Yahoo! Inc. Gains May Not Sustain
UPDATE: A previous version of this story wrongly implied Yahoo! had a formal relationship with Smart Page. The article has been updated.
Yahoo! Inc. (NASDAQ:YHOO) stock is likely to get a boost from its quarterly report, albeit for a short term. Although the company’s earnings have beaten expectations, the decision of CEO Marissa Mayer to not hold an analysts’ call is likely to raise more doubts.
Yahoo stock has been gaining on the back of its deal with Verizon Communications Inc. (NYSE:VZ), and it has gained about 25% year-to-date.
In its third-quarter results on Tuesday, Yahoo reported earnings of $0.20 a share on $1.31 billion in revenue, which beat the analyst expectations. Although the revenue from Yahoo’s “Mavens”—the mobile, video, native, and social advertising segments—rose 24.2% and touched $524.0 million, the decline in gross search revenue by 14% to $752.0 million raises red flags. (Source: “Yahoo Reports Third Quarter Results 2016 Results,” Yahoo! Inc., October 18, 2016.)
One of the prime reasons for the upbeat numbers appears to be the cost-cutting initiative at the company, which has already decreased its headcount by 2,200 this year. The fall in core revenues is a clear indication that earnings growth is not sustainable in the future, as the advertising business continues to suffer. This might put further strain on the impending $4.8-billion Yahoo-Verizon deal, and on Yahoo stock.
Moreover, the lack of clear communication from Yahoo is not building trust. Reports have come in that StartPage CEO Robert Beens is ditching Yahoo search results from its metasearch tool Ixquick.eu. He also hinted that others might follow suit.
“Yahoo does not have a partnership with StartPage and we have never had a formal relationship with the company.” Yahoo provided in an official statement to ProfitConfidential.com.
There are reports that Needham & Company, LLC have downgraded YHOO stock to “hold,” as analyst Laura Martin believes that the deal with Verizon may not go ahead as expected. Regarding the reported growth in page views and e-mail usage, a Forrester Research, Inc. (NASDAQ:FORR) analyst said that this uptick could be due to “500 million people trying to figure out if they are exposed.” (Source: “Yahoo profit beats Wall St., some analysts worry over effect of hack,” Reuters, October 18, 2016.)
As investors have become more cautious about the Verizon deal, YHOO stock has lost ground, posting a five percent loss in the last month. Investors will be looking forward to clearing their doubts in the coming days as the investigation into the data breach reaches some conclusion. The company needs to be more transparent because, amid the lack of good news, Yahoo stock may halt its upward journey.