Last quarter, analysts were expecting Yahoo! (Nasdaq: YHOO) to earn $0.11 a share on $1.1 billion in revenue before traffic acquisitions, and that's exactly what they got. I called Yahoo! boring.
Now it's boring and a copycat. Last night, the Internet giant posted second-quarter results that repeated its Q1 EPS results. Even if Yahoo! can argue that it earned $0.16 a share before stock-based compensation, that's not much of an advance form last year's $0.14-per-share showing on the same basis.
The market didn't yawn this time, though. It has sent the company's shares 21% lower in today's trading. Investors aren't comfortable paying more than 60 times earnings for Yahoo!'s predictable production, especially when you have Google (Nasdaq: GOOG) with its ability to mix up the party by either beating or missing Wall Street targets on a double-digit-percentage basis.
Shareholders may also have been concerned with sluggish domestic growth. Yahoo! generated just a 23% uptick in stateside revenue, while the top line improved by 32% outside the United States. Things got only worse on the way down to the bottom line, with margins contracting slightly. That trend also soured Yahoo!'s previous quarter.
In a nutshell, Yahoo! needs a change of scenery. Whether that means a meaty acquisition or a spinoff of some of its slower-growing fee-based businesses, something's got to give here. Paid search isn't going to get any easier, with Google eating up market share, Microsoft (Nasdaq: MSFT) jumping in with its AdCenter, and IAC/Interactive (Nasdaq: IACI) making a move in this suddenly crowded niche.
Yahoo! is delaying the launch of a new ad platform until the end of the year, but let's not lean on that as a savior in any event. There's no reason to believe that a few tweaks will allow Yahoo! to stop yielding market share to eyeball magnets such as Google or News Corp.'s (NYSE: NWS) MySpace.
I've been a fan of Yahoo! for years, but it's no fun to watch paint dry. Whip out that easel, Yahoo!, and paint something special for a change.
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Longtime Fool contributor
Rick Munarriz
is a frequent Yahoo! visitor, and he's not much of an art critic, so maybe there really is joy in watching paint dry. He does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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