Why Yahoo! Shares Netted Big Gains

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of search engine Yahoo! (NASDAQ: YHOO  ) vaulted higher by as much as 11% after the company posted a better-than-expected second-quarter profit.

So what: Unfortunately for investors, today's earnings report isn't as cut-and-dried as "Yahoo! beats." In fact, it was a very mixed report, with Yahoo!'s core ad business falling yet again, all while digital ad sales are growing in the U.S. by double digits. For the quarter, Yahoo! reported a slight drop in revenue to $1.07 billion, which was below the Street's expectations, but delivered 46% net income growth from cost-cutting measures that drove adjusted EPS to $0.35, $0.05 better than expected. On the downside, Yahoo! also lowered its full-year revenue forecast to a range of $4.45 billion to $4.55 billion from its previous forecast that called for $4.5 billion to $4.6 billion in revenue.

Now what: The real driver appears to be the strong growth at Alibaba, of which Yahoo! still holds a 24% stake. Expected to IPO sometime in 2014, some analysts have boosted their perceived valued of Alibaba to as high as $120 billion, which would translate into nearly $30 billion in value for Yahoo! In the meantime, Yahoo!'s ad business is continuing its downward spiral despite CEO Marissa Mayer's best efforts to make small, but earnings accretive, acquisitions. Despite the promise that Alibaba is showing, I have to question whether Yahoo! has anything left in the tank other than its Alibaba investment. As of now, I wouldn't say I'm all too impressed.

Tired of watching stocks like Yahoo! struggle with ad growth while other companies are putting up robust growth figures? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2542531, ~/Articles/ArticleHandler.aspx, 9/17/2014 9:38:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement