Foolish Forecast: The New Yahoo! Is on Sale Today

If it's Tuesday night, it has to be time for a fourth-quarter earnings report from Yahoo! (Nasdaq: YHOO  ) . Travel back in time to review what happened in the third quarter, and how the numbers stacked up -- then get back here stat for a fresh helping of Foolish insight.

What Fools say:
Here's how Yahoo!'s Motley Fool CAPS scoring rates against some of its peers and competitors:

Market Cap (millions)

Trailing P/E Ratio

CAPS Rating

Microsoft (NASDAQ:MSFT)

$303,080

18.5

***

Google (NASDAQ:GOOG)

$175,390

43.8

**

Time Warner (NYSE:TWX)

$54,980

11.5

***

Yahoo!

$27,920

40.6

***

IAC/InterActiveCorp (NASDAQ:IACI)

$7,090

30.8

***

Data taken from Yahoo! Finance and Motley Fool CAPS.

The loosely defined online business sector gets a unanimous "Meh!" from our CAPS players, with only Google deviating from a perfectly neutral three-star rating -- and even Big G had a third star as recently as last week.

The bulls among us like to point out that Yahoo! still owns some of the finest real estate on the Internet, with a very large and loyal user base. And several commentators agree with my Foolish compadre Rick Munarriz, who firmly believes that Microsoft and Yahoo! would make beautiful music together.

On the bearish side of the fence, recession fears mingle with market share losses, implying that a buyout would be the only thing that could save this sinking ship.

What management says:
There's a whole new design behind the scenes at Yahoo!, just getting the final touches and a spit-shine before rolling out to replace the portal as we know it. CEO Jerry Yang used the recent CES trade show to show off the new digs, where Yahoo! Mail serves as the hub from which you interact with all the other services. The new direction is called Life!, a name that smacks of Apple (Nasdaq: AAPL  ) -esque thinking and designs, and Yang hopes that it will "get Yahoo! yodeling again."

What management does:
Revenue growth has come to a veritable standstill, and earnings have been shrinking steadily over the past few quarters. That's what happens when operating costs are growing faster than gross income, and that corporate sprawl is one reason why many observers want another massive restructuring like the one ex-CEO Terry Semel pulled off way back in 2001.

Margins

6/30/06

9/30/06

12/31/06

3/31/07

6/30/07

9/30/07

Gross

60.3%

59.4%

60.1%

59.9%

60.1%

60.3%

Operating

17.2%

15.5%

14.6%

13.9%

13.0%

12.3%

Net

21.1%

18.7%

11.7%

11.2%

11.0%

10.6%

FCF/Revenue

19.6%

15.7%

10.6%

11.6%

11.5%

13.5%

Growth (YOY)

6/30/06

9/30/06

12/31/06

3/31/07

6/30/07

9/30/07

Revenue

35.4%

28.7%

22.2%

15.6%

11.4%

9.9%

Earnings

(20.4%)

(26.5%)

(60.4%)

(60.4%)

(42.1%)

(38.0%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I think that Yahoo! is better off with a visionary like Yang at the helm than a number-cruncher like Semel. The company's strength lies in its unique position in the industry, based on a long and storied history, and Yang understands that fact better than anybody. After all, he was there to get the wheels of progress started 14 years ago.

The restructuring is coming to trim the fat and to recast Yahoo! in Yang's image. After that, it's up to the leader to impose his vision on the global Net audience and hope that it strikes a chord. Build a great portal and the revenues will come. Since October 2003, the share price has more than doubled -- and then fallen right back down again. It's trading near four-year lows right now, so if you believe in the vision, this would be a great time to get in. I'd be tempted if it wasn't for that pesky disclosure policy in my contract.

Further Foolery:


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