July 19, 2005

Yahoo's 2Q Profit Up More Than Sixfold...

...stock drops 10% after the closing bell. Yahoo was able to dramatically increase its profit, but it was mostly due to its sale of its stake of Google. Even with the reported earnings, Yahoo still missed Wall Street's expectations causing the significant drop in price. With the search marketing industry booming and continuously growing, what does this say about Yahoo and its future in search?

Basically, it is saying that Yahoo isn't growing as fast as the industry. Granted, Yahoo is more diversified in its business units, however, with such a robust growth in search marketing, it should not just be meeting, but beating or even crushing expectations as Google has so far been able to do.

While some polls report Google's market share at over 50% and Yahoo's at around 25%, comScore states the shares are roughly 37% and 30% respectively. Since Yahoo is not performing as well as it should, it brings to question the future sustainability of the company. So far, users are looking at Google as if it could do no wrong and thus its user base keeps growing while shrinking the number of searchers for the other engines. Yahoo and the other engines will need to rethink their strategies to fight against Google or they will continue to lose market share and displease investors.

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