Babylon Shares Plunge as Company Battles to Heal Ruft With Yahoo

Online translation company agrees to identify and root out contract violations that threaten to end lucrative revenue-sharing agreement.

Shares of the online translation company Babylon lost close to a fifth of their value in Tel Aviv Stock Exchange trading yesterday after the company said it was acting to correct violations of its agreement with the United States web portal and search engine company Yahoo.

Babylon said it was acting after a meeting with Yahoo executives on Tuesday night, at which the U.S. company cited a host of contract violations that were grounds for annulling the agreements. Yahoo is one of Babylon's biggest sources of revenue.

"The company will act in the coming days to monitor and identify additional problems and report back to Yahoo on its findings," Babylon said in a statement to the TASE. "At this stage Yahoo has not suspended discussions between the two sides."

In the meantime, to avoid any further violations, Babylon said it was slashing its daily spending on acquiring new customers by 70%. "Reducing investment ... will cause a reduction in the company's revenues," it warned.

Babylon closed down 18% to NIS 19.70 in TASE trading, with NIS 48.2 million shares changing hands. The stock has plummeted close to 28% in the past four trading sessions.

In a letter last Friday, Yahoo threatened to cancel their contract if the infractions were not rectified. Babylon executives said that the infractions were made by Babylon’s business partners.

TheMarker has learned from a source who asked not to be identified that Babylon violated Yahoo's code of conduct by moving Internet display ads to spots already allocated by Yahoo to other advertisers. Most of Babylon's revenue comes from online advertising and revenue-sharing agreements.

Investors are concerned because Yahoo and Google are the two main sources of revenues for Babylon, each accounting for more than 30% of revenues. In the second quarter, Babylon earned NIS 52 million from Yahoo out of a total revenue of NIS 163 million.

Over the past year, Babylon's management has awoke nto the risk of being so reliant on just one company, namely Google at the time, and last April signed a four-year ad revenue sharing agreement with Yahoo.

Investors are also worried that losing the Yahoo contract might jeopardize Babylon's merger with software firm IronSource. The tie-up was set to take place in the next several weeks, with IronSource shareholders getting two-thirds of the merged company.

Reuters