#56: More on Yahoo, Products and Trending Opportunities
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Reading Time: 9 inquisitive minutes + a quick survey for you.
A few weeks we posted our valuation estimate for Yahoo, a once-public company now held by the private equity firm Apollo Global Management.
Long story short: Apollo acquired Yahoo’s assets from Verizon in 2021 for $4.5 billion, brought in a fantastic CEO (Jim Lanzone), and bolstered its senior management team. Management and Apollo set high aspirations and implemented a common sense playbook. With several quick wins under its belt and momentum on the upswing, we think Yahoo’s future free cash flows are worth at least $20 billion.
Valuation Webinar November 16, 2023
Quo Vadis will hold a live deep dive valuation webinar on November 16. We’ll share our model structure, assumptions, and how we bridge from 2016 when Yahoo was last public to our $20 billion valuation.
Before we get there, we’d like to sharpen our forecasting assumptions with some help from our incredible Quo Vadis community. Specifically, we would love to know what you think about the intersection of Six Trending Opportunities happening across the advertising world juxtaposed against Yahoo's Ten Core Products.
The Reese’s Thesis
Think about it this way. What do you get when you put milk chocolate together with peanut butter? You get the #1 selling candy in the US — a Reese’s Peanut Butter Cup! Here’s how it happened according to Ogilvy Mather NYY.
Yahoo’s Opportunity/Product Matrix
With six trending opportunities and ten products, there are 60 unique pairs. So, we built a randomized 10-question survey to get your take on these fascinating intersections.
Let’s tackle the six opportunity areas first and then cover Yahoo’s amazing product lineup.
Opportunities
1. Artificial Intelligence
AI is a white-hot topic in pretty much every C-suite and board. For Yahoo, the practical application opportunities are practically endless. With gobs of technical chops in its ranks, harnessing AI should be easier for Yahoo than most other companies. As CEO Laznone questioned at Cannes Lions early this year:
For us it's, what is the integration of AI into everything?
Example: Imagine a media planner asking Yahoo’s AI:
I sell mattresses direct-to-consumer. Build me an audience segment and a full-funnel media plan across Yahoo O&O inventory and external publisher partners. My budget is $500K and my CPA target is $50. Here’s an endpoint link to my first-party data store and here's a link to our creative assets for this campaign. Use your cleanroom to process our IDs against your ConnectID graph and exclude my current customers from the campaign. Your campaign objective is to bring new users in using big ad units with high attention metrics and then use your publisher network to retarget the best conversion probabilities on an incremental lift basis. Get familiar with this paper and use your attention metric data to judge relative ad quality. Only bid the intrinsic price based on the Key Value Formula in the paper. When you're done, set up the campaign with all the required tags and send me a link to review it. Thanks Yahoo AI! 2. CTV
The “T” in CTV stands for the three Ts — Trust, Technology and Team. Yahoo has a full-house hand to play with so tapping into what is currently a $24 billion market in the US alone (eMarketer) and growing to $40 billion is certainly in the cards for Yahoo. The intersections compelling across the board.
3. Retail Media
What is even bigger than CTV market size and growth? According to Criteo’s CEO Megan Clarken, she pegs the retail media TAM at $110 billion with a SAM of $42 billion (ex-China, ex-Amazon). It’s still the early days of RMNs. Yahoo already has its Member Connect tech in place with Lowes and Marriott. It’s a great start. Assuming the right incentives are in place, getting to twenty or so partners is more than doable. We think Yahoo can tap a billion or two in new revenue.
4. Sports Betting
It’s a huge market all around the globe. The global sports betting market accounted was $84 billion in 2022 and is expected to expand at a CAGR of 10.3% through 2030. Yahoo operates one of the biggest fantasy sports platforms so the synergies are obvious. But where else can Yahoo play ball?
5. Attention Metrics
You already know Quo Vadis is a huge fan of attention metrics. And for a good reason. When done correctly, attention metrics shift the underlying economics of advertising toward value. We think that plays well with Yahoo’s premium inventory world.
6. Cookieless Audience Targeting
Another top-of-mind question for marketers is how to get the audience-targeting job done without third-party cookies. Truth be told, cookie-based targeting never really worked well. For instance, Nico Neumann from Melbourne Business School and fellow researchers figured that out in 2018 with a paper called, “How Effective Is Third-Party Consumer Profiling and Audience Delivery?: Evidence from Field Studies.” More recently, Ad Age headlined with a story claiming, “Nearly Half The Data Used For Ad Targeting is Wrong.”
In any case, we think audience targeting will get better and way more accurate without third-party cookies. With 200M+ users in its ConnectID graph, Yahoo has a solid anchor as a go-to ID partner for advertisers and publishers.
Yahoo's Key Products
1. Yahoo News, Sports, and Finance are either #1 or #2 (or darn close) in their respective categories, and management has been very busy on the M&A front under Apollo. They acquired The Factual, a company that uses algorithms to rate the credibility of news sources, and also acquired social investing platform CommonStock to make Yahoo Finance a premiere destination for retail investors. Think Robinhood which has $1.7 billion in TTM revenue and a $8.5 billion market cap — it’s a massive growth opportunity.
Note: We did not include Entertainment and Lifestyle in our survey matrix, but both are high-traffic sites full of premium users.
2. Fantasy Sports is a huge market. In 2022 it was $9.8 billion in the US alone. Yahoo. Under Apollo, Yahoo acquired Wagr to bring gaming opportunities to Yahoo Sports.
3. Yahoo DSP — The DSP space needs a strong competitor to enhance the category. Yahoo’s DSP is in a prime position, particularly when it comes to agencies deciding to partner with best-of-breed tool kits. Combine that with Yahoo’s mighty sales army and the future is bright.
4. Backstage — Direct publisher integrations from a DSP to the publisher’s ad server are an essential play for any DSP looking to survive and thrive in the future. And the future is already here. Putting Yahoo’s mighty sales boots on the ground with a killer offering on top of their premium O&O inventory and it all comes down to incentives.
As Sir Martin Sorrell said at Cannes in 2015:
“So you have to be prepared to cannibalize parts of your operation, so I believe in eating your own children “Sometimes you have to eat your young.”
Yahoo did just that when it shuttered its SSP ad stack in favor of focusing on Backstage. In game theory terms, management shifted from a weak strategy to a dominant strategy. For more info, check out Mike Shields’ podcast with Adam Roodman (Yahoo SVP Product Strategy) about this topic and read Ad Exchanger’s interview with Roodman last week.
5. Search is a massive market. Everyone knows that. In 2016, Yahoo had a ~3% share generating $2.67 billion in revenue. Flash forward to September 2023 and Yahoo’s share has fallen 1.24% (source: StatCounter) translating into ~$3 billion in revenue (that’s 2x bigger than The Trade Desk’s FY22 net revenue) in a $246 billion market. Search is forecasted to grow into a $350 billion market by 2027. All Yahoo management has to do is build in enough new utility (likely AI + a few no-brainer fixes) to capture a 2% share and that’s $7 billion in revenue.
6. Yahoo's creative and content Studio brings together award-winning animators, designers, engineers, filmmakers, writers, and technologists who reimagine brand storytelling in new ways. Over the last ten or so years, the ad world and CMOs went myopic on audience targeting and somehow fell under the belief that cheap reach programmatic tactics were the best thing since sliced bread. Yet at the same time, the data will show again and again that creative drives nearly all the impact (ad unit size and placement matter too). If the pendulum swings back to doing good advertising, then Yahoo Studio mixed with multiple trending opportunities is super compelling across the board.
7. ConnectID — Yahoo ConnectID is powered by direct consumer relationships of nearly 200M authenticated users in the U.S., enabling omnichannel addressable inventory across all of the Yahoo-owned-and-operated properties and thousands of other publisher partner domains.
8. email identity is the key to the future of cookieless audience targeting and Yahoo Mail has over 200 million users. Google has nearly two billion users.
Yahoo and Hotmail (Microsoft) used to own the email space until Gmail came along. Let’s face it, Gmail built a product that gets the job done in a better and/or faster way. In other words, in jobs-to-be-done speak Google filled more underserved outcomes while Yahoo and other providers leaned more toward overserved outcomes. That’s always a mistake because all the growth is hiding in underserved outcomes.
It all starts at home. For example, how many Yahoo employees use Gmail as their personal email? I’d bet quite a few. Yahoo’s HR folks can data-check it, but the point is clear. From a cultural management perspective, the more Yahoos convert and use Yahoo Mail as their primary provider the more it says about the hidden side of positive momentum.
Looking at the external user world, email assignment all starts with kids when they get their first email address. Again, Gmail likely dominates this highly valuable entry point. The good news is that there are new people born every day so it is never too late to play in the email sandbox. Yahoo’s trusted brand status should start with parents, kids, schools, parent-teacher associations, and boards of education and sell them new utilities built for a privacy-safe world.
In non-US markets, Yahoo should focus on English as a second language (ESL) programs. No matter where you go in the world, you’ll find that preschoolers (3-5 years old) in English language programs. These programs could always use extra funding and free technology as long as Yahoo Mail is the entry point. Again, serve those underserved outcomes by knowing that they are good things will follow.
Take The Survey
If you’re game and have five minutes, Quo Vadis would like you to think fast and tell us whatever comes to mind for each pairing.
We’ll share the results in our valuation webinar. Thank you! 🙏🙏🙏
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Disclaimer: This post, and any other post from Quo Vadis, should not be considered investment advice. This content is for informational purposes only. You should not construe this information, or any other material from Quo Vadis, as investment, financial, or any other form of advice.