In an 8-K filing to the Securities & Exchange Commission on Mar-18-2008, Yahoo! projects to nearly double it’s operating cash flow from $1.9 billion to $3.7 billion and increase revenue excluding traffic acquisition costs, from $5.7 billion to $8.8 billion over the next three years.
It’s presentation states that display advertising is larger then search and Yahoo! is positioned to extend its leadership in display. They project the display advertising market to reach $42 billion out of a total online advertising market of $78 billion by the year 2010. Factors of anticipated growth for search were the overall growth of search volume itself, while for display, Yahoo! plans to implement a new ad platform.
A breakdown of it’s projected revenue growth is an increase in $1.4 billion in search advertising, $1.9 billion in display / video and $0.4 billion from other avenues to give a final figure of $8.8 billion in yearly revenue by the year 2010.
In it’s conclusion, the presentation mentioned how Microsoft’s proposal undervalued Yahoo! and went on to highlight strategic value and how Microsoft would benefit by acquiring Yahoo!. The following points were mentioned.
- Microsoft if acquired Yahoo!, would move from sub-scale position to a strong position in search and display advertising.
- Yahoo! which has stakes in the Asian market is an important growth source for Microsoft.
- Microsoft which lost $700M online in 2007 would move to significant profitability.
- Some recent internet transactions have exceeded 35x forward (EBITDA) while Microsoft’s proposal is only 9x Yahoo!’s projected operating cash flow of 2009.
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