The good news is, the first-quarter numbers posted by Yahoo! Inc. (YHOO) after the close on Tuesday could have been worse. The bad news is, that’s the only good news regarding the numbers … that they could have been worse.
It remains to be seen to what extent another poor quarter will affect the partial or complete sale of the company. It probably won’t matter much, as any would-be buyer knows it has a ton of repair work to do once the keys to the company are turned over.
All the same, until Yahoo is sold — partially or in full — every stumble whittles down the potential bidding price.
Either way, Yahoo is still a sinking ship, fortunate to be saved before it completely breaks apart.
YHOO Earnings
Last quarter, Yahoo earned eight cents per share on $859 million in revenue. Factoring in the cost of traffic acquisition, revenue rolled in at $1.087 billion.
The numbers were better than expected. Analysts were only looking for a profit of seven cents per share of YHOO and a top line of $846 million.
On the flipside, earnings fell 36% on a year-over-year basis, and revenue was off 11%.
It was the sixth straight quarter per-share profits fell, but perhaps more alarmingly, it was the first quarter in years that the year-over-year revenue fell. That may well have marked the beginning of the end, if not the middle of the end, underscoring the notion that the best “out” from here is putting the company in more capable hands.
And there was no bright spot. Revenue was down. Traffic acquisition costs were up. The operating loss — and this is scary — grew from a loss of $87 million to a loss of $167 million. EBITDA fell 36%. Non-GAAP per-share earnings slumped from 15 cents a year earlier to only the aforementioned eight cents this time around.
Fans and followers of YHOO will tout the fact that so-called “Mavens” revenue grew nearly 7%, and mobile revenue was up 11%. Everything Yahoo gained on those fronts, though, it more than gave up elsewhere.
Underscoring the misery was the company’s Q2 outlook. Yahoo now projects revenue of between $810 million and $850 million for the current quarter, falling short of analyst expectations of $862 million.
It’s Just Not Working
Sadly, none of the weakening numbers came as a surprise, judging from the modest after-hours buying of Yahoo stock. That may be because they’ve seen deteriorating numbers from Yahoo before, and heard the same rhetoric from CEO Marissa Mayer.
The earnings press release offered this comment from Mayer:
“I’m pleased that we delivered Q1 results in line with our expectations. Our 2016 plan is off to a solid start as we continue to focus on driving efficiency, lowering costs, and improving long-term growth.”
It sounds great. But, it also sounds a lot like this banter from its Q3-2015 earnings release:
“Our Q3 results were largely within our forecasted expectations — our GAAP revenue grew 7% year-over-year and our Mavens revenue grew 43%. As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability.”
It’s akin to this comment about its Q1-2015 earnings report too:
“We anticipated that we would grow GAAP revenue ahead of revenue ex-TAC and EBITDA, and that’s precisely what we saw this quarter. For the next phase of the transformation, we will focus on accelerating our GAAP revenue growth while managing our margins and costs.”
Granted, they’re just soundbites, more for publicity purposes than to detail the company’s strategy. The premise is clear though — Mayer only has soundbites. Nothing’s actually getting done. Maybe she’s not the one to do it.
That’s not to say any of the remaining bidders will fare any better. It is to say, however, something different has to be tried. The outright sale is the next best bet from here.
Bottom Line for Yahoo Stock
In the grand scheme of things, Yahoo’s first-quarter report doesn’t actually change much about the company’s future, nor for the potential upside of YHOO stock. It has been and will continue to be a bet on a turnaround, ultimately rooted in a sale of the company rather than an internally led overhaul.
That prospect is a good one though, as the Yahoo brand name itself still has marketing power.
On the flipside, with Yahoo stock trading at 61.5 times its estimated 2017 income, it’s not like any buyout offer is going to be leaps and bounds above the stock’s current price.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
