GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Time To Short Yahoo (YHOO)?

July 18, 2013 | About:
I’ve written a decent amount about Yahoo in the past few years and even more frequently in the past year. It’s not a coincidence that it started when Marissa Mayer accepted to become the latest Yahoo CEO. It was a very welcome event after an incredibly frustrating sequence of events for the purple company. There’s no doubt about it, I’ve loved the energy and passion that she brought to Yahoo and from nearly every perspective, it’s looking like a home run. I mean, just take a look at Yahoo’s stock in the past 12 months or so… this includes yesterday’s 10% gain following the latest earnings release:

YHOO2.png

We’re not talking about some kind of high growth startup here. This is a company that was well on its way to becoming irrelevant. Here is a 10 year chart:

YHOO21.png

mayer.jpgSo Marissa Mayer Saved The Company?

Looking at these charts you would probably agree that the turnaround has been “successful”. In many ways, it has. The employee morale is much better, which has made it possible for the company to retain & recruit key people. It has also helped Yahoo become more nimble and aggressive. Yes, Yahoo has a lot of money to spend but with past CEO’s, they did not have the board and shareholder’s confidence to go out and make big bold moves. Recent acquisitions, even though they have been mostly smaller ones have indicated a turning point. Acquiring Tumblr was a great example of that and while it’s a risky move, I and many others think it was a great one that could pay off (in a similar way to Facebook’s Instagram or Google’s Youtube). It’s far from done but things have clearly changed.

Yahoo also seems to be (finally) working on improving some of its key products such as Flickr, Yahoo mail, its mobile products and has reinforced its relationship with partners and users.

There’s Just One Thing….

So Yahoo shareholders LOVE Marissa Mayer and everything that she’s been doing. Yesterday, Yahoo’s stock shot up 10% following the earnings release. Was it partially because seeing her present in a Yahoo first live video earnings call convinced everyone that things are headed in the right direction? The one big “but” here is that the numbers don’t quite support this turnaround. Let’s take a look at a few:

Revenues are fairly flat and actually slightly down compared to Q2 last year:

revs.png

Expenses are slightly up:

exp.png

So of course, profits are slightly down:

ebitda.png

So yes, things are getting better but numbers are certainly not reflecting that …Yet. Of course, no one in their right minds would have expected a quick turnaround. The downward momentum was simply too strong. That being said, it’s hard to justify buying a stock that has increased over 100% without any actual change in revenues or earnings trends. Some other numbers are more positive but overall, the picture is fairly “flat”. I do believe in Mayer but that argument only goes so far doesn’t it?

Let’s look at the numbers:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
YHOOYahoo! Inc29.663.3126.2516.9635.080.053.7512.750.844.18-8.3326.69

No Longer A Buyer…

The P/E ratio is not outrageous but it does seem too high for a company that is lacking growth. So I personally would not currently buy Yahoo. That being said, I can’t imagine myself shorting this company, this CEO and this momentum. I’ve learned (the hard way) that shorting stocks like this is just too risky compared with the potential reward. So for now, I’ll be staying on the sidelines.

Do you have a position on Yahoo? What are your thoughts on the stock?


Rating: 4.3/5 (3 votes)

Comments

Henhill69
Henhill69 - 1 year ago
I was a bit skeptical about their performance, was stuck with a thought as to how they will cope up, along with the recent acquisition integration in the company, since they've been on a shopping spree. It gave me peace after their recent Q2 2013 earnings call that I can continue holding my chunk of shares. Would like to share the transcript as well _Q2 2013 @ http://www.earningsimpact.com/Transcript/82123/YHOO/Q2-2013-Earnings-Call

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide