Yahoo! Ad Business Could Benefit from Videos

A revival of the ad market along with initiatives taken by Yahoo! such as increased video programming content, has helped its display ad business.
By Trefis ,

By Trefis.com

NEW YORK (

TheStreet

) --

Yahoo!

(YHOO)

, which competes primarily with

Google

(GOOG) - Get Report

and

Microsoft

(MSFT) - Get Report

, recently announced that its display advertising business grew 20% year over year during the first quarter of 2010. We believe that a revival of the ad market along with initiatives taken by Yahoo!, like increased video programming content, has helped its display ad business. We estimate that Yahoo!'s display ad business constitutes about

15% of our $21 Trefis price estimate for Yahoo!'s stock.

Video programming content increases user engagement levels and will help Yahoo! drive higher ad

revenue per page view (RPM).

Yahoo! has indicated that there is strong demand from advertisers for more video content and evidence that video can increase ad views on Yahoo! sites.

There could be an upside of 5% to

Yahoo!'s stock

if the company's display ad RPM is higher than we forecast.

Expected Reversal in Declining Display Ad RPMs

The RPM from display ads for Yahoo! has declined from $1.30 per 1,000 page views in 2006 to less than $1 per 1,000 page views in 2009. However, we believe the RPM will increase to reach around $1.30 per 1,000 page views by the end of Trefis forecast period driven by a combination of an improvement in the ad market and additional video advertising.

Videos Will Help Drive Increase in RPM

Yahoo! is improving the amount and quality of its video content across its different media verticals including sports, news, finance and entertainment. During its most recent earnings call, Yahoo! management discussed how TV viewers are willing to watch 6 to 7 minutes of video ads per month online versus an average of 4 minutes of video ads for a typical site visitor. More videos will help to attract more of the type of visitors that will consume video content as well as more advertising.

Below we highlight two recent Yahoo! developments that are leading to more videos.

1. Yahoo!'s 'Who Knew?' Video Series

Recently, Yahoo! News and Revielle, an independent studio specializing in branded entertainment, partnered to create a video series called

"Who Knew?"

that is sponsored by Toyota. This 90-second daily video series will focus on the little known facts behind high profile news and current events. Yahoo! indicated that it streamed 1 million views of the video on the second day of its launch.

2. Yahoo! Entertainment and Yahoo! Sports have Increased Video Offerings

Yahoo! Entertainment's "Prime Time in no Time" video program has been a great success. This program summarizes the entertainment events of the previous night and has attracted several million viewers on a daily basis. Similarly, Yahoo!! Sports has the popular "Fantasy Football Live" program that previews upcoming sporting events.

5% Upside to Yahoo!'s Stock if Increased Video Programming Content Benefits its RPM

Although we forecast that the RPM will increase to around $1.30 per 1,000 page views, there could be an upside of $1 (5%) to the

$21 Trefis price estimate for Yahoo!'s stock

if its RPM were to increase to $1.70 per 1,000 page views by the end of Trefis forecast period as a result of increased video programming.

You can modify our forecast for RPM

above

to see how Yahoo!'s stock will be impacted if RPM were to increase at a faster rate that what we have forecast.

For additional analysis and forecasts, here is

our complete model for Yahoo!'s stock.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.

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