Yahoo Stock: Facebook’s Instant Articles Are Bad News for YHOO

FB's Instant Articles target YHOO's core business, with more upside for content publishers

Facebook (FB) launched a new service, Instant Articles, back in May of this year with limited partners.

Yahoo Stock: FB’s Instant Articles Are Bad News for YHOOSeveral months later, Instant Articles are starting to find momentum, and according to Cowen, it’s a huge opportunity for Facebook.

The flip side, however, is that it could be horrible news for Yahoo (YHOO).

Why Will Yahoo Stock Suffer?

YHOO is one of the largest distributors of content on the web. Anyone who has ever run a blog or worked for an online publisher knows that it is hard to get content on Yahoo, and that YHOO charges a lot to host such content as a partner.

Furthermore, since YHOO acquired Tumblr and other content-related companies, it has gone the route of downsizing third-party content, relying more on its own content to drive volume and produce revenue.

But Facebook presents a new and dangerous risk for the company.

With Instant Articles, creators can publish content to Facebook that loads instantly within a user’s News Feed. With FB possessing so much data on what users like, people get to see what interests them, and content creators aren’t left guessing and hoping that acquired traffic is high quality.

To make matters even better for Facebook and the future of Instant Articles, publishers get 100% of the ad revenue they sell, and FB takes a 30% cut of the ad revenue it sells.

Clearly, this is a much better model for publishers than doing business with and paying obscene fees to YHOO to host content, and not having any way to target readers or know whether that incoming traffic is considered high quality.

With Facebook knowing what users want to see and having about 1 billion daily active users — many of whom spend at least an hour per day on the site — publishers have a huge audience and know that the people seeing their content have at least a passing interest in the topic and/or publisher.

This is innovation that Yahoo can’t match, and long-term, it could be a problem for YHOO stock.

How Instant Articles Benefit FB

With that said, what’s bad for Yahoo stock is good for Facebook stock, in this instance.

On Monday, Cowen increased its price target on FB from $110 to $115. That $5 difference was in relation to Instant Articles.

Cowen thinks that Facebook can realize $2.9 billion in gross advertising quickly with the Instant Articles, which would translate to nearly $1 billion of additional revenue for Facebook when it takes its share.

This is $1 billion that analysts are seemingly missing with their outlooks on FB, much like the enormous opportunities that analysts are missing with WhatsApp and Facebook Messenger.

Bottom Line

FB stock is well positioned to exceed analyst expectations, at least for the short term, which should push its price higher.

Unfortunately for Yahoo stock, the opposite could very likely occur depending on whether FB cuts into its core content distribution business — something that seems very likely.

As of this writing, Brian Nichols was long YHOO.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/fbs-instant-articles-bad-news-yahoo-stock-yhoo/.

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