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Saturday, September 11, 2010

Game Over for Yahoo? Facebook Overtakes Google and Yahoo in "Time Spent" as Users Represent 7% of World's Population

Back in July, we shared a handful of very interesting presentations and mentioned a sector with plenty of available jobs:
In that post, we included this presentation:
Here, we learned that the social networking platform had more than 400 million users (click to enlarge):

A subsequent slide informed us that 70% of Facebook users are outside the United States, which we found surprising. More evidence that the world is more connected than ever, which is mostly good, but sometimes bad (earlier, related post: Stocks Zig, Fundamentals Zag? Psychology is Wild Card - Still Good News Out There for Those Interested).

Then, in July, Facebook passed 500 million users, as reported in the company's Facebook Statistics (which we'd not viewed previously). The "stats" page includes all kinds of information and is worth a look for anyone at least somewhat interested in what's happening with social media. A 7/21/10 article from the U.K.'s Guardian shared some of the stats:
  • "Facebook's own user figures are based on members that have used the site within the past month: of those 500 million, it says, half use the site every day, and for an average of 34 minutes. 150 million users access the site by mobile."
Putting the 500 million figure in perspective, this represents 7% of the entire estimated world population (from Wikipedia: the world population is currently estimated to be 6,868,000,000 by the United States Census Bureau)." An interesting, if not alarming, sidebar is a graphic from Wikipedia highlighting actual and three U.N. projected global population scenarios:

Of course, a rising population helps drive economic growth, so long as the world's resources can support more hungry mouths, which is a whole other topic. Recall we previously shared China's growing energy consumption and dramatic shift to net imports of coal. For an intriguing perspective on global energy trends, we recommend watching this 8/30/10 keynote presentation by Peter Voser, CEO of Shell (RDS-A), at TUDelft University's welcome address (Mr. Voser starts at minute 25:22). BUT, we digress.

Back to Facebook's rapid ascent. We can also look at SKYPE's impressive user growth as reported on page six of the company's August registration statement filed with the SEC:

We regularly use Skype. Note that eBay (EBAY) retains approximately 30% of Skype following a majority sale to an investor consortium in 2009. We continue to view eBay as an undervalued powerhouse.

Regarding Facebook, we were a holdout until not too long ago. We finally hopped aboard primarily for the sake of sharing/seeing pictures and staying in better touch with friends. We can see why 500 million users are on the site: a single community location with integrated messaging, photos, events, etc. works extremely well. Plus, Facebook is accessible almost anywhere (home, office, mobile). We even established a Facebook "page" for Common Stock $ense that Facebook users can "like" -- as with our Twitter feed, we share items of interest here more often than we publish here on CS$. Facebook and Twitter alike are excellent for information exchange around the globe, whether for business, personal, education, or other purpose.

THUS, maybe this week's news from Silicon Alley Insider that "time spent on Facebook" exceeds that on Google (GOOG) and Yahoo (YHOO) isn't all that surprising? Here's Silicon Alley Insider's Chart of the Day (based on comScore/SCOR data):

This chart is accompanied by the following commentary:
  • If Google wasn't already scared of Facebook, this ought to do the trick. Time spent on Facebook was greater than time spent on Google sites in the U.S. in August for the first time in history, according to fresh data from comScore. Meanwhile, Yahoo continues its slide from the top of the heap to the bottom.
We came across another, related slide -- also from Silicon Alley Insider -- in a Mediasite presentation from the 3rd Annual Emerging Technologies for Online Learning Symposium in July:
SO, while email remains important for "sharing," Facebook leads sharing with almost one quarter of all sharing activity (based on this data). Email is second at 11%, Twitter is nearly at 11% and Yahoo is a distant fourth at 5.5%.

One more concerning view for Yahoo - traffic trends from Alexa.com reveals a staircase like rise for Google and a steady rise for Facebook:

Now we finally come to our question: do these trends signify game over for Yahoo? The changing landscape and declining traffic trends no doubt bring agita to Yahoo's hard charging CEO Carol Bartz and, admittedly, raise questions around management plans to not only reignite growth but meaningfully improve margins and returns on invested capital. Are Yahoo's franchise characteristics (touched on in our prior posts) still viable and durable? After all, traffic is down at Yahoo Mail and the company is working to rejigger the platform. From a WSJ article today:
  • Yahoo Mail is the No. 1 Web-based email service in the U.S. with 97 million unique visitors in August—more than Google's Gmail and Microsoft's Hotmail combined, according to research firm comScore Inc. But that figure is down from about 107 million visitors in August of last year.
  • Worldwide, Microsoft still commands a large lead over Yahoo and Google with 355 million visitors in July, up 3% from the same period last year, according to comScore data. Yahoo had 281 million visitors in July, down 7% from a year earlier. Gmail is rising fast, growing by 22% to 185 million visitors in July.
Our short answer: while Facebook's growth should continue and Google is making strides in many areas despite fears of a maturing search market, we think the game is still on for Yahoo. Why? Key "channels" such as Yahoo News, Yahoo Finance, and Yahoo Sports remain daily must reads for millions of Internet users and provide a very different advertising platform for the world's mega brands than Facebook. Yahoo Mail remains a significant channel for advertising, too.

But there's more to the story: solid balance sheet with large free cash flow and valuable equity interests in international properties. We are inclined to purchase more shares at current levels. That said, we'd love to see some Yahoo insiders also purchase shares (rather than incessantly unloading shares).

We will relay a few more details in a future post.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long YHOO, EBAY.

© 2010 Jeffrey Walkenhorst
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