Trend Analysis
BUSINESS INTELLIGENCE
DEPARTMENT
YAHOO VS GOOGLE
Which strengths & weaknesses emerge from
financial accounting analysis ?
Period 2004-2007
29/11/08
I.
FINANCIAL STATEMENTS OVERVIEW
GENERAL INFORMATION ON WEB INDUSTRY
Basic applications and guidelines making Internet possible have existed for nearly twenty years.
However, the principles were launched in 1991 at the CERN -European center for Nuclear
Research - through the publication named the new World Wide Web project. Currently, the
Internet penetration level is around 22%1 worldwide and web content may represent more than
988 exabits in 20102. This amount of data, equivalent to Europe’s surface all covered by 2
meters of DVD, confers to search engines and data organization systems a key role in the
development of new communication ways. Both Yahoo and Google have initially focused their
politics in developing high-value search technologies. Currently Yahoo and Google represent
72,8% of Internet requests3.
-Figure 1-
-Figure 2-
1
http://www.internetworldstats.com/stats.htm
Source: IDC-EMC 2008 - Figure 1.
3
Source: Comscore 2008 - 44,1% for Google and 28,7% for Yahoo - Figure 2.
2
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II.
COMPARATIVE ANALYSIS
1. GENERAL OVERVIEW
In 2004, Yahoo’s total shareholders funds and liabilities were 7,100 millions USD4, around 2,5
times more these of Google -2,900 millions USD-. Both companies’ incomes were similar5,
3,189 millions USD for Google and 3,574 for Yahoo6.
However, in 2007, the situation became completely opposite. During the 2004-2007 period, if
Yahoo’s total shareholders funds and liabilities grew to 9,500 millions USD, Google’s jumped up
to 22,700 millions USD. During the same period, Yahoo’s incomes doubled at 6,970 millions but
Google’s incomes rose up to 16,594 millions USD. The two companies’ benefits followed the
same diversion. They remained stable or in reduction for Yahoo from 839 millions USD to 660
millions USD but again jumped from 399 millions to 4,200 millions USD for Google.
-Figure 3-
-Figure 4-
4
Source: Orbis database - Appendix 1.
To be analyzed after.
6
Please look at the figure 3.
5
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2. BALANCE SHEET
For both companies, balance sheet’s increase don’t depend on liabilities, stable at around 10%
of the total value, but on shareholders funds. These equities increased in Yahoo’s capital from
9,180 to 12,230 million USD but they literally jumped from 3,300 to 25,340 USD in Google’s
one.
These massive shareholders investments in Google are probably one of Google’s first and
strongest strengths against Yahoo. From 2004 to 2007, ventures had a strong belief in the
Google business model based on both high-traffic for web search operations and massive
advertising development. On the opposite, until 2002, Yahoo used search technology from
Google7 and developed its fully automatic advertising platform Panama in 20058 when Google
was already ready for it9. This competitive lack of technological innovation in web search and
this two years delay in the new web advertising market could explain these differences in the
balance sheet.
Moreover, through the evolution of assets of both companies, the use of funds cash remained
different.
If the operating revenues of both companies were equivalent in 200410, the fixed assets11 in
Google were far much lower than these from Yahoo, respectively at 619 million USD and 5,087
million USD. Besides, the working capital used to be 279 millions USD for Google and 432
millions USD for Yahoo. At that time, the employee number12 was 3021 people for Google and
more than 7600 for Yahoo. This last point is confirmed while calculating the SG&A of both
companies during this period13.
In 2004, the difference in SG&A between Google and Yahoo was already of 588,1 millions
USD. It represented 16,4% Yahoo’s incomes during that period. From that date to 2007, the
difference between the two SG&A remained stable at approximately 500 millions USD whereas
the incomes diverged to more than 100%.
7
Patent property of the Stanford university until 2011 - Source: Google.
Source: Yahoo’s 2005 annual report.
9
Source: Google’s annual report 2005. Google was providing its advertising platform to AOL/Time Warner.
10
3,200 millions for Google and 3,600 millions for Yahoo - Source: Orbis.
11
Please look at Figure 4. Source: Orbis.
12
Please look at the figure 4.
13
Source: http://finance.google.com.
8
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During the period, if the profits for Yahoo’s employees grew from 59 to 156 thousand USD, they
remained below Google’s profit ranged between 215 and 338.
In these conditions, Google progressively benefited from a huge amount of investments from
funds and also from anoptimized internal structure.
The corresponding asset repartition allowed Google to dispose of a high level of cash, 14,2
billions in 200414 versus 2 billions and for the same incomes than Yahoo.
This massive amount of cash in the Google balance sheet is the second most important
strengths for Google against Yahoo. As written in every Google’s annual report since 2001,
acquisition of small and innovative companies in the Silicon Valley is part of the Google
business model.
Between 2004 and 2007, the purpose was to get fast and relatively costless innovations15 in
order to become big enough for the new growing web worldwide market. Double-Clic, Urchin
(Google Analytics), adWords and dMarc Broadcasting are the most famous acquisitions.
By opposition, Yahoo had in 2004, and still now, strong teams in computer development and
also in entertainment -Yahoo Finance, Yahoo News,…-, providing them less available cash for
external growth. When Google was nearly doubling its traffic in 2006 after the acquisition of
YouTube16 and therefore the number of advertised pages, Yahoo was still developing specific
payable services for a nearly already existing market.
14
And 14,22 in 2007
Since 2001 and the arrival of Eric Schmidt as Google’s CEO, Google bought around 50 different companies every year.
YouTube, Double-Click, Urchin (now Google Analytics) are the most known of these acquisitions.
16
Video broadcasting.
15
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3. P&L SHEETS
17
As exposed previously, in 2004, the Google and Yahoo operating revenues were similar.
Besides, both EBIT were equivalent respectively at 0,640 billions USD for Google and 0,688 for
Yahoo. However, differences occurred at that time in the net incomes, Yahoo being at 0,8
billions USD versus Google at 0,4 billions.
-Figure 5-
-Figure 6-
These differences were mostly due to the financial revenues. Between 2004 and 2006, Yahoo
sold different no-strategic businesses for nearly 400 millions USD in 2004 and 960 in 2005.
During the same period, the cash brought by Google’s “Success brings success” circle
produced increasing financial revenues up to 560 millions USD in 2007.
This divergence in investment/development in core businesses for Yahoo is the third important
weakness of this company versus Google. During the 2004/2007 period, Yahoo sold several
non-strategic businesses for a total amount of 1,4 billions USD18. These sells affected the
composition of Yahoo’s assets precisely when Google, enforced by its advertising cash machine
Double-click, was enforcing the range of its assets and diversifying its free service -Google
earth, Gmail,…- precisely to catch Yahoo and MSN audiences.
In 2007, Google’s net incomes were 4,2 billions USD compared to 0,6 billions for Yahoo. After
the sales of all the non-strategic equity securities, Yahoo’s financial revenues dropped down to
10 millions USD.
However, it is not possible to conclude that Yahoo focused only on finances during the period.
17
18
Please read appendix #2.
Please read the annual reports from 2004 to 2007.
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According to P&L sheets19, the Research and Development costs for both companies were
similar until 2006. In 2004, the investment amounts were respectively at 390 milllions USD for
Yahoo and 370 millions for Google. In 2006, the difference was only of 400 millions USD.
-Figure 7-
4. CASH FLOW
20
The last important point concerns the cash flow.
If the operating cash flow follows precisely the evolution of both companies as described above,
both cash flows operations remained structurally different from 2005 to 2007.
During the period, Yahoo’s investing cash remain negative from (821,930) millions USD to
(572,502) millions so was Google’s cash been ranged between (3,358,193) millions USD and
(6,899,150) millions. These negative values and differences are mostly due to short-term
financial investments.
The reason is that between 2005 and 2007, both companies invested their excess of cash in
debt instruments of the U.S. Government and in high-quality corporate issuers. These products
were classified as marketable debt securities. If all these securities remained liquid investments
within a period ranged between three and twelve months21, they produced large amounts of
interest.
However, for Yahoo, this program was also enabled by a common stocks repurchase policy.
According to this last point, the Yahoo’s financing cash flow fluctuated between (250,600) in
2005 and (1,422,008) in 200722.
19
Please read http://finance.google.com/finance?fstype=ii&q=NASDAQ:YHOO.
Please read appendix #2.
21
Please read the Yahoo Annual’s report 2007 page 62 and followers.
22
Yahoo’s annual report 2007. Repurchases of common stock between 2005 and 2007 (387,735), (1,782,140), (1,585,909)
20
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If the reasons are not easily visible in Yahoo’s financial accounts, this important repurchase
represented more than 20% of the incomes in 2007 and also more than the company’s
benefits23.
Without doing any speculation about management rules in Yahoo versus Google’s, according to
the cash flow sheets, it seems that Yahoo has been passing through a financial management
between 2004 and 2007, whereas Google was mostly driven, or able to be moved, by
technological researches and acquisitions.
Google (USD)
2005
2006
2007
From operating
2,459,422
3,580,508
5,775,410
From investing
(3,358,193)
(6,899,150)
(3,681,589)
From financing
4,370,830
2,966,398
403,067
Total
3,877,174
3,544,671
6,081,593
From operating
1,711,383
1,371,576
1,918,899
From investing
(821,930)
(193,681)
(572,502)
Fron financing
(250,600)
(1,094,624)
(1,442,008)
Total
1,429,693
1,569,71
1,513,930
Yahoo (USD)
-Figure 8-
23
According to what I read in the annual reports, it is not sure that Yahoo had understood the threat of Google in 2006
and the possible emerge of MSN.
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III.
CONCLUSION - YAHOO VERSUS GOOGLE
If the past four years revealed Google’s experience in managing growth, 2006also revealed the
breaking point between Yahoo and its competitor.
During the studied period, Google made the acquisition of Double-click, the first worldwide fullautomatic advertising system, when Yahoo was loosing its partnership with MSN on advertising
platform.
Currently, Google dispose of a high amount of cash available for new external growth on
international markets and strong competition with Microsoft.
However, Yahoo disposes of less cash and has a high level of working capital and SG&A.
However, the possible internal optimizations are probably high while benchmarking Yahoo with
Google. It was probably Microsoft’s analysis while proposing a public offer on Yahoo.

Finally, it seems important to ponderate Google’s success on Yahoo’s strategy. If in
2007, Google reached a important success in the online advertising, it seems useful to
underline that:

Its competitive advantage in cost structure is being reduced by the progresses of Yahoo.
In 2007, the profit per employee24 difference was 69 thousand USD versus nearly 280
thousand euros in 2004.

Google incomes are essentially linked to direct and low-cost on-line advertising on its
search engines whereas Yahoo seems to offer more qualified ads on diversified highvalue platforms –Flickr, Alibaba,…-.
24
Please read Appendix #3.
9
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APPENDIX 1 - COMPARED BALANCE SHEETS
BALANCE SHEET
2004
2005
2006
2007
Fixed Assets-Google
Fixed Assets-Yahoo
Intangible Fixed Assets-Google
Intangible Fixed Assets-Yahoo
Tangible Fixed Assets-Google
Tangible Fixed Assets-Yahoo
Other Fixed Assets-Google
Other Fixed Assets-Yahoo
619886
5 087 726
193887
3 031 623
378916
531 696
47083
1 524 407
1270742
7 382 301
277683
3 430 172
961749
648 898
31310
3 303 231
5433504
7 763 466
1891960
3 374 379
2395239
955 295
1146305
3 433 792
8046668
8 992 019
2745964
4 613 527
4039261
1 211 942
1261443
3 166 550
Current Assets-Google
Current Assets-Yahoo
Stocks-Google
Stocks-Yahoo
Debtors-Google
Debtors-Yahoo
Other Current Assets-Google
Other Current Assets-Yahoo
Cash & Cash Equivalent-Google
Cash & Cash Equivalent-Yahoo
2693465
4 090 475
0
9001071
3 449 533
0
13039847
3 750 142
0
17289138
3 237 722
0
311836
479 993
2381629
3 610 482
2132297
3 511 975
687976
721 723
8313095
2 727 810
8034247
2 560 834
1322340
930 964
11717507
2 819 178
11243914
2 601 399
2162521
1 055 532
15126617
2 182 190
14218613
2 001 474
Total Assets-Google
Total Assets-Yahoo
3313351
9 178 201
10271813
10 831 834
18473351
11 513 608
25335806
12 229 741
Shareholders Funds-Google
Shareholders Funds-Yahoo
Capital-Google
Capital-Yahoo
Other Shareholders Funds-Google
Other Shareholders Funds-Yahoo
2929056
7 101 446
267
1 416
2928789
7 100 030
9418957
8 566 415
293
1 470
9418664
8 564 945
17039840
9 160 610
309
1 493
17039531
9 159 117
22689679
9 532 831
313
1 527
22689366
9 531 304
43927
896 048
0
750 000
43927
146 048
107472
1 061 367
0
749 995
107472
311 372
128924
879 004
0
749 915
128924
129 089
610525
396 462
0
Current Liabilities-Google
Current Liabilities-Yahoo
Loans-Google
Loans-Yahoo
Creditors-Google
Creditors-Yahoo
Other Current Liabilities-Google
Other Current Liabilities-Yahoo
340368
1 180 707
1902
745384
1 204 052
0
1304587
1 473 994
0
2035602
2 300 448
0
32672
48 205
305794
1 132 502
115575
70 291
629809
1 133 761
211169
109 130
1093418
1 364 864
282106
176 162
1753496
2 124 286
Total Shareh. Funds &Liab.-Google
Total Shareh. Funds &Liab.-Yahoo
3313351
9 178 201
10271813
10 831 834
18473351
11 513 608
25335806
12 229 741
Consolidated data
Non Current Liabilities-Google
Non Current Liabilities-Yahoo
Long Term Debt-Google
Long Term Debt-Yahoo
Other Non-Current Liabilities-Google
Other Non-Current Liabilities-Yahoo
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610525
396 462
APPENDIX 2 - COMPARED PROFIT & LOSS
P & L ACCOUNT
2004
2005
Operating Revenue-Google
Operating Revenue-Yahoo
Sales-Google
Sales-Yahoo
3 189 223
3 574 517
3 189 223
3 574 517
6 138 560
5 257 668
6 138 560
5 257 668
10 604 917
6 425 679
10 604 917
6 425 679
16 593 986
6 969 274
16 593 986
6 969 274
Costs of Goods Sold-Google
Costs of Goods Sold-Yahoo
1 320 494
1 342 338
2 283 276
2 096 201
3 653 088
2 675 723
5 681 427
2 838 758
Gross Profit-Google
Gross Profit-Yahoo
1 868 729
2 232 179
3 855 284
3 161 467
6 951 829
3 749 956
10 912 559
4 130 516
Other Operating Expenses-Google
Other Operating Expenses-Yahoo
1 228 537
1 543 598
1 838 006
2 053 742
3 401 833
2 808 990
5 828 159
3 435 103
640 192
688 581
2 017 278
1 107 725
3 549 996
940 966
5 084 400
695 413
15996
415 125
5954
-20 488
10042
496 443
650 234
1 185 024
121038
967 327
-3361
-343 408
124399
1 435 857
2 141 677
2 543 582
412063
-3 527
-48981
-17 251
461044
157 034
4 011 040
1 098 000
559205
1 730
-30375
-22 740
589580
154 011
5 673 980
849 424
Taxation-Google
Taxation-Yahoo
251115
437 966
676280
767 816
933594
458 011
1470260
337 263
P/L after Tax-Google
P/L after Tax-Yahoo
399 119
747 058
1 465 397
1 775 766
3 077 446
639 989
4 203 720
512 161
Net Income-Google
= Net Income-Yahoo
399 119
839 553
1 465 397
1 896 230
3 077 446
751 391
4 203 720
660 000
Operating P/L [=EBIT]-Google
Operating P/L [=EBIT]-Yahoo
Financial Revenue-Google
Financial Revenue-Yahoo
Financial Expenses-Google
Financial Expenses-Yahoo
Financial P/L-Google
Financial P/L-Yahoo
P/L before Tax &Extr. Items-Google
P/L before Tax &Extr. Items-Yahoo
2006
2007
11
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APPENDIX 3 - RATIOS
RATIOS
2004
Profitability ratios
Return on Share.Funds (%)-Google
Return on Share. Funds (%)-Yahoo
Return on Capital Empl.(%)-Google
Return on Capital Empl. (%)-Yahoo
Return on Total Assets (%)-Google
Return on Total Assets (%)-Yahoo
Gross Margin (%)-Google
Gross Margin (%)-Yahoo
EBITDA Margin (%)-Google
EBITDA Margin (%)-Yahoo
EBIT Margin (%)-Google
EBIT Margin (%)-Yahoo
Cash Flow / Turnover (%)-Google
Cash Flow / Turnover (%)-Yahoo
2005
2006
2007
22,2
17
21,9
n.a.
19,63
13
58,60
62
24,73
22
20,07
19
17,17
26
22,74
30
22,49
n.a.
20,85
23
62,80
60
37,65
23
32,86
21
28,66
38
23,54
12
23,36
n.a.
21,71
10
65,55
58
38,87
17
33,48
15
34,41
14
25,01
9
24,36
n.a.
22,4
7
65,76
59
36,47
12
30,64
10
31,16
11
1,07
0,64
1
0,62
1
0,71
1
Structure ratios
Current Ratio (x)-Google
Current Ratio (x)-Yahoo
Liquidity Ratio (x)-Google
Liquidity Ratio (x)-Yahoo
Shareholders Liqui. Ratio (x)-Google
Shareholders Liqui. Ratio (x)-Yahoo
Solvency Ratio (%)-Google
Solvency Ratio (%)-Yahoo
Gearing (%)-Google
Gearing (%)-Yahoo
7,91
3
7,91
3
66,68
8
88,4
77
1,57
13
12,08
3
12,08
3
87,64
8
91,7
79
1,14
12
10
3
10
3
132,17
10
92,24
80
0,76
10
8,49
1
8,49
1
37,16
24
89,56
78
2,69
4
Per employee ratios
Profit per Employee (Th.)-Google
Profit per Employee (Th.)-Yahoo
Incomes per Employee (Th.)-Google
Incomes/Emplo. (Th.)-Yahoo
Working Capital/Emplo. (Th.)-Google
Working Capital/Emplo. (Th.)-Yahoo
Total Assets/Emplo. (Th.)-Google
Total Assets/Emplo. (Th.)-Yahoo
215
156
1056
470
92
57
1097
1 208
377
260
1081
536
101
66
1808
1 105
376
96
994
564
104
72
1731
1 010
338
59
987
487
112
61
1508
855
Operational ratios
Net Assets Turnover (x)-Google
Net Assets Turnover (x)-Yahoo
12
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