Third-quarter profit at Yahoo! dropped 38% to $158.5 million, or $0.11 per share, including $80 million in stock-option expenses. Sales rose 20% to $1.58 billion. Although Yahoo!'s third-quarter results matched analysts' expectations, fourth-quarter revenue guidance trailed the consensus estimate.
Yahoo! does have a solid cash cushion, but even that deflated a bit. Cash and cash equivalents dropped 19% to $3.23 billion, while free cash flow decreased 16% to $288 million.
On a more positive note, gross profit increased 13% to $899 million. Yahoo! also plans a $3 billion stock buyback. Investors can also take heart in Yahoo!'s assurance that its Project Panama is on track. The project's algorithm should help link online advertising more closely to users' Internet habits.
On the other hand, Yahoo! admitted that it wasn't satisfied with the third-quarter financial results, and that its ad competition remains tough going. Its familiar rivals include Google
The company plans to continue investing in social media, adding to its portfolio of sites like Flickr and Del.icio.us, and to bolster its exposure to online video and other hot Internet applications.
Investors' jitters are understandable in light of the increasing competition online. But given some of the prices the Internet giants have been paying for hot Internet companies, including Google's YouTube deal and eBay's
Despite its current woes, Yahoo! still has plenty in its favor in the long run, including its formidable brand, large user base, extensive array of sticky online products and services, and long-standing Internet expertise. When Tom Gardner recommended Yahoo! in the August 2006 issue of Motley Fool Stock Advisor, he pointed to its strong balance sheet and financial acumen, and described it as a staple -- trading at reasonable prices, no less.
Despite Internet fads and short-term trends, there's no denying that Yahoo! is here to stay. Wall Street's current pessimism might translate into opportunity for Foolish long-term investors.
We've searched out further Foolishness:
- Relive Yahoo!'s last quarter.
- Google's pigging out on YouTube.
- Flash back to eBay's acquisition of Skype.
Alyce Lomax does not own shares of any of the companies mentioned.