Commentary: Yahoo will likely remain a market leader

By Robert Labatt, Gartner Analyst

Yahoo raised some concerns on Wall Street with its third-quarter earnings report when it didn't blow away earning expectations, as usual, and beat estimates by only 6 percent.

Nevertheless, Gartner believes

	See news story: Yahoo slightly beats expectations but concerns remain

that Yahoo will continue as a strong player in the Internet market. The Web portal has made its numbers for 16 straight quarters. Its quarterly earnings performance of 6 percent over estimates is positive compared to other technology companies, including Lucent Technologies, Dell Computer and Intel, which have issued earnings warnings recently.

Yahoo's immediate challenge is to continue to drive its advertising revenue. In the quarterly earnings call, company executives said that 40 percent of ad revenue comes from pure-play dot-com companies. Gartner believes that this sector will continue its consolidation, which in turn will exert downward pressure on Yahoo's dot-com ad revenue.

Still, many positive factors will help to buoy Yahoo in the long term. Although the number of advertisers dropped in the quarter from 3,675 to 3,450, the portal receives 60 percent of its ad revenue from its top 200 advertisers. Accordingly, if the loss of accounts is limited to a few, small dot-com companies, Yahoo is unlikely to lose significant revenue. In addition, the company said that the amount of revenue it gets from advertisers that are financially shaky is less than 10 percent.

When looking at long-term prospects, industry observers and investors must remember that Yahoo has a proven business model, which it has diversified and extended globally. Some 16 percent of its revenue comes from outside the United States, and that does not include one of its biggest markets, Japan. To build on its 55 million active registered visitors (up from 47 million in the previous quarter), Yahoo has undertaken initiatives to expand in five focus areas: enterprises, rich media content, e-commerce, global markets and mobile customers.

Gartner believes that these initiatives will give Yahoo room to grow. For example, the company will try to induce more of its large base of registered members to buy goods through its e-commerce, auction sites and other revenue-generating areas. Indeed, Yahoo has already had some success in doing this; well over half of consumers who use these sites are registered Yahoo customers. The company has an ever-expanding database of people that it can use to focus its e-marketing and e-commerce initiatives further.

Yahoo's strategy, vision and market dominance, combined with a strong brand name, should ensure that it continues as a market leader, despite short-term challenges.

(For related commentary on what makes an e-commerce site successful, see TechRepublic.com--free registration required.)

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.