A couple of days ago, we wrote an article titled: 'Yahoo! Search Engine Gets A Better Launch Pad' in which we illustrated how Yahoo! was revamping its search engine business to make it big in the sector. Shortly after the revelation of a partnership between Yahoo! (YHOO) and Mozilla, the streets are abuzz with speculations from all quarters as to how it is going to affect the search engine giant Google (GOOG). An analyst said, "While CEO Marissa Mayer comes from Google, trying to compete with the search juggernaut doesn't seem like a good use of resources." Yahoo! search will officially become the default page of Mozilla Firefox.
Yahoo Facts
On Nov. 19, Yahoo! and Mozilla announced that Yahoo! will become the default search engine on Mozilla's Firefox. The move will also enhance the market share of Yahoo's search engine business which will eventually see Yahoo's revenue and margin improving significantly; the market is predicting the rise in revenue to be in billions.
As users do searches on Firefox, they'll be redirected to a Search Engine Result Page (SERP) where Yahoo's ads run. Contrary to the street expectations, I feel the numbers are more likely to stay in the hundreds of millions rather than billions. Nonetheless, it will add to Yahoo's business books and should be an encouragement for their investors and patrons.
A couple of years ago, Bing, the Microsoft search engine, had a revelation that the most searched term for many years on Bing was "Google." The name Google has become synonymous with web search, so the question is will Yahoo! face the same fate as Bing?
No matter what happens, Google doesn't have much to worry about.
The Down-trending Market Share of Firefox
Firefox saw its hay-days when it had signed up with Google a decade ago to break the monopoly of Internet Explorer and Microsoft (MSFT), and they successfully dented the Explorer-Microsoft duo's clientele. But over time, Google matured as a search engine as well as a web service provider. Google came up with its own web browser service, Google Chrome, which rose to success in no time and became the web browser with the heaviest internet traffic.
The rapid popularity of Google Chrome was not just due to the dent in Internet Explorer users, but also took away a huge chunk of Firefox users owing to the fact that users were more attached to the search engine and the convenience it provided in terms of search results than the actual browser. The drop Firefox's market share is likely to continue, especially because Firefox has barely any market share on mobile devices.
Should Yahoo! worry about the revenue drop?
Stephen Ju, a Credit Suisse analyst, said this about the effect of Firefox's revenue drop on Yahoo!:
"If we are to bracket a range of 60%-80% revenue share to Mozilla in TAC payments, this implies about $375 million - $500 million in Gross Network Revenue, correspondingly about $75 million - $200 million in Net revenue, and likely $60 - $160million in Adjusted EBITDA if we assume 80% margin on this stream of revenue. Against our current 2015 estimates, this is about 2.5%-3.3% of Network Gross Revenue, 1.4%-3.6% of Network Net Revenue, and 0.2%-0.5% of Adjusted EBITDA. And this is all baking in a scenario in which 100% of Mozilla users elect NOT to toggle the default search engine back to Google. Now don't get me wrong: I like to see companies grow revenue every year and never lose any. But really, a 0.2%-0.5% adjusted EBITDA is just not that much for Google to worry about. Investors shouldn't worry about it either. Instead, investors should be looking at the overall online climate of ad spending. The amount of money spent online in the United States alone is expected to eclipse $80 billion by 2018. While I don't expect Google to get it all, I anticipate Google will continue to collect a growing lion's share."
Going by the analyst report published in Yahoo! Finance, Google is expected to add about $10 billion revenue to its current figures of $62.67 billion next year. Considering the diversity of usage that Google enjoys across devices, the loss quantum due to it parting ways with Mozilla seems to be inconspicuous.
Our Take
While Yahoo! definitely stands to gain from the liaison, whatever might be the quantum of gain, it should be of no worry for Google since Google has already established itself as a self-sufficient service globally and does not stand to lose much from the Yahoo! – Mozilla deal and the magnitude of loss would not be significant enough for its investors to take note of.
But for Yahoo!, the additional revenue could pad the search division and give Yahoo! the time it needs to invest in its own search technology rather than relying on Bing. However, this still does not put Google into any kind of stake and it is highly unlikely that Google would have to lose the throne of being world's number one search engine. The bottom-line is while Google investors do not really need to worry about the recent advents of Yahoo! in the search engine segment, investors can certainly add some position in Yahoo! and reap the advantage from the rise in revenue of Yahoo! due to this liaison.
About the author:
reports.droy
We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.
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