Beautiful Woman
The spring
in
her step
has
turned to
fall.
-- A.R. Ammons
The importance of this very short poem* will be clear in a minute. Until then, you can soak in this tribute to National Poetry Month while contemplating the fate of Internet veteran Yahoo!
What analysts say:
- Buy, sell, or waffle? A shy, shrinking flower, Yahoo! is not. A whopping 42 analysts cover the company, with 25 buy ratings and 17 holds between them, but not one seller. In our Motley Fool CAPS investor hive mind, it's a three-star stock based on ratings from more than 2,100 players.
- Revenues. Management expects about an 8% annual uptick in revenues less traffic acquisition costs, which translates to a $1.12 billion to $1.23 billion range. Wall Street wants $1.21 billion on average.
- Earnings. The consensus forecast calls for $0.11 of earnings per share, which would be even with the year-ago number.
What management says:
If you've been keeping up with our Foolish coverage of Yahoo!, you already know how important the new advertising system, code-named Panama, is to this company. It's a more personal, more responsive ad-selling platform that aims to level the playing field with market leader Google
Outgoing CFO Sue Decker explained in the latest earnings call that the system's impact won't be felt until it has matured a little bit. "Financially, we expect to begin to see a positive effect from this new system beginning in Q2 of '07 and then building throughout the year," she said. "Consequently, our business outlook implies acceleration in growth beginning in Q2, after we have had a couple of months of the new search ranking algorithm to be fully operational."
What management does:
Before diving into these numbers, it's important to note that the December 2005 quarter came with an inflated bottom line due to a substantial one-time tax benefit. That quarter's tax rate was 3%, as opposed to the more standard 40% reported the year before that, and 42% in 2006.
Even with that caveat, the big Y is starting to look less like a breathless growth stock and more like a mature, value-oriented investment. The slowing revenue growth is a big hint here, and again, the earnings numbers aren't completely representative, but you can see the trend developing nevertheless. (This is what the introductory poem is talking about.)
|
9/2005 |
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
|
|---|---|---|---|---|---|---|
|
Gross |
60.3% |
61.3% |
59.6% |
59.4% |
58.4% |
60.2% |
|
Operating |
24.3% |
24.5% |
23.7% |
23.2% |
22.9% |
23.0% |
|
Net |
32.8% |
36.1% |
32.8% |
21.1% |
18.7% |
11.7% |
|
FCF/Revenue |
25.3% |
24.8% |
21.7% |
19.6% |
15.7% |
10.6% |
|
YOY Growth |
9/2005 |
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
|---|---|---|---|---|---|---|
|
Revenue |
53.0% |
47.1% |
41.6% |
35.4% |
28.7% |
22.2% |
|
Earnings |
192.5% |
125.9% |
96.4% |
(20.4%) |
(26.5%) |
(60.4%) |
One Fool says:
There is no shame in maturity, though. Microsoft
Still, there's a decent chance that Panama could restart the sputtering growth engine here and put some of the spring back in the company's step -- or, if you will, turn back the calendar a couple of seasons. We won't see any of that in the next batch of financials, though Decker and CEO Terry Semel surely will mention the progress of Panama in the release notes and the trailing conference call.
Then we'll know which way Yahoo! is turning now -- to spring, or fall.
Yahoo! is a Motley Fool Stock Advisor selection, and Microsoft is a Motley Fool Inside Value pick. Spring into action with a couple of free 30-day trials, and see where the chips fall.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and the Foolish disclosure policy is both beautiful and mature.
*From The Very Short Poems of A.R. Ammons.
