Buy AOL? A More Likely Scenario for Yahoo’s Mayer Is a Big Local Search Acquisition to Spur Growth.
Would Yahoo buy Foursquare? Or YP.com? Or perhaps, finally, Yelp?
It could happen, given that local search has become a renewed area of focus at the company, according to a number of insiders I have talked to in recent days at the Silicon Valley Internet giant.
In the wake of the firing of COO Henrique De Castro, while poking here and there on other tasty stories — hello there, Kathy Savitt! — I was surprised to keep hearing that the category might be getting renewed focus in 2014, as CEO Marissa Mayer looks for ways to deliver on what will be increasing pressure to improve Yahoo’s ever-declining revenue performance.
And while the most recent rumor du jour had Yahoo eyeing a giant content purchase such as AOL — hello there, Eric Jackson! — if a bigger acquisition is afoot, local and search considerations make more sense on a lot of levels.
That’s true whether it is straight-up M&A — much harder — or just deep partnership deals — the more likely scenario for most, since Google’s overall power and dominance in this space creates an opportunity for Yahoo to develop relationships.
Given Mayer’s last job at Google was as the company’s vice president of local, maps and location services, it’s certainly an area she knows well.
That said, right after she got to Yahoo in 2012, Mayer did note in a quarterly results call that local would not be her initial focus:
“I really do love [local], but it requires a deep investment, a lot of energy and time to build terrific listings. We already have some products in this area. They’re good at the moment, but it’s hard to take that next step. We don’t expect to make changes in the short term. It’s not an area where we’re going to make significant investments right now.”
But that might have changed, as she has veered from bulking up its mobile efforts by buying every small startup around to making flashy content deals.
While generating a jazz-hands momentum of a sort, neither has immediately solved the nagging revenue issue that will come into sharp relief today when Yahoo reports its fourth-quarter results. (No, Tumblr ads are not saving the day, to say the least!)
That’s why Wall Street investors expect the company to show continued declines in advertising revenue, especially in display, even as monetization of mobile still lags. As reported by eMarketer, Yahoo’s market share in digital ads fell from 6.8 percent in 2012 to 5.8 percent in 2013.
Meanwhile, Yahoo’s rivals — including Google and Facebook — continue to grow their revenue in double-digit increases. Because of that, most analysts are pretty clear on what Mayer needs to show in the coming year: Goose growth.
In fact, that was the title of the brief that Youssef Squali of Cantor Fitzgerald put out yesterday ahead of Yahoo’s report: “Muted 4Q Results Likely; ’14 Should Bring Growth Back, Otherwise Honeymoon’s Over!”
It’s certainly been a long one for Mayer, who has been helped by an investment in China’s Alibaba done by a previous administration — hi there, Jerry Yang! — a gift that keeps on giving and giving and giving.
But, as Squali noted: “While 2013 represented a year of right-sizing, investment and acquisition, 2014 should be the year where monetization efforts drive a resumption in top-line growth.”
His sentiment was typical, and the drumbeat will only get louder if Mayer does not layer in some element of revenue growth to the picture.
To many, search, especially local search, is the answer when combined with more robust mobile offerings and content.
In this, a company like YP.com — or Yellowpages.com — would make an interesting acquisition target. The cash generator has 19 million business listings across a range of areas like restaurants and home improvement. And it has recently undergone a massive, mobile-focused redesign under CEO David Krantz.
Noting on its website that it does “more than $350 million in annual advertising revenue attributable to mobile,” YP.com is majority owned by Cerberus Capital Management, a private equity giant that acquired a controlling interest from AT&T in 2012 for $950 million. The telecom giant still owns 47 percent of the company.
Who knows if either AT&T or Cerberus would sell, but tighter integration with Yahoo would also benefit both.
The same is true with Foursquare — long dear to Mayer’s heart when she was at Google — since it is finally showing some promising innovation in figuring out new ad concepts.
The New York-based iconic social location service recently raised $35 million in a Series D round, led by DFJ Growth and the Capital Group’s Smallcap World Fund, giving it a valuation of just over $600 million.
It will be using that money for international growth, after launching four monetization tools in 2013, including its Ads for Small Business product that it is deploying in over 80 countries and its real-time recommendations feature.
In an interview with me in December, CEO and co-founder Dennis Crowley said: “The steps we have taken over the last year have made us able to show investors the opportunities we have with the product.”
Right now, said sources, it would take a large number for Foursquare to be acquired, although — as I noted — there are plenty of other things the pair could do together.
Most intriguing for Yahoo — and most pricey and unlikely — would be picking up the publicly traded Yelp. It’s tried once before, pre-IPO, and Mayer was involved in Google’s attempt to grab it then.
The recommendation company’s stock has soared over the last year, giving it about a $5 billion valuation, despite a basic lack of profits. Yelp is expected to report just over $67 million in the fourth quarter next week, for example, on a net loss of $1.8 million.
Still, it is showing a torrid annual growth rate and it certainly could quickly move to profitability. Most attractive: Local advertising represents close to 80 percent of its revenue, much of which is tied to mobile.
Mobile and revenue growth? While sources at Yelp said it is “highly unlikely” that it would ever sell, you get the picture it could paint for Yahoo, knitting together a lot of the varied and seemingly disorganized moves by Mayer over the last 18 months.
But it might be too late to grab — a recent J.P. Morgan research report said Yelp shares might reach $89 from its current $72.44.
In that case, with any of these companies, Yahoo is more likely to do deep content and advertising partnership deals, which would bring them into its universe more closely.