With Yet Another Flat Quarter Expected, Does Yahoo Need a Hail Mary Hulu Acquisition?
Tomorrow, Yahoo will announce its second-quarter earnings and, once again, Wall Street is expecting yet another meh performance from the Internet giant.
In his “cheat sheet” report, Citi analyst Mark Mahaney’s take is pretty typical of the sentiment of investors weary of waiting for a rebound in Yahoo’s growth.
“From $15, we believe YHOO shares have upwards bias,” wrote Mahaney, “but we don’t have real conviction.”
That’s become the unfortunate norm for Yahoo, whose management has continued to struggle with a variety of issues, from its ongoing talent drain to an unexpected and still unresolved fight with its main partner in China to the troubles in its search partnership with Microsoft to the overall lack of ability to turbocharge its advertising and other businesses as has been long promised.
While it is certainly not for lack of trying, the prospect of Yahoo CEO Carol Bartz wheeling out another series of excuses for the lack of turnaround and — something many have been looking for most of all — a clearer strategic vision for the company on the earnings call on Tuesday, will surely not produce a dulcet impact on its depressed shares.
The stock has continued to dip well below $15 a share, down almost six percent last week and 13 percent for the last six months.
That’s why some think that Yahoo’s interest in bidding for the Hulu premium video service, which is being sold by its media giant owners, might be just the bold and risky move to get the company centered around.
With the online video ad business growing and the need for Yahoo to focus its many ambitions, some think Hulu could be a key piece in becoming the “premier digital media company” that the Internet giant has recently taken to calling itself.
By doubling down on what Hulu represents — that would be the premium online video business — it’s a fast-growing category Yahoo’s large sales force would be well-suited for.
In addition, a purchase of Hulu could give Yahoo some much-needed talent in the arena, including its CEO Jason Kilar and others.
“Of all the buyers, Yahoo is the most in need of a purchase to change its paradigm,” said one observer. “If it could not pay too much, Hulu would give Yahoo some differentiating that it really needs.”
Of course, paying too much for Hulu is a key consideration mentioned by all who are looking at it, including Google, AT&T, Amazon and others.
How to determine the value of Hulu’s content licenses, both now and later — given that once those rights expire whoever owns Hulu will eventually have to compete in acquiring the often high-priced material from Hollywood — is the biggest question they are asking.
Is that worth $1 billion or $2 billion? Can a new owner keep up the momentum needed to successfully maintain the Hulu business well after those content rights expire? And, of course, which company would be best suited to accomplish this task?
Yahoo certainly has all the potential to be at the front of that line, despite being managed erratically for far too long. But — also as usual — there is the endless debate internally over whether buying it will fix problems.
Whatever happens, most agree that something dramatic needs to happen at Yahoo, rather than the continual story of flatness that has been coming out of the company for far too long.
And we’ll all see if that’s improved after the close of the market tomorrow, when Wall Street is expecting Yahoo to report revenue of $1.11 billion on earnings of 18 cents.
That’s a revenue decline of two percent, which is not great, especially considering Google’s strong performance last week. Then again, it’s better than the first quarter’s six percent drop in revenue for Yahoo.
Like I said: Meh.