Yahoo! Continues to Slip

Once again, Yahoo! (Nasdaq: YHOO  ) proves that it's little more than a poor man's Google (Nasdaq: GOOG  ) .

If you were blown away by Big G's fourth-quarter report last week, with revenue and earnings growing by 17% and 33%, respectively, its fading rival didn't do much to impress over the same three months.

Revenue before traffic-acquisition costs fell by 8% to $1.26 billion during Yahoo!'s final quarter of 2009. Earnings, before charges related to the company's restructuring and its search agreement with Microsoft (Nasdaq: MSFT  ) , fell to $0.15 a share after the dot-com portal earned $0.17 a share a year earlier.

The silver lining is that analysts were expecting a profit of $0.11 a share on $1.23 billion in adjusted revenue. So Yahoo!'s showing is a relative victory, but clearly, it's not an absolute one.

"The fourth quarter marked a strong finish to 2009," notes CEO Carol Bartz in the release. I don't think she's trying to be funny. She's probably referring to the sequential improvement during the holiday-sparked quarter. Investors shouldn't get too excited, though. Yahoo!'s guidance for the current quarter points to a pronounced sequential dip in revenue and operating profits. In three months, we'll probably hear Bartz say that the first quarter marked a weak start to 2010.

One positive out of Yahoo!'s report is the $4.5 billion in cash and marketable debt securities. If  Yahoo! doesn't have the secret sauce to grow organically, it may as well go shopping.

Despite the past 10 months of rallying stock prices, Yahoo! could still bag either AOL (NYSE: AOL  ) or IAC (Nasdaq: IACI  ) to pump up its diminishing market share in search. Facebook is out of its price range, but Twitter or LinkedIn would fit the bill -- and billfold -- if they would ever make themselves available. Yahoo! could also buy a handful of smaller dot-coms that would broaden its online-advertising empire. Marchex (Nasdaq: MCHX  ) and ValueClick (Nasdaq: VCLK  ) are a couple of logical targets that wouldn't break the bank.

Will Yahoo! make any needle-moving deals? Probably not. Will it begin to post year-over-year gains once the economy improves? Definitely. Will Google grow even faster -- and pad its perpetually widening lead? Of course.

What do you think Yahoo! needs to do to grow again? Share your suggestions in the comments box below.

Microsoft is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. One of them may be just what you're "searching" for.

Longtime Fool contributor Rick Munarriz wonders what would happen if he were to one day cut himself and start bleeding purple. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (2) | 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.

  • Report this Comment On January 29, 2010, at 9:45 PM, moneymaverick2 wrote:

    We all know Yahoo is not Google, but we are missing in my view an interesting price for shares of YHOO.

    If we breakdown the company into cash ($3 a share) and the Asian Investments we get at least $7 a share in total value. If we are more bullish on Yahoo's investments in these other businesses we get an even larger part of the share price in these two items.

    The question is Yahoo of similar quality to the likes of AOL, Earthlink, United Online, and Valueclick?

    My analysis tells me it is not even close. Yahoo's core business is trading at 5 times normalized EBITDA which compares favorably to these inferior businesses that do not have the properties Yahoo has.

    Your thoughts?

  • Report this Comment On January 29, 2010, at 10:33 PM, topsecret10 wrote:

    I wouldn't buy yahoo with If I had Buffetts money.... They censor their bloggers If they do not agree with the corporate masters In terms of general opinions... I hope they disappear Into oblivion........ TS

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