Why YHOO Will Outperform GOOG in 2007

I was on CNBC tonight making the bullish case for Yahoo:

  • Yahoo needs to grow earnings faster than Google to regain investor interest
  • It can do that by cutting costs, growing audience, acquisitions or improving monetization (or some combination of all four)
  • It is easier to drive monetization than to increase audience markedly, and acquisitions are a mug’s game without better monetization tools. Cutting costs is a non-starter.
  • Yahoo trumps Google on total audience, as well as page views
  • Yahoo’s monetization is about to improve (to some degree) because of Panama
  • It is easier for Yahoo to make a significant improvement in monetization than it is for Google.
    • Google’s monetization engine works well, while Yahoo’s doesn’t. It’s always easier to get a big change from a crummy start position than it is to make a big change from a great start position.
  • Yahoo’s stock is hated, while Google’s is loved.
  • Yahoo will outperform Google (and the market) in 2007


  1. Paul, monetization has already started on Yahoo Finance. We were just informed the other day that CPM rates for big-box ads are nearly doubling from here on out.
    I’ve also been looking at picking up YHOO over tax-loss selling season into end of December…you just made my buying decision that much easier.

  2. This is the first in a series, no doubt – Paul’s “Dogs of the Internet” portfolio strategy.

  3. Babs Franklin says:

    Jimeny Crickets I hope so!

  4. More than anything it is the perceived success or failure of Panama that will set the course. PPC is the spear point, if that does not soar, cutting costs will be strictly a rear-guard action.
    If many AdSense publishers defect Panama is working. If not Yahoo’s smaller search market cannot outperform Google’s.

  5. napsterman says:

    Yahoo closing the gap on search monetization is a well defined, concrete problem to solve. It’s not a typical strategy problem which many struggling companies face. Yahoo knows exactly how much it needs to bridge, or exceed, this gap; google has shown that there’s tremendous upside and that yahoo is operating its search business at an extreme discount. Engineers work well when problems and goals are well defined. The fact that yahoo has reshuffled its org to further leverage monetization (beyond search) shows that their strategic thinking is alive and well. I see a big upside in the longterm if not sooner.

  6. It’s a key point the markets seem to be missing, though even without an algorithm as good as Google’s Yahoo could do wonders to their bottom line by letter publishers do their own context matching and then paying them more than Google’s revenue share.
    Also, Yahoo seems the best poised site in the world to monetize “Web 2.0” although they aren’t making much of that advantage yet.
    Based on my experiences at recent conferences Yahoo is suffering – quite severely – from a lack of the evangelical fervor that helps Google captivate the masses.

  7. I thought the same thing a year ago:
    I would like my $17 per share back, thank you.

  8. >>>…search monetization is a well defined, concrete problem…
    Yahoo’s failure there to date makes the launch of Panama a critical inflection point. Merely matching Google’s PPC performance may not be sufficient.
    Outperforming Google on many levels is essential for Yahoo in 2007 or “also ran” is its destiny.

  9. Yahoo is a sinking ship, finally paying for years of having a non-technical CEO. I know you keep hyping them as a poor man’s google but you obviously haven’t compared their search results if you believe that. I hope you’re ready to jump off the ship rather than letting it drag you to the bottom.

  10. That Google is overvalued does not imply Yahoo is undervalued.
    Yahoo could outperform Google simply by falling less.

  11. These comments are not cheers for Yahoo, because they seem to reference Google every other sentence. Use common sense clues if you can’t afford to buy great research. Google is better at executing at least two things. A fantastic self image and monetizing search. They did a few things right created revenues from nothing, (a dorm room of all places) and it is clearly working. When you look at Google you expect to find all hype and no revenues or profits. Quite to the contrary you find not only diamonds, but a diamond creation machine. The products is in great demand as well. I know investors are only looking at Yahoo for one reason, the stock price is low. I think it is low for aome very good reasons, and Google price is high for the exact opposite reasons. As yahoo’s business goes to Google, and other companies business goes to Google….. well you get the picture. You got Googled Up! Yahoo’s only chance at head to head competition will come if the markets stop believing in Google. Now, based on recent analyst upgrades, I don’t see any opportunity for the markets to lose confidence in the stock. Imagine if Google took a Bershire Hathaway price movement image. The stock could climb, as long as they continue to execute great common sense strategies that create revenue and profits. If you have the privelege of actually seeing the revenues of both companies side by side, you would quickly understand the old phrase, “I need to cut my losses.” If you meet the people doing the work, you would say, that team executes much better. They have better strategic minds, and they work together to create value like the Japanese. The teams that created Adwords and Adsense are the kind of minds you want hanging out with engineers at your company. These teams figured out something that thousands of companies tried to acomplish in the past with the internet, and they are growing. I don’t think they invented anything new, they just exploit the advantage of technology very well, turning it into revenue, and they stay focused on that single idea. Laughing, lauging

  12. albert saad says:

    yhoo has customers, lots of customers and so long as they have customers,eventually they will figure out how to make more money.again the key is customers.

  13. Here’s how Yahoo could knock Google back on its heals (while slashing human-generated/manual click fraud by 85%) in just two simple words:
    Paid Match

  14. cyborg trader says:

    I’m a full-time trader/investor. YHOO is much better for 2007. Forget about all the money GOOG is making, most of it is due to tax rates. When GOOG tax rate goes up, they will not make as much in net income.
    GOOG is a momentum stock. Traders flock to it because it is simply the stock to trade in for now. Remember the dotcom bust? Yes I like GOOG search, but I spend most of my time on YHOO, especially “my yahoo” page, which allows me to customize to my liking.
    A few weeks ago, I purchased YHOO Jan 08 25 calls for $4.oo, they soared to 6.00 and currently trading back in the high $4.90. I will cash out when YHOO $32 is gap is closed.
    Basically, YHOO is going to offer more bang for the buck in 2007, that’s the ultimate goal for any trader/investor.