Staring at a sea of red ink in both advertising revenue and stock performance, Yahoo (YHOO) picked an ideal time to launch its Yahoo Fantasy Sports mobile app service, which could potentially enable millions of people to utilize legal channels of the burgeoning online sports gambling industry.
According to information provided by the Los Angeles Times, customers gambling on services similar to the Yahoo Fantasy Sports app will generate approximately $2.6 billion in wager revenue. Even more enticing, that figure is expected to balloon to $14.4 billion by the year 2020, based on industry expert analysis.
But will it be enough to turn around Yahoo stock’s fortunes in the markets? 
YHOO is down 23% so far in 2015, underperforming the Nasdaq Composite index by an embarrassing margin.
Still, there are notable believers. Research analysts from TheStreet recently affirmed their “buy” recommendation for Yahoo stock, noting that in YHOO’s last reporting quarter, revenue increased by 8.2% from the same quarter a year ago.
That number is a step up from the industry average, which stands at 6.1%. Additionally, analysts point towards strength in YHOO’s balance sheet, including a favorable debt-to-equity ratio.
While TheStreet raises fair points, the harsh reality is that the introduction of Yahoo Fantasy Sports has only halted the bleeding temporarily. YHOO closed up a little over 1% against the prior session on July 9, the date of the mobile app launch.
But the new app doesn’t even begin to undo the massive hemorrhage that Yahoo stock has suffered since peaking at a multi-year high in November 2014.
The 800-pound gorilla in the room is Alibaba Group Holding Ltd. (BABA), of which YHOO has a 15% stake. Analysts from the other side of the trade have noted that Alibaba and Yahoo stock are trading in like-minded fashion. And there’s more to that fact than mere coincidence.
Since Alibaba’s initial public offering on September 19, 2014, BABA and YHOO have shared a statistically strong correlation — measuring 0.84, if you want to get technical — in the markets. That correlation must break if YHOO wants to avoid the fate afflicting several Chinese stocks lately.
Even if Yahoo stock manages to deflect the vortex of Chinese volatility, its own technical structure looks rather ugly. Since the aforementioned peak of 2014, YHOO bulls have only delayed eventual selloffs with protracted periods of consolidation. Given that the release of Yahoo Fantasy Sports has yielded so very little in terms of sentiment in the markets, current YHOO investors have every reason to be worried.
For the short-term traders, Yahoo stock appears to be forming another consolidation pattern, perhaps a bearish pennant formation indicative of a minor respite before an onslaught of sell orders crashes the markets.
With so many concerns and few viable answers, YHOO should be avoided until the dust finally settles.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
