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Yahoo! Fumbling Away

Posted on Tuesday, Oct 28th 2008

Yahoo!’s (YHOO) performance does not seem to be improving. Add the current economic conditions to their already worrisome leadership issues and you have a stock that continues to be in free fall. Revenues grew by 3% over the year to $1.33 billion, missing the market’s expectations of $1.37 billion. EPS of $0.04 per share also missed the Street’s expectations of $0.08. Earnings are down 64% from $0.11 the year before.

Marketing Services revenue grew by 4% to $1.10 billion for the quarter while Fees revenue remained flat. Revenues from the U.S. grew 3% over the year and international revenues grew by 4% in the period.

Yahoo! revised down Q4 revenue outlook to $1.77-$1.97 billion while maintaining operating cash flow projections of $0.49-$0.57 billion. They are expecting to maintain margins through hiring plan revision, migration to lower-cost countries, and another round of layoffs following those in February. Yahoo! plans to slash 10% of its workforce, which translates to 1,500 job cuts.

Despite the poor financial results, Yahoo!’s usage metrics continued to improve. In recent reports by ComScore, Yahoo! is now responsible for 14% of online time spent by the world and was ranked either first or second in 21 audience categories polled in September. Page views grew by 17% over the year driven by double-digit growth in both the US and around the world. It frustrates me tremendously to watch Yahoo! wasting an asset like this because of its pathetic leadership and strategy.

Yahoo! launched their new ad platform, APT which they claim will result in “simplifying the online advertising process while creating a dynamic open and innovative marketplace.” Yeah, right. A mouthful of nothing!

Yahoo! is now apparently following three strategies to make themselves more relevant to a world where Google often gets the lion’s share of attention. First, the company is opening up to third party content providers. Second, they are leveraging their community to uncover and publish the most interesting content, and third, they are paying attention to users’ insights about Yahoo!. O-kay!

To personalize their users’ experience, they are now testing a homepage redesign that will let users transform the Yahoo! homepage into a personalized web dashboard. The company also launched profiles.yahoo.com, a social networking site, and have begun testing their new content optimization knowledge engine, which uses complex algorithms to determine the most engaging content for their users.

Their search engine dreams have been put on hold as their partnering agreement with Google is facing legal issues being considered by the US Department of Justice. I sincerely hope that the deal doesn’t go through.

Like so many other tech companies, Yahoo! is worried about the economic conditions and expects slower online advertising growth until 2009. However, they are optimistic that the consolidation of advertising budgets with fewer media companies will bring in more business for them.

Yesterday the stock hit a new 5-year low of $11.31, recovering marginally to close at $11.58. Perhaps Yahoo! is now regretting not having accepted Microsoft’s offer of $31 a share. Well, they should, anyway. What a colossal disaster this company has created this year.

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