This Stock Is a Mixed Bag of Fun!

On April 16, one day after Yahoo! released its earnings for the first quarter of its 2014 fiscal year, shares of the online search giant soared 6%, serving as a sign that investors are thoroughly impressed with management's progress. But with shares up so much in one day, should the Foolish investor look to Google (NASDAQ: GOOG  ) or Facebook (NASDAQ: FB  ) for future gains, or does Yahoo! still have room to run?

Yahoo!'s quarter was strong, but not terribly special
For the quarter, Yahoo! reported revenue of $1.13 billion. Although this is down from the $1.14 billion management relayed to investors the same quarter last year, the company's top line actually rose 1% -- from $1.07 billion last year to $1.09 billion -- after taking out traffic-acquisition costs. This also beat the $1.08 billion analysts hoped to see for the quarter.

According to Yahoo!'s release, the main driver behind its higher revenue was a 5% increase in revenue stemming from its search business. Excluding traffic-acquisition costs, these operations saw revenue expand 9%, from $409 million to $444 million. Meanwhile, the company's display operations also did well, with adjusted revenue inching up 2%, from $402 million to $409 million.

In terms of profits, Yahoo!'s performance was all right, but nothing special. For the quarter, the company reported earnings per share of $0.29, down 17% from the $0.35 management reported the same quarter last year. After taking out the impact of stock-based compensation and other miscellaneous expenses, this metric rose to $0.38, in line with last year's earnings and $0.01 higher than what was forecast.

Is Yahoo! staging a comeback?
Over the past five years, the situation at Yahoo! has been somewhat of a mixed bag. Between 2009 and 2013, the company reported a drastic 28% drop in revenue. Most of this decline took place between 2010 and 2011 when the company had to restructure an agreement with one of its largest partners and when it lost the business of another company in the Asia/Pacific region. This trend has been partially offset by the revenue Yahoo! has been receiving from Alibaba Group as part of its TIPLA agreement with the company.

FB Revenue (Annual) Chart

FB Revenue (Annual) data by YCharts

This performance pales in comparison to both Google and Facebook over the same time frame. Over the past five years, Google's revenue jumped an impressive 153%, from $23.7 billion to $59.8 billion, while Facebook's rose 913%, from $777 million to $7.9 billion. Google's higher sales growth was primarily attributable to a significant increase in advertising from the company's Google segment, but was also aided by its purchase of Motorola Mobility. Facebook also enjoyed significant growth in its advertising revenue, mostly driven by a huge increase in its daily active users.

While Yahoo!'s revenue trend looks terrible when placed next to its peers, the company's profitability seems to indicate that times have never been better. Over the past five years, the company's net income skyrocketed 128%, from $598 million to $1.37 billion. Despite lower sales, Yahoo! saw a significant drop in its cost of revenue in relation to sales. 

FB Net Income (Annual) Chart

FB Net Income (Annual) data by YCharts

Google also performed well over this time frame, but not as well as its smaller peer. Between 2009 and 2013, Google's net income rose 98%, from $6.52 billion to $12.92 billion. Even though revenue grew drastically, the company's slower growth in profitability stemmed from a 230% rise in selling, general, and administrative expenses, while its research and development expenses increased 180%, from $2.84 billion to $7.95 billion.

The only one of the three big Internet firms discussed here that did dynamite on both revenue and net income was Facebook. During the business's most recent five-year period, net income soared 551%, from $229 million to a jaw-dropping $1.49 billion. In addition to benefiting from higher revenue, Facebook saw its cost structure fall in relation to sales. One of the largest contributors to this improvement was the business's cost of revenue, which fell from 28.7% of sales to 23.8%.

Foolish takeaway
Based on the data provided, it's clear that Yahoo! had an OK quarter, but it wasn't anything to be very excited about. On top of this, management has presided over an enterprise that has experienced lower revenue each year, but the larger profits the company has raked in seem to compensate for these shortfalls. Moving forward, it's difficult to tell how well Yahoo! will fare in this increasingly competitive business landscape, but if the company can continue its bottom-line performance, it's possible investors can see some nice returns.

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