Does Yahoo! Even Care Anymore?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Google the term "lame duck company" and you may find Yahoo! (Nasdaq: YHOO  ) on top. If not, check back later, because it's bound to happen.

Yahoo! posted another lackluster quarter last night. Revenue before traffic-acquisition costs moved just 3% higher to $1.325 billion. Earnings, operating cash flow, and free cash flow all fell over last year's performance.

Yahoo! is no longer a bellwether. If you want a real barometer, you should have been here a week ago, when Google (Nasdaq: GOOG  ) posted revenue and earnings growth of 31% and 26% respectively. In fact, Google's third-quarter profit of $1.35 billion is more than Yahoo!'s TAC-adjusted top line!

This is a mess. The stock may have ticked higher on the news, but it's really just an exhale of relief that Yahoo! isn't completely irrelevant by now. It's getting close, though. Yahoo! came within a mere $5.7 million of posting an operating loss domestically. How pathetic is that?

The boardroom undoubtedly knows that its days are numbered. With the stock trading well below the $31 Microsoft (Nasdaq: MSFT  ) buyout offer that it rebuffed earlier this year, battered shareholders will want blood by next summer's annual meeting.

All aboard the unsinkable S.S. Yahoo!
Yahoo! isn't just rearranging the Titanic deck chairs: It's also tipping the band.

Last night's conference call was loaded with growth initiatives like new ad platforms and the push to turn its Yahoo! Mail juggernaut into a social networking beast. The problem is that you're hearing stuff like this every three months out of Yahoo!, yet every quarter finds it falling further behind to Google.

So if Yahoo! knows that its execs are toast -- and head-scratching moves like the rumored hookup with Time Warner's (NYSE: TWX  ) similarly rudderless AOL stink of "last call" barfly desperation -- is the company even really trying?  

Nothing is as emblematic of Yahoo!'s ineffectiveness as the announcement last night that it will trim "at least" 10% of its workforce. It may seem like a move that is long overdue given the company's chunky cost structure, but with 15,200 employees, the move is really just taking Yahoo! back to where it was with 13,800 hires at the end of the first quarter.

In other words, it's really just asking the dentist to scrape away the plaque that has accumulated over the past six months instead of having its wisdom teeth extracted. I'll insert a dramatic pause here so you can fire back the obvious one-liner about Yahoo!'s wisdom already being extracted.

You are funny. Yahoo!, unfortunately, is no laughing matter.

My kingdom for a compass
There is strength in Yahoo!'s report. It's just not where you expect to find it. After all, Yahoo! has done nothing but hammer its leadership position in display advertising -- over Google's bread-and-butter search stronghold -- but display advertising is up just 3% over the past year.

Yahoo! beats its chest about how its ad-serving technologies make it an attractive draw to newspaper consortiums and third-party publishers, yet affiliate revenue actually fell by 10% during the quarter.

Where Yahoo! is growing well is in search. Yahoo! came through with a 17% year-over-year gain in search revenue on its owned and operated sites. It's a line item that finally topped display revenue on Yahoo!'s own sites.

Maybe it's time for Yahoo! to embrace its role as a poor man's Google instead of trying to distance itself with its string of display advertising-related acquisitions.

If Yahoo! was smart, it would take that $3.3 billion in cash and marketable securities on its balance sheet and go shopping. Instead of buying display ad networks, it should concentrate on high-traffic sites that draw the audiences made for paid search advertising.

With companies like wedding planning hub The Knot (Nasdaq: KNOT  ) , interest rate watcher Bankrate (Nasdaq: RATE  ) , and car dealer lead generator Autobytel (Nasdaq: ABTL  ) at rock-bottom prices, just a third of Yahoo!'s cash hoard would be enough to buy all three companies, opening up the door to more lucrative ad outlets.

Then again, lame duck companies don't do that. They sit around and hope that Microsoft comes back, they run off a few extra copies of their resumes, or they keep Googling the term "lame duck company" until they finally lead in something.

Some other recent dot-com dealings:

Microsoft is a Motley Fool Inside Value recommendation. Google, The Knot, and Bankrate are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz would rather throw a search party than call for one. Hdoes not own shares in any of the stocks in this story. Rick 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 (2)

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 October 22, 2008, at 11:30 AM, weiwentg wrote:

    I previously said, in response to a TMF article commenting about Steve Ballmer's remarks that Mr Softy might still be inclined to buy Yahoo, that I wouldn't pay more than $13 a share, the closing price on the day. Now I'm not sure I'd pay even that much.

  • Report this Comment On October 22, 2008, at 12:44 PM, j01fly wrote:

    At current earning multiples Yahoo is still 50% overvalued. Rearraning this Titanic's deck chairs will not stop the price drop until Mr. Softy or others come calling. Furthermore from a pure finanical value perspective Mr. Softy should not buy this company until after an AOL acquistion.

Add your comment.

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: 759959, ~/Articles/ArticleHandler.aspx, 10/24/2016 5:02:46 AM

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 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

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

10/21/2016 4:00 PM
YHOO $42.17 Down -0.21 -0.50%
Yahoo CAPS Rating: **
ABTL $17.12 Up +0.03 +0.18%
Autobytel CAPS Rating: **
GOOGL $824.06 Up +2.43 +0.30%
Alphabet (A shares… CAPS Rating: *****
MSFT $59.66 Up +2.41 +4.21%
Microsoft CAPS Rating: ****
RATE $7.65 Down -0.05 -0.65%
Bankrate CAPS Rating: **
TWX $89.48 Up +6.49 +7.82%
Time Warner CAPS Rating: ***
XOXO $18.53 Down -0.06 -0.32%
XO Group CAPS Rating: **