Is It Finally Time For Yahoo?
This may sound like a broken record but Yahoo is undergoing a major overhaul once again. The company’s cofounder Jerry Yang resigned from the Board of Directors this week stepping down from a post that he has held for years. Yang’s departure has caused a temporary bump in the stock price as investors seem to be in favor of the move. So, is Yahoo finally ready to get things right?
Yahoo has made a number of leadership changes in recent years. Yahoo’s Board of Directors removed Carol Bartz as CEO after a relatively bland tenure at the company. Now the company has shed itself of Jerry Yang. Yang has been haunted by his terrible decision to reject Microsoft’s offer to buy the company. Microsoft was willing to pay $44.6 billion dollars for a company whose market cap is now at $19 billion dollars. Investors are still suffering from the spurned offer.
Take a look at this past quarter’s results to see how the company is suffering. Yahoo is seeing its revenues and profitability decline. That marks two straight quarters of lower top line and bottom line growth. The company’s net income for the previous quarter dropped 5 percent to $296 million dollars. Revenue was down 3 percent to $1.17 billion. The lone positive is that operating income rose 10 percent.
Yahoo continues to struggle to find its niche in the online arena. Yahoo has a number of attractive properties that the company has failed to leverage into revenue growth. Yahoo Finance, Yahoo News, and Yahoo Search are heavily trafficked. The company boasts over 700 million users. Yahoo has been trying to lower costs while selling off its stake in properties like Alibaba. The company is hoping to increase its online content and create a better user experience on the company’s web sites.
The stock has been trading in the teens for years and has no major catalyst to spark a move. A investment in the stock has either been dead money or resulted in a loss for a number of long term investors. The key to Yahoo’s long term hopes is to reinvigorate its display advertising business. This means competing against the giants in this space known as Facebook and Google. Display ad revenue has replaced search ad revenue as the main source of sales revenue for the company.
Yahoo is not cheap at $15 a share since investors are not completely sure of the business model of the company. Once investors see a few quarters of positive earnings growth and a clear cut strategy from the new CEO, investors can venture back into the stock.