Please ensure Javascript is enabled for purposes of website accessibility

Is Yahoo! Finally Back?

By Rick Munarriz - Updated Apr 6, 2017 at 1:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The popular portal has a mixed quarter, but we're talking about mixed greens.

Yahoo! (Nasdaq: YHOO) dealt shareholders another mixed bag with yesterday's first-quarter report.

The bad news? Revenue before traffic acquisition costs fell by 2% to $1.13 billion, short of the $1.17 billion that analysts were expecting. The top line was weighed down by an 11% slide in fee revenue and a surprising 14% dip in search advertising.

The good news? Earnings nearly doubled to $0.15 a share, after backing out the positive one-time items related to Microsoft's (Nasdaq: MSFT) transition-cost reimbursements and its January sale of Zimbra to VMware (NYSE: VMW).

Perhaps the most positive development at Yahoo! is that its display-advertising business rose by 20% during the period, and up a sharp 24% in guaranteed display.

This is huge news. Yahoo! has been shedding some of its fee-generating assets, including the pending sale of HotJobs to Monster Worldwide (NYSE: MWW). Its search deal with Microsoft kicked in two months ago, drawing clouds over the search advertising business that seems to rock for Google (Nasdaq: GOOG) and Baidu (Nasdaq: BIDU) but has never lived up to its potential for a stand-alone Yahoo!

In other words, display advertising is going to be the name of the game at Yahoo! in the future, and momentum is clearly working in its favor there. It also has $1.3 billion in cash and another $1.9 billion in short-term securities in case it needs to beef up its organic growth on that front.

Google and Baidu are no doubt singing the praises of paid search, given the companies' impressive margins, but let's not dismiss the potential of graphical ads slapped on content pages as the advertising market bounces back.

Yahoo! and AOL (NYSE: AOL) have hitched their wagons to the display niche. Doing so was probably a poor choice during the market downturn, but those wagon wheels are finally starting to turn.

Is Yahoo! finally back? Share your thoughts in the comments box below.

Microsoft is a Motley Fool Inside Value recommendation. Google and VMware are Motley Fool Rule Breakers selections. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. One of them may be just what you're "searching" for.

Longtime Fool contributor Rick Munarriz owns no shares in any of the stocks in this story and 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$290.98 (-0.12%) $0.34
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$120.27 (0.60%) $0.72
VMware, Inc. Stock Quote
VMware, Inc.
VMW
$122.54 (1.29%) $1.56
Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$128.11 (-3.42%) $-4.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.