Yahoo: Looking Beyond the Third-Quarter Results

Yahoo (YHOO) recently announced third-quarter results, with its revenue up 7% year-over-year from $1.15 billion in the third quarter of 2014, but down somewhat from $1.24 billion in the second quarter of 2015. Yahoo has also provided revenue outlook for the fourth quarter of 2015 and estimates revenue to be in the range of $1.16 billion to $1.20 billion.

Yahoo also posted third-quarter non-GAAP net earnings of $146 million, or $0.15 of non-GAAP diluted earnings per share, down 4.6% sequentially from $153 million, and a decline of 73% from $543 million or $0.52 of non-GAAP diluted earnings per share during the third quarter of 2014.
Going forward, the company forecasts fourth quarter of 2015 non-GAAP operating income to be in the range of $10 million to $50 million.

Will Yahoo get better?

As far as the global search trend is concerned, Yahoo is witnessing healthy growth in the number of paid clicks, adding to its top line growth, while price-per-click has illustrated a continued decline somewhat offsetting the increase in the number of paid clicks. For the global display trend, Yahoo has mostly witnessed fall in both the number of Ads sold and price-per-Ad which has somewhat offset the expanding revenue stream from the global search trends.

Moving ahead, Yahoo needs to introduce new growth verticals in this highly-competitive and rapidly-changing technology market to successfully monetize on the emerging growth opportunities and deliver outstanding sustainable growth.

Yahoo recently introduced an innovative Yahoo mail app which offers password-free sign-in to the Yahoo account using a key and provides multiple mailbox support. The new mail app is believed to be fast, smart, intuitive, and feature-rich and secure which is expected to drive significant customer traction. In addition, Yahoo introduced on-demand passwords leveraging an SMS code to foray into a password-free future.

Importantly, Yahoo has acquired Polyvore, which is popular social commerce website that allows customers to identify, select and purchase their preferred product assortments in the category of home décor, beauty and fashion. This key acquisition adds Polyvore's community-driven instances, unique expertise and retailer-enabled commerce to Yahoo’s already solid and diverse set of products and services. Further, Yahoo seeks to integrate all of its programmatic advertising expertise under a single BrightRoll brand, which it uniquely acquired last year.

Going forward, Yahoo is expected to be focused on attracting new customers by strategically launching new mobile apps to give a head-on competition to its several other key small and big rivals in this vertical. Moreover, the technology major is also targeting inorganic growth to further expand its products and services offerings and capture market share.


At present, Yahoo does not look like a good investment since its valuation is poor. It has a trailing P/E ratio of 129 and a forward P/E ratio of 57, indicating that it is expensive. However, the company is investing for growth and it has a strong balance sheet with a cash position of $5.82 billion as against a lower debt of $1.24 billion, which is why it can invest in new products and also make acquisitions. Thus, from a long-term perspective, Yahoo can get better.
Published on Oct 28, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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