Yahoo (YHOO) stock fell sharply after it announced earnings on Wednesday, but the stock is only 2.5% below where it was.
What made it so resilient?
Earnings surge while revenues sag was the headline, and it's a good description of the problem.
Despite a lot of chopping-and-changing, from the top of the pyramid to the bottom, Yahoo CEO Marissa Mayer has yet to create organic growth within the company's operations. The gain in the stock is really from its continued investments in Alibaba and Yahoo Japan (YAHOF.PK). While the company sold off part of its holdings, it retained a stake, and that stake keeps looking better and better.
Worse, revenue from display ads was down 11% against the same period in 2012. Earnings rose 36% entirely on the back of the foreign assets - they are indeed making more money as an investment house, as one banker put it.
Yahoo said it earned $390 million, 35 cents a share, on revenue of $1.14 billion for the quarter.
Yet I am now going to tell you that, if you want to make money, you double down on this stock as soon as you can.
What Mayer is doing is similar to what Oakland Raider General Manager Reggie McKenzie is trying to do, turn around a failing organization. The Raiders had no organized scouting, lousy facilities and were well over the salary cap when McKenzie took over, as noted in a recent Sports Illustrated story, but there is still a lot of money to be made in football, and you have to take some steps back to move forward.
That's what Mayer has been doing. She has refocused the company on technology, is buying assets and people as fast as possible, and is looking to dump deadwood. Her skill with a balance sheet is illustrated by the numbers, with more than 30% of revenue falling to the bottom line.
Mayer showed the value of her acquisition of Summly by running her own earnings script through it creating a 144 word summary.
It's important to note where Yahoo's U.S. assets are. Many of its assets are in content - news, finance, weather, sports - and increasing revenue from those assets is paramount. Hadoop, the "big data" program that drives a lot of today's cloud development, was first written at Yahoo, and the company's own data centers are competitive, from a technical standpoint.
There are opportunities here, in other words, technical opportunities Yahoo was ignoring for years as it increasingly became a content company. Mayer has made the right moves to capitalize on those strengths, to create value from those assets.
But the Oakland Raiders aren't going to win the 2014 Super Bowl. Yahoo is not going to become a growth company again this year, or next year. But both are making the right moves to become contenders with time.