Yes, Alyce is right that Yahoo! is trading at 25 times last year's reported earnings of $1.28 per share. However, more than half of that came from -- ironically enough -- Yahoo! dumping its stake in Google. Yahoo!'s adjusted earnings per share actually clocked in at $0.58 a share. That more than doubles Yahoo!'s trailing multiple, and it's only going to get worse with Wall Street holding out for profits to fall -- yes, fall -- to $0.54 a share this year. The fact that Yahoo! commands the more attractive P/S ratio only tells me how thin Yahoo!'s margins are relative to Google.
Alyce points to Yahoo!'s smaller acquisitions, but let's be honest here. Flickr is a stylish yet ultimately smaller version of CNET's (NASDAQ:CNET) Webshots. Social bookmarking site del.icio.us may be the hottest domain under the obscure ".us" umbrella, but the open-source clones are plentiful, and you have other sites -- like news bookmarking stronghold Digg -- with a livelier grassroots movement. And Yahoo! mashup initiatives are nice, but there it's still chasing Google after the successful wave of Google Maps mashups.
My worthy duelist argues that Yahoo! is "gearing up to be an important player in Web 2.0," but I think that's just wishful thinking from a company that has let Web 1.0 and Web 1.5 pass it by.
And that's why Yahoo!'s price is both astronomical and whopping. The question marks remain. Yahoo gets no exclamation point from me.
CNET Networks was recommended to subscribers of theRule Breakersnewsletter service this past summer.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.
Longtime Fool contributor Rick Munarriz is a frequent Yahoo! visitor, but he does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
