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.

5 Responses to “Is It Finally Time For Yahoo?”

  1. avatar Money Beagle says:

    Back in the day I used Yahoo for everything, from e-mail to their dating service, to the My Yahoo homepage to photo storage and probably a lot more. Now, I barely use it for anything. Well, I don’t need the dating service but I think they discontinued it anyways. Along with their photo service. The My Yahoo just got outdated. My e-mail continued to get spammed even after I’d change passwords regularly. So I pretty much use Yahoo for nothing these days. I have a hard time believing that they’ll be able to really entice people back who have left.

    • avatar RobberBaron says:

      I still use yahoo for lots of things. It is no longer cutting edge, in fact has become a little clunky in some areas. But it has several favorable attributes:

      1. it is NOT google. Being naturally contrarian and anti-oligopolian, I fear that google has become a near universal solution for so many. Remember concerns about Netscape and Microsoft Windows and Internet Explorer and Outlook? How is it any different with google?

      2. I “know” the systems… at least, until the next revision, which then takes some relearning.

      3. I like the messenger better than google’s.

      None of these are reasons to invest, and I’ll grant that once lost, it’s really darn difficult to retrieve them. And the younger generation aren’t likely to to join what they may see as “their father’s former system.”

      I could see a short-term (1-3 year) climb for Yahoo, but long-term… it’s time for the next pony.

  2. I’m not sure positive earnings growth will be enough to prove to be a reliable investment opportunity. In my own opinion, if shares went up $5 within 2 quarters it would be too late for investors as Yahoo doesn’t have much room for growth, since competing with the two giants in the same niche. Yahoo is a good company, I’m especially fond of their small business services. I just would like them to receive more revenue from the search ads and I would consider buying shares.

  3. avatar Chuck says:

    Yahoo is my homepage. To me it is like an old friend.

  4. I swear by Yahoo Finance when doing a quick check on a stock. It has tons of really great info.

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