Yahoo! Inc. Core Asset Sale: Here’s What You Need to Know

Yahoo IncThis Could Be Massive for Yahoo Stock

Yahoo! Inc. (NASDAQ:YHOO) stock did not move much after the company reported earnings, but it shouldn’t really be a surprise.

Right now, it doesn’t really matter what Yahoo did in the reporting quarter or what the company has to say about future performance. What Yahoo stock investors really want to know is how the sale of the company’s core assets is going.

On that front, note that Monday was also the deadline for potential buyers to submit their final bids. However, Yahoo did not give much of an update. During the earnings conference call, the company’s chief executive officer, Marissa Mayer, said there is no announcement regarding the strategic alternatives process, but it is still “a top priority for our board and management team.” (Source: “Yahoo’s CEO Marissa Mayer on Q2 2016 Results – Earnings Call Transcript,” Seeking Alpha, July 19, 2016.)

Since all bids are already submitted, when will investors find out who the buyer is? Well, Mayer said, “we are deep into the process of evaluating proposals and alternatives, and will update our shareholders as soon as is prudent.” (Source: Ibid.)

YHOO Stock Earnings: Net Loss Widened

Even though not many analysts cared about Yahoo’s quarterly report, it could still shed some light on what these core assets could offer for the acquirer, so let’s take a look…

In the second quarter of 2016, Yahoo generated $1.31 billion in revenue, up 5.2% year-over-year. The bottom line, however, came in at a number much worse. The company’s net loss widened from $22.0 million in the year-ago period to $440 million. Adjusted earnings came in at $0.09 per share, which missed Wall Street’s expectation of $0.10 per share. (Source: “Yahoo Reports Second Quarter 2016 Results,” Yahoo, Inc., July 18, 2016.)

The company made solid progress, improving its current products. It introduced major updates to “Yahoo! Mail” (including an unsend feature), introduced support for “Live Video” on Tumblr, and also launched major updates to Yahoo! News, Sports, and Finance on desktop.

Of course, those product improvements were a bit too late to save Yahoo. The company’s display revenue dropped by seven percent year-over-year to $470 million. While the number of ads sold increased by nine percent, the price per ad saw a 15% decline.

The most worrying part is the company’s competitiveness in Internet industry. In the desktop search engine market, Yahoo had a measly 7.68% share in June 2016. In mobile search, its share is at an even smaller 2.99%. (Source: “Desktop Search Engine Market Share,” Net Market Share, last accessed July 19, 2016.) eMarketer predicts that Yahoo will earn just 1.5% of net digital ad revenue worldwide, down from its 2.1% share in 2015. (Source: “Yahoo Will Earn 1.5% of Worldwide Digital Ad Dollars This Year,” eMarketer, July 15, 2016.)

Why Yahoo Stock Could Still Have an Upside

At the end of the day, don’t forget that despite its declining presence in the Internet space, Yahoo’s assets are still highly sought after. The company was reported to have received offers of between $3.5 billion to $5.0 billion for its core assets. Telecom giant Verizon Communications Inc.’s (NYSE:VZ) $3.5-billion bid for Yahoo’s Internet business was considered to be in the lower range. (Source: “Yahoo Has Received Multiple Bids at or above $5 Billion for Core Business,” CNBC, June 9, 2016.)

The idea is that even though Yahoo is nowhere near the top of the Internet business, it is still way above all the companies that are yet to enter the Internet industry. More than one billion people are using its e-mail, finance, sports, and video sites every month. For any company that wants to expand its presence in video advertising (such as Verizon) or just in the Internet industry in general, Yahoo’s enormous userbase would certainly give it a head start.

I expect the sale process of Yahoo’s core assets to reach a conclusion in the next few weeks. When that happens, Yahoo stock might just see the biggest action since entering 2016.