Yahoo! Is Google in Slow Motion

Everyone knows that Yahoo! (Nasdaq: YHOO) is a slowpoke. You don't need to wait up for Google (Nasdaq: GOOG) to post heady growth tomorrow. Its own results yesterday tell all.

Yes, it was another lackluster showing at Yahoo!. Revenue, after traffic acquisition costs, inched 11% higher to $1.2 billion. Earnings clocked in flat at $0.11 a share. The company is also lowering its second-half guidance, looking for 11% top-line growth for the third quarter as well as for all of 2007.

Eleven percent revenue growth, everywhere you look? Eleven cents a share of profit, something that the company has posted in four of the past six quarters? Where's the company stashing those Spinal Tap amplifiers, because it always seems to go to 11?

Getting into the mix
Like most reports, it's a mixed bag here. Revenues inched just 5% higher stateside, countered by a 15% spurt overseas. That's troubling because Panama -- the search engine upgrade designed to make the company's contextual marketing platform more like Google's AdWords -- was rolled out domestically first, several months ago.

Yahoo! is also boasting that its owned and operated websites saw an 18% top-line uptick during the quarter. That is comforting, until one begins to wonder what went wrong with the third-party affiliates. Are they just dot-com duds, or have they taken their monetization efforts elsewhere, like Google or Microsoft 's (Nasdaq: MSFT) MSN? Yahoo! affiliates provided 5% less in revenue to the company than they did a year earlier. Google's own Web page traffic has grown quicker than its third-party AdSense network in recent quarters, but at least both are growing briskly.

In short, Yahoo! is doing better within its walls than in the outside world. Even on the fee side, where Yahoo! collects subscription revenue from things like job listings, personals, and premium email, the company is doing pretty well. Business there inched 12% higher, fueled by an 18% surge in users with Yahoo! to total 16.9 million subscribers.

The company's success with its own properties should be inspirational. It's also a hunger that should be fed, and fed well, with acquisitive performance enhancers. Whether it's a slow-growing online empire like CNET (Nasdaq: CNET) that can deliver niche users in volume or a lucrative operator like wedding planning hub The Knot (Nasdaq: KNOT) or financial rates publisher Bankrate (Nasdaq: RATE) with their high-paying advertisers, it can't limit its internal growth organically. If affiliate publishers are finding rival programs like AdSense more financially feasible, it's going to build its walls a little further out to keep advertisers coming.

Thankfully, Yahoo! has the cash for it. The company closed out its second quarter with $3.2 billion in greenbacks and marketable securities. While not quite as liquid, the company's stakes in Asian powerhouses Yahoo! Japan, Korea's Gmarket (Nasdaq: GMKT), and China's Alibaba amount to $8.4 billion -- before taxes -- or roughly $6 a share at current prices.

Don't panic if Yahoo! goes organic
There is also room for organic growth at Yahoo! The company's collection of sites draws more traffic than Google. However, Yahoo! has historically never been as good as Google as milking ad revenue out of its page views.

A lot of that is because some of Yahoo!'s most highly trafficked destinations -- like Yahoo! Mail or its discussion boards -- are tough nuts to monetize. Users are there for set reasons and are unlikely to be distracted by a relevant ad.

Still, I like hearing President Sue Decker refer to the 250 million Yahoo! Mail accounts as a "dormant social network" because there is plenty of untapped potential in reaching out to an audience that it knows all too well.

Yes, it does know its users. It was the company's behavioral targeting acumen that helped it beat out rivals like display advertising giant DoubleClick in securing a consortium of newspapers to set up Yahoo!-powered websites.

Is Yahoo! in a funk? You bet. However, with clear paths to improve the monetization of its healthy in-house traffic, it may be just a matter of time before Yahoo! whips out its Spinal Tap amplifiers rather than suffer the fate of its perpetually expiring drummers.