Not even a month has passed since I wrote the article, Can New Yahoo! CEO Deliver on Lofty Promises?, and the company’s CEO has left under a dark cloud. Since that time, now former CEO Scott Thompson has been discovered to have allegedly lied on his resume (although he says it’s just an error) about having a bachelor’s degree in computer science. This alleged error forced him out, but the long-term problems at Yahoo! Inc. (NASDAQ/YHOO) regarding its corporate earnings still exist.
This hasn’t been the only change, as the landscape for technology stocks continues to evolve. As I mentioned previously, Yahoo!’s North American division is essentially trading for nothing. Most of the value of Yahoo! USA is built on cash and its stake in Alibaba and Yahoo! Japan. Yahoo! has now entered an agreement that will see up to half of its stake in Alibaba sold for $7.1 billion. After taxes, Yahoo! expects to net approximately $4.2 billion and $800.00 in preferred Alibaba stock.
While the stock did move up initially, it has since fallen back. This is because investors know that technology stocks are built on innovation. This deal, while it’s great to finally see some monetization of an asset that was just sitting there, has done nothing to improve the core corporate earnings of the company. Technology stocks need to be on the cutting edge, the front line of new ideas. I can’t remember the last time I talked to someone who was excited about anything Yahoo!’s U.S. division has done.
Chart courtesy of www.StockCharts.com
While the move up in recent days was nice, as you can see from this chart, the stock is stuck in a tight range. The company did authorize an increase in its share repurchase program by $5.0 billion, so there is some support. An investor might look at this stock as an option, hoping that more pieces are sold off to other technology stocks and wishing for a break above the upper resistance level. But, generally speaking, wishing and hoping are not good friends for investors. As can be seen by the circles, there is no momentum being built up at all, while other technology stocks are flying around at much faster speeds. Yahoo! appears to be dead money, with a lack of strategy for increasing corporate earnings.
Once again, we have in Yahoo! a company that has declining revenue, a questionable corporate earnings growth strategy, and heavy competition from technology stocks such as Google Inc. (NASDAQ/GOOG) and Facebook, Inc. (NASDAQ/FB). With technology stocks like Google and Facebook as competitors that can out-muscle and outspend Yahoo!, as an investor I would be hoping for a sale of the entire company. The pieces are worth more than the whole.