Is Video Yahoo!'s Next Growth Engine?

A year after Yahoo!'s  attempt to buy Dailymotion was quashed by the French government, an internally developed competitor to Google's YouTube is rumored to be right around the corner.

This move is big and bold, but hardly risky for one of the few Internet companies with a legacy back to the early 90s. Over the years, the company has built up a massive amount of consumer data and developed endless content relationships, so leveraging these assets through the most popular information medium, video, is a natural progression. This could be the big thing that the company needs to jump start profit growth.

Video isn't new to Yahoo!
Yahoo! had a video sharing site, but stopped allowing people to upload files in 2011. The company actually took people's videos offline shortly afterward without incurring a huge public outcry, which may help explain why that business was eliminated. Now, renamed Yahoo Screen, the company is reported to be courting YouTube stars in a move that could inject growth into a business that investors seem to have forgotten about.

Star Power could attract smaller providers
Yahoo! is attempting to reinvigorate its news business by hiring Katie Couric as its "Global Anchor." This shows Yahoo!'s deep commitment to creating content, and that the company is willing to spend to do it. Couric's contract with ABC has been estimated at $40 million and could be a magnet for high-quality independents who would like their content offered on the same platform as a major star.

An acquisition could bolster its content library
To bolster its content library, Yahoo! is also supposedly in talks with News Distribution Network, as reported by the Wall Street Journal. NDN is a syndication service that supplies video news to web publishers on a wide variety of topics. An acquisition like this seems like a cost effective way for Yahoo! to quickly ramp its content library, which would be necessary to compete with YouTube.

Too big of an opportunity to ignore
YouTube accounted for 18.6% of all North American Internet traffic in the second half of 2013, according to Sandvine's Internet traffic trends report. This opportunity is just too big for a company like Yahoo! to ignore. It already has the engineering talent on hand, as well as the capital to invest.

Yahoo! needs a growth engine, a big one
The Alibaba equity stake has been the crux of the investment thesis for several years, and now the IPO is on the horizon. Yahoo! holds 24% of Alibaba, which is expected to go public at a valuation of $150 billion. This valuation would make Yahoo!'s piece worth $36 billion. This is a great investment for a company that only raised $33.8 million at its own public offering, but without an organic growth story it could be difficult for Yahoo! to hold its valuation.

Yahoo! needs a growth engine large enough to power this big ship now, and this will probably be its focus. Whether it is consumer created content or professionally produced content, this venue could bring incremental users to Yahoo Screen, along with advertising dollars. 

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David Eller has no position in any stocks mentioned. The Motley Fool recommends Google and Yahoo!. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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