Will News Make Investors Say "Yahoo!"?

At CES 2014, keynote speaker and Yahoo! CEO, Marissa Mayer, spoke about how Yahoo! News Service will try to make news reporting smartphone and tablet-friendly. Yet, with Twitter hot off a successful IPO launch, and Google's built-in advantage of customized news aggregating via Android, how much room does Yahoo! have to maneuver?

Feb 4, 2014 at 9:00PM

One of the biggest tech stories of 2013 was the appointment of Marissa Mayer as CEO of Yahoo! (NASDAQ:YHOO), the web search giant that has spent years in the doldrums while competitors Google (NASDAQ:GOOGL) and Twitter (NYSE:TWTR) blew by. After some bumps along the way, investors now seem to be supporting Yahoo!, which is up 35% since August. As a sign of Yahoo!'s new-found success, Mayer was recently tapped to be the keynote speaker at the Consumer Electronics  Expo in January, one of the most important events for tech companies in the U.S. In a star-studded affair that included appearances by Saturday Night Live's Cecily Strong and Kenan Thompson, as well as broadcaster Katie Couric, Mayer sought to promote Yahoo!'s recent success and its ambitions plans for 2014.

TMI, but not enough understanding
Mayer's opening statements centered on the growing smartphone market and envisioning Yahoo!'s place in the mix. Smartphone usage has increased by 27% year-over-year, , and there will likely be approximately 3.8 billion Internet-connected devices by 2017 . Connectivity will allow more people access to news, weather, sports, and social media like never before (i.e. what Yahoo! "has always been," according to Mayer).

Yet, with Google owning a huge chunk of the smartphone market via Android, and the massive app market that comes with it, Yahoo! may appear to be on the outside looking in. Mayer's goal to change that would be through Yahoo!'s news division, one of the company's main sources of web traffic as well as a main draw for the plugged-in masses. Here, Katie Couric was on hand to announce Yahoo! News Digest, a way to combat a problem of "too much information, but not enough understanding" regarding news. Rather than just a headline and a couple of sentences (which may have been a dig on Twitter's news feed), Yahoo! will provide brief updates on news that matters most to the user, and an organized layout that ensures main news headlines rise to the top, flushed out in enough detail to keep readers sufficiently informed.

Threading the news needle
The new layout will be smartphone and tablet-accessible, and may compete with Google News for ad revenue via a new targeting advertising strategy that maximizes ad views for sponsors without inconveniencing readers. The new ad strategy is intended to increase "engaged" viewers who would be more likely to buy advertised products on sites like Tumblr. However, on Android, this will have to compete with Google's existing software, which already connects to a user's Google+ account and provides personalized news and information based on social media activity.

The consumer base for those who just want quick, brief updates is also represented by companies like Twitter, which revolutionized the concept of filtering out trending topics for 140-character news bites. Mayer seems to understand the challenges faced by Yahoo!'s news service, and that there is a market for the middle ground between long articles and short blurbs. Yahoo!'s 2014 success will hinge on getting that balance right and reaping monetary benefits from it.

Dismal 4Q report shows Yahoo needs to stand out
As big as the CES presentation was, and despite the ambition Mayer showed, it was undermined by Yahoo!'s poor Q4 earnings report, released soon after CES. According to company reports, Yahoo!'s revenue lost 2% year over year, and EBITDA declined by 6% over the same period, despite an 8% increase in search revenue. Moreover, Yahoo! showed an increase in paid clicks, but a 3% decrease in price-per-paid-click, owing to a decline in ad revenue. 

These results heighten the need for Yahoo! to pursue ventures that take the fight to the competition, and in the process, increase ad revenue by making Yahoo! a more attractive place for news and information. It helps that the release of the new news service and reformed method of targeted advertising on Yahoo!-owned sites got a high profile stage, but Yahoo! needs to prove that it can put its money where its mouth is, something that the company wasn't able to do with this latest earnings report.

The bottom line
Yahoo! may have had a great 2013, and investors are surely hoping the momentum carries into 2014, but it isn't a guaranteed slam dunk. With Twitter's IPO finally leveling off after a hot start, tech investors will be looking to see how Twitter uses its new investment money to improve the company. If there is a competition for news delivery, Twitter may place some emphasis there. Google may not go as far, simply because it may not even need to fight the news battle thanks to numerous other revenue opportunities. Therefore, Yahoo! has a lot of room to work with, and a valuable head start against potential rivals like Twitter. So, for at least the first half of the year, Yahoo! will be a good growth opportunity in 2014. 

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John McKenna has no position in any stocks mentioned. The Motley Fool recommends Google, Twitter, and Yahoo!. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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