Is Yahoo! Losing its Nerve? - How's this for Growth?
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Growth comes in many different forms. For example, part of the gain seen in Yahoo!'s 2005 financial results came from a complex deal that left it with a 40 percent stake in Alibaba.com. If you haven't heard of this company yet, you will -- it is China's largest e-commerce company. China is the second largest Internet market in the world, right behind the United States, and poised to continue growing. The stake puts Yahoo! in a good position for expansion into this market.
Another form that growth can take shows up in the size of the company itself (though it's not a wholly reliable indicator, of course; not every company's headcount growth is a sign of health). Yahoo added another 674 employees during the fourth quarter. Its payroll now stands at 9,816. That headcount is 30 percent higher than a year ago.
When it comes to a service like search, which is supported by advertising, size matters -- in this case, the size of the audience. Here again, Yahoo! saw quite respectable growth. The company ended 2005 with 365 million users, a 21 percent increase from 2004. The definition of "user" seems to vary a bit, though; by some accounts, Yahoo! has 429 million unique users, more than 200 million active users and 12.6 million unique paid relationships with users who subscribe to various Yahoo! services, such as online music. Overall traffic across all of Yahoo!'s websites grew nine percent to 103.5 million users. According to research firm Nielsen/NetRatings, Yahoo! is reaching about 68 percent of the Internet's active users.
The varying definition of "user" hints at another area of growth for Yahoo!. The company has been working to become less dependent on advertising for its revenue by diversifying. It is selling more services, such as high-speed Internet access and matchmaking. And those 12.6 million subscribers are nothing to scoff at; it represents an 11 percent increase over the previous (as opposed to year-ago) quarter. Even when you're making more than a billion dollars, the $186 million in fees paid during the fourth quarter by all of those subscribers amounts to a nice bit of bread and butter -- and that number is set to keep growing. Looking ahead, Semel stated that "This year we are poised to surpass 15 million paying relationships."
This is very good news, considering that 2006 might be a brutal year for the venerable search company. It expects to lose about $120 million in ad revenue from affiliates, mostly because Microsoft's MSN plans to move to its own network in June. On the other hand, Semel didn't sound too worried about this upcoming challenge when he spoke with CNet. "We are the largest Internet network in the world, with the largest number of users and the most-engaged users. We're seeing growth in all our product categories...Nearly 40 percent of everybody who came onto the Internet last quarter touched Yahoo! somehow. We think we're in a terrific position."
This doesn't seem to jibe with the quote from Semel at the beginning of this article. How can the man who admitted that Google "built an even better house" than Yahoo! be reconciled with the man who thinks Yahoo! is "in a terrific position"? The answer depends on where you set your sights -- and how you define success.
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