A decade ago, Yahoo was all the rage, running a dozen points a day (or so it seemed) as CNBC ran live tickers on the runaway internet stocks. Yahoo wasn't alone, of course. AOL, Amazon, eBay and a conglomeration of long-gone, bankrupt web stocks went along for the ride. It was too good to be true, and they all fizzled out eventually, to some extent. Yahoo, Amazon and eBay survived. So did Yahoo.
But whatever happened to Yahoo's prominence and status as a global destroyer of all internet competition? eBay surpassed it as an online auction house. Amazon surpassed the Yahooligans as an online seller of goods. AOL got bought out at by Time Warner in one of the worst deals in history. Yahoo's catchy "Yahoooo-hooo!" TV commercials seem like ancient history now. The Co fired its CEO under immense activist shareholder pressure. Jerry Yang is back in, this time as the new CEO, a job he's never held before. Worse yet, how can Yahoo make up ground? The stock is stuck in mud, there is no new killer app in the works, and Google owns the search and advertising space online. Yahoo has no online video presence. No social networking niche. No wireless property.
Yahoo. Old and dead? Will the shares of Yahoo that my niece and nephew hold be worth anything by the time they graduate from high school? No wonder the shareholders were/are effing pissed. First mover then. Dead money now. Or is it?
I graded YHOO as a B grade stock a few months ago. The stock is at $23 today. Here's a look at Yahoo's current numbers (Q2).
• P/E 45, forward P/E 40, PEG 2.29. Holy crap. This is not good.
• Profit margin 11%. I thought this was an internet company. This is the profit margin of a bricks-and-mortar outfit.
• Operating margin 13%. Not horrible, but ...
• Return on equity 8.3%. Weak.
• Quarterly revenue growth (yoy) 7.7%. I can name 50 companies with better numbers.
• Quarterly earnings growth (yoy) -2.3%. Hey, let's be positive. There's nowhere to go but up, right?
• Total cash $2.39 billion. Nice. Do something with it, please.
• Total debt $749 million.
• Operating cash flow $1.4 billion. Solid.
• Levered free cash flow $581 million.
Frankly, I wouldn't buy this stock. Unbelievable that the P/E is 45. What the hell? If someone gave me YHOO stock, I'd sell it on any run-up. Yang has a LOT to prove, and with his billions in the bank, I question if he has the hunger or the know-how to kick this Co in the ass and get it moving again. There are dozens of great growth stocks to buy. Yahoo just ain't one of them. For my niece and nephew's sake, I just hope YHOO doesn't lose any market value in the coming two decades. Best case scenario is that Microsoft buys it out.
I still give YHOO a B grade.
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