Yahoo (YHOO), the company that once defined the Internet, is quickly being left behind. I have been very vocal in my dislike of how things have been going for Yahoo and other similar companies such as AOL (AOL) and IAC Interactive (IACI). But Yahoo clearly remains the top stock in my “hate list." Some stocks such as Blue Nile (NILE) are being valued too high and I have shorted them quite often. But in Yahoo's case, the stock looks like it could be stuck in the same range for a very very long time. I have been feeling like this for some time but listening to the earnings call last week gave me even more reasons to doubt the company, currently led by CEO Carol Bartz. To be fair, I’m not saying that I could do better but I did come up with some things I would do if I were and in any case, finding a capable CEO should not be the most difficult task in the world although you could argue that it is already too late.
Here are the top reasons why I do not like Yahoo’s stock:
Yahoo Cannot Admit That Things Are Not Going Well
In its earnings call, Yahoo did say that it was gaining momentum and Merrill Lynch analyst Justin Post was spot on when he asked about that. He asked how Yahoo was gaining momentum when you consider that revenues have dropped by double digits for two straight years. It’s fairly impressive for any company to do that poorly but doing this in the tech world is impressive, obviously not in a good way. Even when confronted to such a fact, Carol Bartz defended herself, saying things were on course, etc. It could be all about talk but I would say that Yahoo’s inaction in the past two years speaks volumes as well. I remember hearing AOL CEO Tim Armstrong discussing a similar situation and he seemed to be very open to discuss the drop in revenues and his plan for the turnaround. That does not seem to be the case at Yahoo.
Its Top Producing Assets Are Those That Are Independently Managed
Many Yahoo bulls point to the fact that the company does not have much space to drop or downside risk because its cash position and its stakes in Alibaba and Yahoo Japan are almost worth the entire company. It is as if everything else in the company was almost worthless. It is true in some ways. But don’t you think it’s very worrying that the only assets that are gaining ground for Yahoo are those that are not managed by Carol Bartz and Co.? I would agree that the stock will not fall much below $10 for some time but I still think there is so little risk that revenues will spike that shorting the stock remains a very attractive position.
It Is Ignoring the Truth Regarding Its Position as a Display Advertising Leader
It’s not the first time it has happened and will not be the last. Yahoo dissing Facebook and basically saying that it remains the display ad leader. In a way, it is true because more display ad dollars are spent on Yahoo than anywhere else. But Facebook is now by far the website that is attracting the most traffic and is very quickly gaining on Yahoo. It has the most traffic, the most pageviews and very limited focus on display advertising for the moment. On the call, Carol Bartz discussed how Facebook, Google and others gaining so much advertising clients was a good thing for Yahoo because it meant that new advertisers were moving to the web and could potentially become future Yahoo advertisers. Maybe somewhat true but I cannot imagine NBC being happy about FOX’s advertising success.
The Search Alliance With Microsoft Is, as Expected, Turning Out as a Win for Yahoo
Bartz and her team acknowledged that revenues were not on par with expectations, mostly because the click through ratio was not as high as expected. Yahoo is losing search market share every month or so and that will have a huge impact on its search revenues. The three way race is now two ways and you will rarely hear about users switching to Yahoo because an increasing number of users know that they can find the same, better presented results at Microsoft’s (MSFT) Bing.
Executives Continue to Leave Yahoo
It’s always a great way to see how things are going isn’t it? Talent retention in Silicon Valley is now one of the top priorities and every time you will hear about movements that involve Yahoo, it is because of big profile names that are leaving the company. Are they leaving for lack of opportunities? Lack of leadership? Because their stock options are worthless? Because the possibilities of a turnaround seem slim from the inside? No matter which of these reasons is the valid one, it does seem clear that all of these departures are a very bad sign for shareholders.
Almost No Talk About Mobile Strategies
While Google (GOOG), Apple (AAPL), Microsoft and others battle for their space in mobile, Yahoo seems to forget that it is getting completely lost in this new space. The big area of growth got not more than a few mentions on the earnings call as Yahoo admitted that it was getting very little market share because Google’s Android promotes Google search heavily (while Apple promotes its own products on the iPhone and iPad). When will Yahoo wake up? It is probably already too late and those two or three apps are not going to save the day.
So Is Yahoo Toast?
For now, I don’t see any reason to not consider Yahoo as toast and a great short ... what about you?
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Disclosure: No positions on Yahoo but you can expect a short position soon.