Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
Yahoo Net Plummets Almost 80%; Ad-System Upgrade Is Delayed
Summary: Yahoo's stock fell almost 14% in late trading last night after the company announced Q2 results which missed analysts' consensus revenue estimate. Key Q2 stats: Gross revenue up 26% year over year to $1.58 billion; net revenue (excludes commissions paid to marketing partners, known as "traffic acquisition costs" or TAC) up 28% to $1.12 billion. EPS was $0.11 versus $0.51 a year earlier. Net income was $164 million versus $755 million a year earlier, when profit was boosted by the sale of Google stock. Net income was also reduced by the expensing of options. Advertising and listing-related revenue rose 27% and accounted for 88% of total revenue. Top 200 advertisers boosted spending by 35-40%. Yahoo's full year revenue projection was left unchanged at $4.6-4.85 billion.
Comment on related stocks/ETFs: Unusually for the WSJ, the article fails to explain why Yahoo's stock (NASDAQ:YHOO) took such a hit in late trading. There are five reasons: (1) Yahoo's EPS was in line with the consensus estimate, but analysts were expecting slightly higher revenues: $1.14 billion versus Yahoo's reported number of $1.12 billion. (2) Yahoo's failure to roll out its new search advertising system will impact its revenue, profits and competitive postition, and the company's explanations for the delay were lame. (3) Yahoo didn't raise guidance for the full year. (4) As John Hussman has pointed out, the market's tolerance for risk has fallen, and investors don't want to hold growth stocks that should be beating numbers and raising estimates when they're not doing so. Yahoo didn't beat and didn't raise. (5) Everyone knew it was coming, but now that stock options are being expensed, companies' earnings just don't look so great. For more on Yahoo's results, see the press release [PDF] and, more important, the conference call transcript.