The market doesn't like Yahoo!'s
Shares of the dot-com juggernaut fell as much as 4% today as investors digested last night's numbers and fretted over Yahoo!'s guidance.
Revenue fell 4% to $1.205 million after backing out traffic acquisition costs. A 16% surge in display advertising revenue was offset by an 18% plunge on the search side. If you back out divestitures over the past year -- including Zimbra and HotJobs -- adjusted revenue would have inched 3% higher. Organic growth should be lower, as the company didn't further break down its adjusted performance to back out recent acquisitions including Associated Content and Dapper.
Yahoo!'s top-line performance isn't going to impress anybody. Revenue accelerated at Google
Thankfully, things get better on the way down to the bottom line. Earnings more than doubled to $0.24 a share -- or $0.26 a share before restructuring charges. A good chunk of that comes from Microsoft kicking in some serious reimbursements for transition expenses and search operating costs.
Going by Mr. Market's reaction, better than expected profitability isn't enough. Investors need real growth out of Yahoo!. It also didn't help that its guidance for the current quarter calls for sharp sequential dips in revenue and operating profits
It's not a surprise to see Demand Media
Instead of layoffs, divestitures, or fretting about Bing's poor ad-matching skills, Yahoo!'s best bet is to crack open its piggy bank flush with $3.7 billion in cash and go shopping on needle-moving acquisitions.
Yahoo! is doing well in display. It's still the category killer in email, finance, and sports, but these are tricky portals to monetize (outside of Yahoo! Finance). Its lucrative Asian investments will keep Yahoo!'s price from falling too far at this point, but it will need to buy its way out of the teens.
Yahoo! knows what the market wants. It has the greenbacks to make it happen. Spending more money on buybacks and cost-cutting its way to chunkier margins only delay the shopping spree that has to happen.
What did you think of Yahoo!'s quarter last night? Share your thoughts in the comment box below.
Google and Microsoft are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers picks. Yahoo! is a Motley Fool Global Gains selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own 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.
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