World's Scariest Stock: Yahoo!

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Bat got your tongue? We dare you to keep reading our special series on the World’s Scariest Stocks.

Yahoo! (Nasdaq: YHOO  ) ? More like Ya - boo!, if you ask me. Our 120,000-strong Motley Fool CAPS community appears to agree:



CAPS stars (out of 5)


Total ratings


Bullish ratings


Percent bulls


Bearish ratings


Percent bears


Bullish pitches


Bearish pitches


Data current as of Oct. 29, 2008.

One, two ... Jerry's coming for you
They're like the scared teen who's downed a pot of coffee in order to keep child killer Freddy Krueger at bay. Chief Yahoo! Jerry Yang lacks Krueger's scars or bladed glove, but his reign has murdered shareholders like few others. (Former Halloweenie Donald Trump comes to mind.)

The stock is down more than 55% since last June, when a decapitated Yahoo! turned to Yang to stop the bleeding. No such luck. A red river of losses still runs in the streets outside of the company's Sunnyvale headquarters.

That $33 per share Microsoft (Nasdaq: MSFT  ) offered you in May is looking pretty good about now, eh, Jerry? Slasher.

Three, four ... here comes the gore
It's so bad that Yahoo! last week said it would cut at least 10% of its workforce. Trouble is, we've heard this story before, and each time, the company ends up with more staff.

Heads up, former Dell (Nasdaq: DELL  ) employees: Yahoo! is apparently hiring.

Google (Nasdaq: GOOG  ) , meanwhile, is hacking away at its search rivals like Jason Voorhees on, well, pretty much any day of the year. The numbers are startling:


August 2008

July 2008














Ask Network








Source: comScore.

Ugh. Only DoubleGoo, IAC's (Nasdaq: IACI  ) Ask Network, and Time Warner's (NYSE: TWX  ) AOL saw growth, and only Google enjoyed meaningful growth. Yahoo! lost more share than any of its peers.

But Yahoo! is more than a search laggard. BusinessWeek each year ranks the most innovative firms around the world, and each year, Google ranks near the top. Yahoo! was ranked at one time ... no longer the case:


Yahoo! Rank

Google Rank










Sources: BusinessWeek, Boston Consulting Group.

Yahoo! can't keep up. Think of how startling a statement that is. The company has spent more than $1.4 billion to acquire nine firms since January of 2007, including $160 million for video syndicator Maven Networks in February.

But that's only part of the story. Yahoo! is comparatively poor at buying and shepherding innovation. Not good.

After a decade of studying Silicon Valley's finest, I've concluded that tech firms are best measured by their ability to efficiently use research and development dollars. Apple (Nasdaq: AAPL  ) is outstanding at this, as you might imagine. Yahoo! ... not so much.

Let's dig into the numbers. Calculating R&D efficiency is simple. Just divide the amount of incremental research investment required to produce new revenue and then express the total in dollars and cents. Here's how Yahoo! measures up:


Last 12 Months




New revenue

$394.4 mil.

$543.6 mil.

$1,168 mil.

$1,683.2 mil.

Additional R&D expense

$232.5 mil.

$251.1 mil.

$263.6 mil.

$188.7 mil.

R&D efficiency





Source: Capital IQ, a division of Standard & Poor's.

So, over the last 12 months, each new dollar of Yahoo! revenue required $0.59 in R&D expense to produce. But look at the pattern. Yahoo!'s cost of innovation is up more than five-fold since 2005. Yikes!

This isn't a perfect figure, of course. R&D begun in 2008 may not yield results till 2012 or later. And new revenue can be as much or more due to aggressive sales staff, a bustling channel, or any number of other factors besides outstanding product design. Such are the limits of financial shorthand.

Still, I believe this measure can be instructive if we ignore the pursuit of precision and focus instead on patterns. With that in mind, compare Yahoo! with Google:


Last 12 Months




New revenue

$5,948.5 mil.

$5,989.1 mil.

$4,466.3 mil.

$2,949.4 mil.

Additional R&D expense

$809.8 mil.

$886.6 mil.

$629.1 mil.

$215.7 mil.

R&D efficiency





Source: Capital IQ, a division of Standard & Poor's.

Need I say more? Jerry's coming for your portfolio, Fool. I think you should run. Do you agree? Go here in CAPS and rate Yahoo! to underperform. (It's 100% free to participate.) And then be sure to return here next week to find out which stock Fools voted the world's scariest.

Get your clicks with related Foolishness:

Fool contributor Tim Beyers recently returned from a tour of Silicon Valley with his Rule Breakers teammates, during which they visited more than a dozen established and emerging innovators. Care to learn more? Sign up for a 30-day trial. It's 100% free.

Tim had stock and options positions in Apple and Google at the time of publication. Google is a Rule Breakers recommendation. Apple is a Stock Advisor selection. Dell and Microsoft are Inside Value picks. The Motley Fool's disclosure policy wishes your portfolio a safe and spooky Halloween.

Read/Post Comments (0) | Recommend This Article (5)

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.

Compare Brokers

Fool Disclosure

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: 767201, ~/Articles/ArticleHandler.aspx, 10/26/2016 5:48:34 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...

Today's Market

updated Moments ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
YHOO $42.08 Down -0.47 -1.10%
Yahoo CAPS Rating: **
AAPL $115.59 Down -2.66 -2.25%
Apple CAPS Rating: ****
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
GOOGL $822.10 Down -6.45 -0.78%
Alphabet (A shares… CAPS Rating: *****
IAC $66.26 Down -0.88 -1.31%
IAC/InterActiveCor… CAPS Rating: *****
MSFT $60.63 Down -0.36 -0.59%
Microsoft CAPS Rating: ****
TWX $88.70 Up +1.54 +1.77%
Time Warner CAPS Rating: ***