(Yang’s) Yahoo! Posts A Loss

Brian Clionsky
updated | Author's Website

Yahoo (NASDAQ:YHOO) reported a net loss of $303 million or $0.22 per share for the 4th quarter of 2008.  This is a 32% decrease from last year’s 4th quarter earnings of $206 million, or $.15 per share. Yahoo said it would have earned $238 million or $0.17 per share if not for certain one-time charges, including a restructuring and “goodwill” impairment charge. This figure “beat” analysts’ expectations of $0.13 per share. Revenues fell 2% to $1.37 billion from $1.4 billion last year. This was in-line with analysts’ expectations. Sales would have come in at $1.8 billion if not for traffic-acquisition costs from partners. For the full year, Yahoo reported a net income of $424 million, or $0.29 per share, a decrease of 35% from $660 million, or $0.47 per share in 2007. Excluding certain one-time charges, Yahoo’s net income was $642 million, or $0.46 per share. Sales in 2008 increased 3% to $7.2 billion. Excluding traffic-acquisition costs, revenue rose 6% to $5.4 billion.

Drivers

A weak economic environment plagued with advertising spending cuts was definitely made visible in both Google’s (NASDAQ:GOOG) and Yahoo’s earnings this past quarter and will definitely plague both companies throughout 2009. Yahoo also was faced with many one-time charges this past quarter including a $108 million restructuring cost due to layoffs from late last year, a $488 million “goodwill” impairment charge, and traffic acquisition costs which are portions of revenue shared with partners.

Looking Forward

Yahoo expects 1st quarter 2009 gross sales of $1.52 billion to $1.72 billion, down from $1.82 billion in the 1st quarter of 2008. Due to uncertain economic conditions Yahoo declined to offer full year 2009 guidance. Yahoo’s new CEO Carol Bartz understands Yahoo’s current challenges and realizes the economic conditions in the future are very uncertain. However, Bartz is still very optimistic about Yahoo’s future success. She said, “We have work to do, but I am excited by Yahoo’s opportunities, and encouraged by the tremendous innovation and momentum I’ve seen since joining the company as CEO.” Bartz realizes that Yahoo has been having an extremely hard time keeping up with its rival, Google, and currently has some fundamental and operational issues that need to be addressed. There has been a lot of speculation circulating about a possible sale of Yahoo to Microsoft [MSFT] and Bartz is not completely opposed to selling parts of the business or creating a partnership. However, Bartz said, “I did not come to Yahoo to sell the company. This is a fantastic Internet property that doesn’t deserve everybody trying to pick it, and pull it, apart.”

Opinions

Yahoo is definitely in for some trouble with looming decreases in advertising spending, a decreasing market share, and some internal conflicts spawning from the firing of Jerry Yang. New CEO Carol Bartz seems to be very driven and focused at fixing all of the problems currently plaguing Yahoo. I think there will be some strategic and operational changes in the near future and the company could possibly have a completely new structure a year from now. It seems that Bartz is more open to change than Jerry Yang, something that Yahoo should greatly benefit in the future as the internet and advertising business changes shape and the computer goes to the cloud. Also, as Yahoo’s price per share continues to fall it appears more and more likely that Microsoft will take another stab at buying the internet service provider at a much better price than it previously offered. It will be very interesting to see how Yahoo’s new CEO will deal with Yahoo’s very questionable future as well as a potential buyout from Microsoft.

I think that Yahoo or at least some of Yahoo will be under the ownership of Microsoft by mid to late 2009. Personally I think that such a move will benefit Yahoo and keep its sinking ship a float at least for the time being, and ultimately will create the best value for Yahoo’s shareholders, something Carol Bartz stresses. It will be a very bumpy right for Bartz and it will be interesting to see which direction she takes for the company. I think Yahoo will make some positive changes under the helm of Carol Bartz but will ultimately rest under the helm of Steve Ballmer and Microsoft.

Disclosure: The mutual fund the author manages is long GOOG and MSFT.

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