Yahoo (YHOO) head honcho Marissa Mayer is continuing her acquisitive ways. PeerCDN — a startup that aims to make websites run more efficiently by lowering bandwidth costs — is the latest in a laundry list of Yahoo acquisitions. Terms of the deal were not disclosed, but it probably is pocket change for the Sunnyvale, Calif. company … but also probably won’t boost YHOO stock.
PeerCDN serves a website “static assets” such as streaming videos, images and downloads over a peer-to-peer network made up of a site’s existing users, reducing the strain on servers and making outages less likely. In theory, this should speed up websites and reduce costs for operators.
In terms of Yahoo acquisitions, the logic behind the PeerCDN buy is pretty obvious. YHOO has been hit with embarrassing outages of its e-mail service and Flickr, so the appeal of a service like PeerCDN — which promises to reduce web crashes — is obvious.
Moreover, the content delivery network technology might help bolster Yahoo’s functionality — a passion of Marissa Mayer’s — by enabling users to text and video chat and browse simultaneously, among other things. No additional software will need to be downloaded.
Still, the latest of many Yahoo acquisitions hardly had investors cheering. Shares of YHOO stock — which have already more than doubled this year — traded up only slightly yesterday.
Yahoo Acquisitions Need to Fix the Core Business
That’s because it’s going to take a lot more Yahoo acquisitions like PeerCDN to make YHOO stock attractive to buy. Marissaa Mayer continues to talk a good game … but so far, she has failed to back up her words with deeds. In fact, when Mayer first joined Yahoo from Google (GOOG) in 2012, it seemed that she could do no wrong. Now, people are wondering if she can do much right.
YHOO stock investors are right to be skeptical.
To start, Yahoo acquisitions don’t have the best history. YHOO spent $13.7 billion for GeoCities in 1997 at the height of the dot-com bubble. Two years later, it spent $5.7 billion on Mark Cuban’s Broadcast.com and $1.63 billion for Overture — a pioneer in search advertising.
But none of the services from those Yahoo acquisitions are still in operation.
The Yahoo acquisitions don’t stop there, though. YHOO also spent $53 million in 2003 to buy Flickr and has allowed it to wither ever since. Sure, Marissa Mayer has tried to learn from the company’s past mistakes. When YHOO bought Tumblr — one of the most headline-grabbing Yahoo acquisitions out there — for $1.1 billion earlier this year, Mayer maintained the blogging site’s existing management team and took great pains to assure Tumblr users that there wouldn’t be any massive changes.
But that promise is going to be tough to keep; Yahoo simply has to figure out how to monetize the service, or else Tumblr is a non-starter for YHOO stock.
Summly — an app that summarizes news articles and that was developed by British teenager Nick D’Oloisio — is another of the Yahoo acquisitions with Mayer’s stamp of approval. As Quartz and others have noted, hip purchases like the blogging site and news app were meant to keep Yahoo relevant.
Unfortunately, they haven’t been able to jumpstart growth in its core business. Display revenue for YHOO fell 7% in the most recent quarter, while search revenue fell 8%. As Quartz noted: “The numbers show that Google and Facebook (FB) are continuing to eat Yahoo’s lunch when it comes to display advertising.” And Microsoft (MSFT) is gaining search market share at Yahoo’s expense.
This Yahoo Acquisition’s Potential
Zooming back in on the most recent of all Yahoo acquisitions, there is some promise. For one, the management team of PeerCDN is planning to remain with Yahoo — and seem optimistic (as they should) about the partnership.
Plus, as TechCrunch noted, Yahoo acquisitions like PeerCDN also dovetail with its new content strategy. YHOO has been adding well-known media personalities such as former New York Times (NYT) columnist David Pogue and broadcast journalist Katie Couric. Creating new, interesting content is even more critical for Yahoo than ever, and will likely bring additional audiences to Yahoo — especially folks interested in consuming rich media, which troglodytes like me call video.
Considering video gobbles up bandwidth like a kid devouring a cupcake, the PeerCDN technology will be nice to have in Yahoo’s toolbox.
The bottom line: PeerCDN, like a few other Yahoo acquisitions, certainly has its perks for Yahoo. But Mayer still has plenty of work to do, and it will take more than this buy to keep YHOO stock moving higher.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned stocks.