Is Yahoo a business in secular decline that's facing market share losses and advertising hurdles for years to come or a company that's on the rebound?
That question doesn't have any immediate answers, but the tug-of-war between analysts is just heating up.
As noted on Monday, JMP Securities analyst Sameet Sinha upgraded Yahoo and argued that the company's search pact with Microsoft will deliver meaningful returns. Those financial gains---along with a rebound in the broader economy---should propel Yahoo in the next few years. On Wednesday Barclays Capital analyst Douglas Anmuth said that Yahoo is likely to rebound even though its search share is falling. Anmuth's big theme: Better trends in display advertising will bolster Yahoo. "Yahoo is well leveraged to an advertising rebound in both display and search, and we believe these trends are starting to show up in numbers," said Anmuth in a research note.
Enter the Yahoo naysayers.
Benchmark analyst Clayton Moran on Thursday downgraded Yahoo from buy to hold. Why? For starters, search share is in a multi-month slide, according to comScore.
Moran calls Yahoo a "value trap," which in Wall Street parlance is a company that looks like a bargain, but never quite delivers the expected financial performance. Moran's big beef:
Yahoo has benefitted from its display reach in the initial stage of the cyclical rebound and we project owned and operated display to increase 20 percent year over year in the first half. But fragmentation could hinder long-term growth as specialized sites like Facebook build share. Initiatives like AOL’s Patch present new competition while Google is beginning to gain steam in display. Yahoo’s stock has suffered due to comparisons with Google’s search. This comparison could be revisited in display.
Simply put, the display ad competition has escalated during the last downturn. Indeed, Yahoo CEO Carol Bartz said last week at the Morgan Stanley technology conference:
I don't think the ad market will ever be back to normal. In fact, I met with a lot of CMOs Monday during the advertising conference, and I had a major CMO in my office, consumer products in my office yesterday. When I say it won't be back to normal, they know they are going to have tighter budgets for a long time.
That said, Bartz also noted that Yahoo is in a great position due to the size of its audience and ability to slice and dice users into different buckets. However, Morningstar analyst Larry Witt also questions whether Yahoo can regain its branding---and revenue growth---mojo. Witt said in a research note:
While we think Yahoo can remain a very popular Web destination, we expect it to lose market share due to audience fragmentation. We also think the company will struggle to maintain pricing power, as marketers have more options than ever to reach their desired audience.
Witt's big worry: Due to the shifts in online advertising it's unlikely that Yahoo will ever deliver big revenue gains.
What's your take? Is Yahoo on the rebound or a company facing a slow demise?
Related: Yahoo's Microsoft search pact: Dissecting the returns