Even as Google readies itself for next month’s multibillion-dollar initial public offering, Yahoo — which employs a similar business model that relies on free content and paid advertising — is now financially strong enough to be considered investment grade, according to Standard & Poor’s Ratings Services.
The upgrade from BB+ to BBB-, the agency’s lowest investment-grade rating, is based on the Yahoo’s “growing roster of paid relationships, further strengthening of key financial measures, and increasing importance of online (through both branded and sponsored search) advertising to marketers,” according to S&P’s announcement.
“The majority of Yahoo’s services are free,” stated Standard & Poor’s. “However, Yahoo has been aggressively introducing fee-based services… on a standalone basis and through partnerships with broadband access providers. Yahoo’s marketing services, including banner ads, sponsored search, paid inclusion, and sponsorships, are well established and are generating the majority of the company’s revenue.”
“We expect sponsored search and branded advertising will continue to experience healthy growth over the next two to four years as consumers spend more time online and marketers shift advertising budget toward online,” added the ratings agency.
The outlook for the rating on the Sunnyvale, California-based company, which had a total outstanding debt of $750 million as of June 30, is stable. According to S&P, the company is in a very liquid position with about $2.6 billion in cash, short-term, and long-term marketable securities. Acquisitions and, potentially, share repurchases over the intermediate term are the most likely uses of this cash.