The good folks of Yahoo! (NASDAQ:YHOO) can wear all the purple they want, because their morale sure needs a boost these days. The second-quarter report was a downer, and even the government looks like an enemy these days.

Does the one-time Internet giant have one more yodel left in it? I'm not so sure.

What Fools say:
Here's how Yahoo!'s CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating
(5 stars max)

Microsoft (NASDAQ:MSFT)

$223.9

13.2

***

Google (NASDAQ:GOOG)

$119.3

23.6

***

News Corp. (NYSE:NWS)

$25.2

5.3

***

eBay (NASDAQ:EBAY)

$20.1

10.7

***

Yahoo!

$17.8

17.3

**

Data taken from Motley Fool CAPS on 10/21/2008.

It seems like nobody loves or hates the e-commerce sector at large, but Yahoo! gets the worst grade of the bunch. All-Star Motley Fool CAPS player rayandfran blames management that "is not acting in best interests of the company." CEO Jerry Yang may have many talents, but they do not include running a company, says rayandfran.

On the other hand, CAPS player wheelscdkmt points out that Yahoo! "has lots of cash and investments and has dropped to where it is a great value." A few other players still think Microsoft will make another acquisition play, and hope for a nice price premium.

What management does:
Could it be coincidental that Yahoo! appeared to kick its net income margin into recovery mode when Microsoft started sending scented love notes. It's a bit of smoke and mirrors, though. The first quarter included a one-time $401 million gain from the IPO of Chinese e-auction site Alibaba.com (OTC: ALBCF.PK). Nice timing, dudes.

Margins

3/2007

6/2007

9/2007

12/2007

3/2008

6/2008

Gross

58.2%

58.4%

60.3%

59.3%

59.5%

58.9%

Operating

13.9%

13.0%

12.0%

10.2%

9.7%

8.4%

Net

11.2%

11.0%

10.6%

9.5%

14.9%

14.3%

FCF/Revenue

11.6%

11.5%

13.5%

18.9%

23.1%

22.7%

Growth (YOY)

3/2007

6/2007

9/2007

12/2007

3/2008

6/2008

Revenue

15.6%

11.4%

9.9%

8.5%

9.0%

8.5%

Earnings

(60.4%)

(42.1%)

(38.0%)

(12.2%)

44.4%

41.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months. FCF = free cash flow.

One Fool says:
The operating margin and sales growth trends probably tell more of a true story about Yahoo! than the bottom line does. The Microsoft distraction, Google's dominance of online money-making strategies, and a global audience that is turning away from traditional Yahoo!-style portals and onto social networks like Facebook and MySpace, well, it all adds up to bad news.

Yang needs to pull a couple of aces or a joker out of his sleeve. Unfortunately, he's wearing a T-shirt these days. I don't see where the deus ex machina would come from.

Teaming up with Google would help Yahoo! make some money, but wouldn't restore its former glory. A full-on or partial Microsoft deal would probably just accelerate Yahoo!'s dive into the great beyond. And Time Warner's (NYSE:TWX) AOL? Uh, no. Two wrongs just don't make a right.

Show us your best stuff, Jerry. There's no point in holding back your firepower -- if you've got any.

Microsoft is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. eBay is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.Or just sign up for a free CAPS account, and join a bustling 120,000-member online community helping each other find the best stocks out there.

Fool contributor Anders Bylund is a Google shareholder, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.