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Yahoo Acquires Startup OnTheAir

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Yahoo Inc. recently announced that it had acquired a video chat startup company, OnTheAir, to boost its mobile offerings. The terms of the deal were not disclosed.

San Francisco-based OnTheAir sells an application, which allows users to host online talk shows. What sets the application apart is the fact that the participating audience is featured through split-screen chats for everyone to see.

Following the acquisition, OnTheAir’s five-member team will work with Yahoo’s mobile division. Though Yahoo has not specified whether it would discontinue the chat service, we believe this acquisition appears to be geared more toward acquiring the engineering talent than technology.

Since Marissa Mayer’s appointment as Yahoo’s new CEO earlier this year, she has sought to expand the company’s mobile offerings since the space is integral to Yahoo's future growth. As a part of its mobile strategy, the company is eyeing smaller companies with engineering talent and mobile computing specialists. On similar lines, Yahoo acquired a mobile startup Stamped in October. Its application enables consumers to share information about their favorite restaurants and music on their smartphones.

According to recent data from IDC, the worldwide mobile phone market will grow 1.4% in 2012. The research firm expects vendors to ship more than 1.7 billion phones this year, increasing to 2.2 billion phones by 2016. Though the growth in the overall market has slowed down, the shift towards smart devices continues.

Yahoo! Inc. has come out with better-than-expected third quarter results with non-GAAP earnings up sequentially as well as year over year and exceeding the consensus estimate by 11 cents. However, a turnaround in the company’s business still remains a big task for the new CEO, given Yahoo’s declining position in display and search and the monetization issues related to Microsoft’s search platform. Yahoo also lags in several emerging segments, such as mobile, social and the cloud.

Currently, Yahoo has a Zacks Rank #3 (Hold). We note that its archrivals, Google and Microsoft Corp. (MSFT - Free Report) also carry a Zacks Rank #3 (Hold) while Facebook Inc. (FB - Free Report) carries a Zacks Rank #2 (Buy).

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