Can Yahoo Break Out of Its Ad Problem?

Brody hired to turn around a long-slumping issue

   
Can Yahoo Break Out of Its Ad Problem?

Yahoo (YHOO) CEO Marissa Mayer has brought plenty of pizzazz to the Internet publisher after it has been floundering for years. Unfortunately, that hasn’t translated into advertising sales.

Sales of display ads — the lifeblood for the Sunnyvale, Calif. — company, have plunged in every quarter for the past two years. In the second quarter, they fell 11% to $423 million.

Part of the problem is that advertisers are becoming less enthused about web banner ads as a whole, arguing that there are more effective ways to spend their money such as search and mobile to target consumers. Another problem is that there are lots of banner ads. Mark Rogowsky of Forbes recently noted that Internet users are bombarded with more than 1 trillion of them each quarter.

According to SQAD’s WebCosts, which tracks web advertising rates, Yahoo’s average cost per thousand impressions (CPM) fell 10% between December and June. Video ads, which attract better rates than conventional banners, have seen a 3% decline during that same time.

“Balancing the draw of the brand with ad inventory allocation for maximum yield is any major site’s struggle today,” says Tom Adams, who runs WebCosts, in an email to InvestorPlace. “Yahoo has many ad options available. Getting the mix right and enhancing the appeal of the Yahoo! brand at the same time is a challenge.”

The person tasked with the challenging task of jump-starting Yahoo’s ad sales is Ned Brody, who Yahoo recently hired away from AOL as senior vice president and head of the Americas. In the press release announcing his hire, which had been leaked to the press, Brody sounded a predictably optimistic note:

“With the largest set of premium inventory as a starting point, we’ve got a great opportunity to deliver the most effective scaled advertising solutions in the industry.”

Kara Swisher at AllThingsD was a bit more circumspect:

“Brody has a good reputation, although he is considered more wonky and tech-focused by the advertising community, which still has a wait-see attitude about the key ad sales business at Yahoo.”

Wall Street also will be keeping a close eye on Brody. As Rogowsky pointed out, Google’s display advertising revenue, which it sells through the DoubleClick network, has doubled over the past three years. Yahoo’s business during that same time, by contrast, was little changed.

Despite its many challenges, Yahoo has plenty going for it. In July, Yahoo recaptured the spot as the most visited website from Google for the first time since 2011. The company’s verticals (specialized sites) in areas such as business news and sports have been either the most popular or one of the most popular sites of their kind on the web for years.

Fantasy Football, which has gotten underway with the start of the NFL season, is another cash cow for Yahoo. Fantasy players are a dream demographic for advertisers because not only are they passionate but they are fairly well-educated, too. A surprisingly large number of players are women; my wife, for instance, plays in two leagues.

In theory, Yahoo just needs to move the right chess pieces in the right positions to kick-start its ad sales. Unfortunately, it hasn’t figured out how to do that in years.

Shares of Yahoo have surged more than 40% this year as investors placed bet that Mayer could lead the Internet company back to its former glory. The time, though, has come for her to deliver.

Whether Brody is the right person to help make that happen remains unclear.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/yahoo-ad-problem-yhoo/.

©2014 InvestorPlace Media, LLC

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