Yahoo Inc (YHOO) recently announced that it would increase its efforts to protect user privacy by encrypting information flowing between its data centers within the first quarter of 2014. Users will have the option to apply the same to all data flow between themselves and Yahoo!'s services.
This announcement came close on the heels of recent reports about NSA and other government agencies tapping communication lines of the data centers operated by Yahoo and Google (GOOG).
The increased use of encryption technology is aimed at combatting government surveillance that may be occurring without the knowledge of the companies. Even when it's encrypted, online data can still be accessed, but without the decoding keys the information is unintelligible.
Reportedly, Google started encrypting soon after recent revelations about the NSA’s data gathering created massive outburst, criticism and concern regarding privacy of users.
The adverse publicity doesn’t seem to have hurt user activity on Yahoo. The company’s search business continues to show signs of improvement, even in the face of tough competition from Facebook (FB), Google and Microsoft (MSFT). Currently, Yahoo has a huge task at hand, which is to retain and add to its user base and make them spend more time on its properties. This would play an important role in bringing back advertisers as well.
However, inability to protect user information could damage its reputation and affect its credibility, thus slowing down its financial growth and undercutting its stock prices in the process.
Though monetization on Yahoo properties needs to improve, Marissa Mayer is clearly steering Yahoo in a new direction. This, along with the Alibaba IPO news has boosted share prices. In the last six months, Yahoo shares have appreciated 40.3%.
Yahoo reported GAAP revenues of $1.14 billion in the third quarter, flat sequentially but down 5.2% year over year. Traffic acquisition cost (TAC) was down 9.1% sequentially and 48.2% from last year. Excluding these costs in all periods, net revenue was essentially flat (up 0.9% sequentially and down 0.8% year over year).
Currently, Yahoo has a Zacks Rank # 3 (Hold).
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