic acquisition costs (TAC) increased by 1.2% from the same quarter last year to $1.09 billion. The company's net earnings dropped 20.2% to $311.58 million, or 29 cents per share. Adjusted earnings came in at 38 cents per share, flat from last year. The results were better than market earnings expectations of 37 cents per share from revenue of $1.08 billion, according to data compiled by Thomson Reuters.

Display revenue, excluding TAC, increased by 2% to $408.86 million. This was encouraging as Yahoo! has not reported any growth in first-quarter display revenue since 2011. Although price per ad declined by 5% from last year, the number of ads sold rose 7%.

Search revenue increased by 9% from the same quarter last year to $444.77 million. Paid clicks climbed 6% while price per click increased by 8%. This was the ninth consecutive time that the company reported year-over-year growth in search revenue.

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