Yahoo! Inc. Misery Hits New Lows After Earnings (YHOO)

Domestic biz still sucks for Yahoo, and no BABA deal is in sight

Yahoo! Inc. (YHOO) seemingly never fails to disappoint when it comes to company drama. But sadly for YHOO stock investors, the same can’t be said for Yahoo earnings.

Yahoo! Inc. Misery Hits New Lows After Earnings (YHOO)Yesterday, YHOO posted a miss on both earnings and sales and then finished things up with a side dish of downward guidance. If you’re interested in the specifics of Yahoo earnings, they include:

  • Q3 profits of 15 cents per share vs. forecasts of 17 cents in EPS
  • Q3 revenue was up just 7% to $1.23 billion vs. forecasts of $1.26 billion
  • Q4 sales were projected to be between $1.16 billion to $1.20 billion, well under $1.33 billion in expected sales

Yahoo CEO Marissa Mayer tried to obfuscate the failure on all these fronts by talking up a big advertising deal with prime Alphabet (GOOG, GOOGL) subsidiary Google.

GOOG will provide Yahoo with search advertisements, an effort to bolster Yahoo’s search business … but the fact that Yahoo, an also-ran in search, is so optimistic about this deal says a lot about the desperation there for any kind of good news.

Yahoo Earnings Show Bleak Future Ahead

Look, there’s no good way to spin this: Yahoo’s earnings show continued deterioration in the core Internet ads business, and no posturing about Alibaba Group (BABA) or the acquisition of some mobile startups in the last few years can change that.

Perhaps the only real sign of optimism is that Mayer & Co. hinted at the chance of some significant restructuring of the business — a must for a company that has literally gone nowhere with its domestic Internet business in the last few years.

Look, some YHOO stock investors are convinced things are fine — and why not, since shares are still about double where they were in 2012 before the Alibaba hype reached a fever pitch. But it’s undeniable that most of the “value” in this stock comes from stakes in Alibaba and Yahoo! Japan, and it’s equally undeniable that after that value was baked in across 2013, shares have had a much tougher go of things.

Absent an updates on the spinoff of the Alibaba stake and fights with the IRS over how to do so in a tax-efficient manner, Yahoo! is set to suffer through a decaying U.S. business — and investors know it.

Consider that mobile represents a meager 22% of total revenue as of the latest quarter and it’s easy to see that YHOO stock is steadily slipping behind.

Shares are already down about 40% so far in 2015, and I must admit it’s not likely for them to fall significantly further given the theoretical value of its position in Alibaba stock and Yahoo! Japan. As we saw earlier this year, however, a decline in value for BABA stock exacerbates the problems at YHOO, because there is literally nothing else to fall back on.

I wouldn’t seriously consider Yahoo stock after earnings, and unless the company can correct a steady decline in its domestic Internet advertising business, investors can expect more of the same in 2016.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at [email protected] or follow him on Twitter via @JeffReevesIP

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