Yahoo's Afraid of the Big Bad Wolf
Yahoo (YHOO) just announced first-quarter earnings and–by sheer stroke of coincidence, I’m sure–they’re about as uninspiring as the mediocre earnings that inspired Microsoft’s (MSFT) hostile takeover bid. The company posted an adjusted profit of 11 cents per share, flat from a year ago, but a bit above the top end of the street’s lowered forecasts.
That’s a nice story on the face of things–one certain to give Yahoo CEO Jerry Yang and Co. the material they need to blather out more justifications for continued independence. But it doesn’t exactly prove Yahoo’s significantly accelerating its revenue growth as the company claimed in a recent investor presentation.
For one thing, operating income for the first quarter of 2008 was $121 million–a 28% decrease compared to $169 million for the same period of 2007. For another, the company’s forecast of total revenues between $1.73 billion and $1.93 billion for the current quarter ending in June doesn’t reflect traffic acquisition costs of roughly 26% of total revenue. Taking that into account, Marketwatch figures Yahoo is actually forecasting revenue minus acquisition costs of about $1.35 billion. Analysts are expecting $1.37 billion.
So the truth of the matter is this: Yahoo continues to struggle with profitability, and though the company’s strategy and investments are perhaps beginning to pay off, as Yang said during a conference call today, they’re clearly not paying off enough to thwart Microsoft’s takeover bid. Said Cantor Fitzgerald analyst Derek Brown: “The likelihood that Yahoo will be able to fend off Microsoft seems very low, mainly because in essence [Yahoo] is a company that’s in a multi-year slide. Even though the quarter was better than expected, there is uncertainty if it will be a trend.”