Editor's note: Yahoo! reported earnings right after this article was written. Read our Foolish take on the release.
The Internet is full of ideas for stock investors. I'm not referring just to the content of financial sites like The Motley Fool -- although the Fool definitely has a lot of ideas, I point out with bias. Public companies operating on the Web oftentimes are great places in themselves to store some of your portfolio's cash. Today, I'd like to write in favor of a business you most assuredly know and maybe even love -- Yahoo!
One of the reasons I like Yahoo! is that often-talked-about intangible entity -- brand value. There's no question that Yahoo! is prime real estate in the land of cyberspace. Surfers from all around the world log on to its domain to read news items, check movie listings, join a group, do some shopping, open a mail account, and engage in a plethora of other activities. It's a major portal that engages millions upon millions of users and converts page views into valuable advertising and commerce opportunities, even while competing with juggernauts such as Time Warner's
Such opportunities have led to growth in revenues and net income for Yahoo! over the years. Let's look at a survey of data from last year's 10-K. All figures are in thousands, except per-share data.
|
Metric |
Fiscal Year 2005 |
Fiscal Year 2004 |
Fiscal Year 2003 |
|---|---|---|---|
|
Revenues |
$5,257,668 |
$3,574,517 |
$1,625,097 |
|
Net Profit |
$1,896,230 |
$839,553 |
$237,879 |
|
Net Income Per Diluted Share |
$1.28 |
$0.58 |
$0.18 |
|
Net Cash From Operating Activities |
$1,711,383 |
$1,089,821 |
$428,144 |
|
Capital Expenditures |
$408,934 |
$245,501 |
$117,329 |
|
Acquisitions, Net of Cash |
$1,698,164 |
$761,605 |
$377,986 |
Yahoo! has experienced excellent top-line and bottom-line appreciation over the past few years. Since the company has been quite acquisitive over this same time period -- for example, it purchased Flickr, a photo-sharing entity, back in 2005 -- I can't say that it has truly generated a lot of free cash. If you just deduct capital requirements, then Yahoo! has done well on the free-cash front, but I think an investor does need to take acquisitions into consideration. Still, the strategy seems to be paying off from a bottom-line perspective -- i.e., the investments are generating GAAP growth. In addition, the company's cash and equivalents increased from roughly $416 million at the end of 2003 to more than $1.4 billion in 2005.
The most recent 10-Q, however, shows near-term issues. Net income dropped to $482.7 million ($0.33 per diluted share) for the nine-month period ended Sept. 30, 2006, versus $1.2 billion ($0.82 per diluted share) in the previous year's comparable period. But consider this: Yahoo! still generated about the same amount of operational cash flow over this time period as it did in the previous year's comparable period -- about $1.2 billion. Cash and equivalents stood at a solid $1.2 billion against long-term debt of $750 million. What do all of these numbers mean? Fools, they tell you that this is a healthy company.
If you look at a chart, you'll see that Yahoo!'s stock has had a rough year. The market's been quite harsh on the company's short-term disappointments. But even though Yahoo! might be experiencing some short-term woes, I am quite bullish on its long-term prospects. Again, I have to go back to its ability to leverage brand equity to justify its acquisition strategy and, most of all, I look at its ability to turn these acquisitions into bottom-line profits.
There are all kinds of neat investment ideas from the Net. But when Yahoo! hit a low back in the fall, I became intrigued. In fact, I have to say that I actually was bearish on the stock until very recently -- I had pitched it as a potential underperformer last summer, when I opened my CAPS portfolio. After further digging, I found it had better long-term potential than I thought, and I concluded that I had been wrong to go against such a blue-chip portal.
Have you come to the same conclusion? Go to Motley Fool CAPS, a community of investors who rate stocks and try to beat the market together. Rate Yahoo! to make your own voice heard. If you agree with me, give it an "outperform" rating, and if you think I'm way off, rate it "underperform." The choice to select Yahoo! as the best e-commerce stock of 2007 is in your hands.
Some more articles on Yahoo!:
See all our Foolish candidates for 2007's best e-commerce stock, then add your own ratings in Motley Fool CAPS.
Yahoo!, Amazon, and Time Warner are all Motley Fool Stock Advisor recommendations. Microsoft is an Inside Value pick. Click the links to try out either newsletter service free for 30 days.
Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 2,105 out of 20,410 investors in Motley Fool CAPS. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
