Blog Post

Yahoo Earnings: Few Surprises, Even Less Clarity

This is what it’s like for Yahoo these days: Trying to feel pretty good about meeting already lowered expectations. And then lowering future expectations even further.

Yahoo’s earnings per share for the quarter through June came in at 11 cents, in line with the consensus that Wall Street had set for the company. Three months ago, those analysts had been forecasting a 12 cent profit, so Yahoo jumped over the high bar only because it had been recently lowered for it.

Elsewhere in the financials, the numbers were hardly more spectacular. Revenue grew 8% in the quarter from the same quarter a year earlier, and only 2% from the first quarter of 2007, traditionally a sleepy one for Internet companies.

Operating cash flow, considered by some to be the best single yardstick of a company’s operational health, was $474 million, up marginally from the year ago quarter, but equal to only 38% of revenue (versus 41% a year ago). So Yahoo is generating more money, which is good, but it’s a smaller portion of the money it’s bringing in, which is not so good.

On top of that, Yahoo says its full-year numbers will probably be lower than most of the research community had been looking for. Revenue (excluding revenue shared with partners, or so-called traffic acquisition costs) will come in between $4.89 billion and $5.19 billion, down from its previous forecast of $4.95 billion and $5.45 billion.

Analysts had been expecting $5.19 billion, which is now at the high end of Yahoo’s own forecast, so you can imagine there will be some revising of spreadsheets this evening on Wall Street.

And yet no one seems to be acting like this is a big surprise. Yahoo’s stock rose a little more than 3% in the last couple of hours of trading Tuesday, likely on last-minute hopes for a strong quarter, but following the earnings report and the conference call, it’s fallen nearly 4% in after-hours trading. Overall, the stock is pretty much unchanged from this morning.

This was the quarter when Panama – Yahoo’s answer to Google’s ass-kicking search algorithms – was supposed to start to kick in. Yahoo is shy about breaking out search and non-search numbers, but it’s clear Panama isn’t putting quite the wind into Yahoo’s sails that optimists had expected.

And yet it’s hard to say what it all means for Yahoo, mainly because of all the uncertainties that lie ahead. Not only will Panama continue to prove itself through the rest of the year, but more importantly, a new and unproven management team is steering the company in the post-Semel era.

Whether that team, now led by CEO and co-founder Jerry Yang and President Susan Decker, gets Yahoo back into the groove that, only a few short years ago, cause its stock to rise several times over; or whether they are led to sell the company remains an open question, but a significant one for investors.

Unfortunately for investors who like a little certainty in their portfolios, Yahoo will have little to offer in coming weeks, even months. Any turnaround will be slow, and it may be we see another less-than-remarkable quarter before Yang and Decker can be said to have turned things around.

If they don’t, a slumping stock will only raise the chances of a buyout.

10 Responses to “Yahoo Earnings: Few Surprises, Even Less Clarity”

  1. I would love to see the breakdown of what yahoo sitelets generates the most ad revenue and traffic.

    I used to spend at least a 1/2 hour a day on Then they redesigned yahoo finance and it was a disaster. One of the worst trainwreck I have ever witness. Now, I might go to yahoo finance once a week.

  2. joe shmoe

    Completely agree and I’d say I was unhappy 10% of the times, but those 10% of the times Google disappointed me too. I’d also add that Live has improved leaps and bounds off-late, especially in the speed. Relevancy is still a bit off, the most annoying being very poor spelling corrections. I’d say I am unhappy on Live 15% of the times and 10% of those are bad on all three search engines. Look for Live to come out pretty strong in the coming quarters, IMHO.

    PS: Dont own any concerned shares, have no bias for any company — just enjoy comparing the three to see who’s leapfrogging where.

  3. I forced myself to use Yahoo search for a week. It’s actually not too bad. About 10% of the time I had to jump over to GOOG to find what I wanted, but the rest of the time it was decent.

  4. i would accumulate yhoo at this level. the stock is richly valued–despite being well off its highs, which makes it excellent currency for acquisitions. yhoo will acquire itself out of its current pathetic-ness, not be an aquiree. in either case though, it’s a win for investors.

    yhoo is a content company, not a technology company, so it’s tech products (search) will not come out as smoothly, but they will come out eventually. it’s not rocket science afterall. yhoo must stick to content, use stock as acquisition currency and keep buying for goshsakes!

  5. Yahoo has some serious fundemental problems with it’s pay-per-click platform (Panama) and it’s partner distribution channels (Publisher). I use both, and each have fatal flaws.

    Panama – perfectly good keywords are rejected constantly. I can only get 1/20th of the traffic I get from google, so it’s not even worth managing. It’s actually frustrating.

    Publisher – ad matching is horrendous. Yahoo will show ads about pet grooming on car part web sites, and water filters on software web sites – totally irrelevent. Half the time, no ads at all will be shown.

    If I owned Yahoo stock, I’d be dumping it fast. MSN is going to overtake Yahoo, which will soon go the way of AOL.

  6. Interesting numbers from Yahoo! I’ve been reading Good to Great by Jim Collins at the moment and it seems that Yahoo is showing all the signs of an also ran company. (have a look at First, it didn’t have a level 5 leader, who selfishly looked at the best interest of the company. They may have ousted him, but one hopes the current management team is up to snuff. Second, the question is whether they have the right people on board and in the right place. They’re hiring seems to be erratic and not really best of breed in the business. Third, and really bad from my point of view. They don’t confront the facts. Fact is, Google is a better ad company than Yahoo will ever be. Google places its ads better, through better technology and because of that has commanded the biggest share of eyeballs. Yahoo has nothing to offer to potential advertisers on the technology front. Fourth Yahoo doesn’t know what it wants to be: Is it the best content company in the business, or is it the best search company in the business? Well, it cannot be the last one. Google has taken that and outspends Yahoo in keeping that goal. Google has a clear focus, though it should dabble less and spend more time in achieving in coherently achieving the goal. Yahoo should focus on its content business, which in the US is the best it can ever be. Yahoo should make it their business to make sure that whenever somebody is looking for something that Yahoo does Google first points to Yahoo for the content, to such an extent that the user will go to Yahoo without even looking at Google (Yahoo financials is a great example) Fifth, Yahoo should cut all the crap it isn’t willing to deal with. Sell the advertising business to Microsoft, they’re dumb enough to pay top dollar for it. Then move to Google’s Adsense and squeeze every ad dollar out of it. Advertisers would love it.
    Sixth, keep focus, keep discipline, keep adding great content, keep focus, discipline, add more great content.