Yahoo! Inc. Lacks Judgment — Sell YHOO Stock!

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Yahoo! Inc. (YHOO) might have just announced its second-quarter earnings, but there’s nothing new to report about the overall state of things at the company. The business behind Yahoo stock is in shambles.

YHOO Lacks Judgment. Sell Yahoo Stock!

After close of market on Monday, Yahoo stock reported earnings of 9 cents a share on revenue of $1.3 billion vs. Wall Street’s expectation of 10 cents a share on revenue of $1.08 billion.

In addition to beating Wall Street’s expectation on revenues, Yahoo stock also beat the prior-year quarter revenue by 5.2%. However, as it failed to meet analysts’ expectation as regards earnings, its 2016 second-quarter earnings of 9 cent also comes short of the 16 cents it reported for the second quarter of 2015.

Here are a couple of takeaways from the earnings.

Poor Management Taking Its Toll on YHOO Stock

The Yahoo earnings stated above are actually on a non-GAAP basis. On a GAAP basis, however, it reported a net loss of 46 cents.

If you look at its income statement, YHOO stated reported “Goodwill and intangibles impairment” of $482 million. That contributed the most to the reason it reported a GAAP loss, and the amount represents a write down of Tumblr.

This comes after Yahoo stock had written down Tumblr by $230 million in the first quarter.

The latest write-down means that about 68% of the value of the social media platform that Yahoo’s management valued at $1.1 billion is gone. And this is because management was overly optimistic about what they thought Tumblr could yield for the company in terms of revenue, cash flow and market share.

Yahoo stock leadership expected that Tumblr would generate $100 million in revenue by the end of 2015. That was not the case.

YHOO CEO Marissa Mayer said during the earnings call that the board is deep in the process of deciding whether selling the Yahoo stock core business is the best for shareholders. And a recent report is suggesting that there are only five bidders left, indicating that a sale is a huge possibility.

If anything, the latest write down would have inherently reduced what the company would have been worth — regardless of how little.

Why Selling Yahoo Would Be Best for Shareholders

The operational discipline that has helped Yahoo stock reduce expenses so far this year doesn’t make up for the fundamental issues that are haunting Yahoo.

First Yahoo stock has generated almost no net cash flow over the last five years. Second, despite an acquisition spree over the last five years, net revenue over the last five year is heading south.

The problem with Yahoo stock isn’t that it doesn’t have remarkable assets. The problem is that decision makers at the company differ on the direction the company should head. Here’s proof.

SpringOwl, one of Yahoo’s institutional investors, pointed out last year that, “Flurry people are great at analytics but don’t understand how to monetize.” Flurry is a mobile analytics company YHOO stock acquired in 2014.

The same could be said for just about any of Yahoo’s portfolio companies

With a sale, Yahoo could end up having decision makers that would agree on where the company should be.

Therefore investors in Yahoo stock should probably wait to see if Yahoo ends up selling its core business, which could mean for value for shareholders.

As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/yahoo-stock-yhoo-lack-judgement/.

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