Sorry Yahoo! Inc. (YHOO) CEO Marissa Mayer. You can put on a happy face if you want, but there’s little you and your management team can do now — on your own — to ever make Yahoo stock worth owning again.
It’s becoming crystal clear the proverbial chemistry between your products and your customers just isn’t clicking, and it’s a miracle the Yahoo stock price didn’t get hit harder in the wake of Tuesday evening’s quarterly report.
So why won’t the turnaround plan work, and if it doesn’t, what’s the next best option for all those investors who have faithfully held onto their Yahoo stock? Keep reading.
Yahoo Q4 Earnings
In and of themselves, Yahoo’s fourth-quarter earnings weren’t horrifying. The company earned 13 cents per share of YHOO on $1.27 billion worth of total revenue; analysts were collectively calling for a per-share profit of 13 cents and a top line of $1.19 billion.
On a year-over-year basis, however, the company’s cracks continue to get bigger. Revenue, with the cost of traffic-acquisition factored in (a more accurate picture of its health), fell 15%, and earnings per share fell more than 50% from the 30 cents earned in the same quarter a year earlier.
And that was on an operating basis. On a non-operating GAAP basis, Yahoo lost $4.70 per share, largely thanks to a one-time goodwill impairment charge of $4.46 billion to reflect a deterioration in the value of acquired properties like Tumblr, and its business as a whole. Specifically, Yahoo noted:
“We concluded that the carrying value of our U.S. & Canada, Europe, Latin America and Tumblr reporting units exceeded their respective estimated fair values. The goodwill impairment resulted from a combination of factors, including decreases in our market capitalization, projected operating results and estimated future cash flows.”
The “carrying value of our U.S. & Canada, Europe, Latin America and Tumblr reporting units” more or less covers … everything.
Perhaps most alarming of all is the paid clicks measure. Although the price per click ramped up 3% from Q4-2014’s cost, the total number of paid clicks fell 10% on a year-over-year basis. A close-second concern: Traffic acquisition costs paid to search partners exploded from $5 million to $141 million.
There’s not a lot of silver lining buried in the report.
Increasingly Desperate
For investors who knew nothing about Yahoo prior to yesterday’s earnings news and conference call, CEO Marissa Mayer’s four-pronged plan seems reasonable … even compelling. There’s a backstory, though. Namely, Mayer has been at the helm for nearly four years now, and still — perpetually — seems to be just getting started.
As for the latest turnaround plan, Mayer notes:
“Today, we’re announcing a strategic plan that we strongly believe will enable us to accelerate Yahoo’s transformation. This is a strong plan calling for bold shifts in products and in resources. We are extremely proud of the billion dollar plus business we have built in mobile, video, native, and social. Our strategic bets in Mavens have enabled us build an entirely new, forward-leaning business of tremendous scale and growth in just three years. The plan announced today builds from that achievement and will dramatically brighten our future and improve our competitiveness, and attractiveness to users, advertisers, and partners.”
Looking beyond the typical rah-rah rhetoric, one doesn’t find much substance. Even within the slides used during the conference call, Yahoo’s 2016’s so-called “strategic plan” isn’t so much a plan as it is a list of goals and tasks to complete.
And then of course there’s the other side of the coin — an outright acknowledgment that it’s “exploring strategic alternatives,” meaning it’s open to a sale of the company to any suitor with a reasonable offer at the same time as it’s planning on a recovery rather than an buyout.
The mixed message suggests not even Yahoo has a great deal of faith in its self-made future at this time. The Yahoo stock price before and after Tuesday evening’s earnings report suggests the market has the same concern, though the recent weakness from YHOO shares also indicates the market isn’t counting on a strong acquisition offer (Yahoo stock is down 44% since late 2014).
That is, if an offer is made at all.
Bottom Line for Yahoo Stock
Whether or not it’s fair or surprising is irrelevant. What’s relevant is the fact that little of what Yahoo has tried under Mayer’s tutelage has resonated with consumers and web users. It would be short-sighted to think the latest round of plans will somehow be significantly different.
At this point, Yahoo’s future may completely rely on a massive shakeup, and a paradigm shift in how the company sees itself on the landscape of the Internet. Such an overhaul may only be achievable with a new CEO, or with a buyer, if not both.
Anything less, and there’s not a lot of reason to hold out hope.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
