BERKO: Yahoo yahoos don’t inspire confidence
Dear Mr. Berko:
I bought 500 shares of Yahoo Inc. in June 2008 at $24.40, because I thought Microsoft would come back and make a higher bid than its offer of $31 a share. I was wrong, but I held the stock, because I thought either earnings would increase or another suitor would make an offer. Again, I was wrong. Now the stock is lower, and I could buy another 500 shares to reduce my cost basis, if you think this is the right thing to do. What do you think about Yahoo, and would you recommend the stock?
L.G., Bloomsburg, Pa.
Dear L.G.:
Yahoo’s (YHOO-$12.92) chairman, Roy Bostock, is a true-blue yahoo, and since he has been on the board, this stock has taken a swan dive — from $50 in January 2004 to as low as $11. What would you expect from a professional schnook who was on the board of Northwest Airlines (which went belly-up), Delta (which should have but didn’t), Duke Health System (where costs have exploded), Partnership for a Drug Free America (while drug use has zoomed) and Morgan Stanley (which needed billions of dollars in TARP money)?
Roy is also chairman of SealEdge Investments, a mysterious firm that some say is importantly involved with pinnipeds, those cute, little fin-footed mammals. Additionally, Roy is a board member at Novo Group, the search firm that hired Carol “Big Mamma” Bartz away from her family’s root beer stand to run Yahoo.
Yahoo managed to beat Wall Street’s expectations in its first quarter earnings report — which wasn’t even a push, because the Street’s expectations were so low. But would you believe that earnings for Yahoo’s first quarter were up a very impressive 30 percent from 15 cents to 19 cents per share?
Yahoo’s earnings also increased in its second quarter, but these increases were due to reducing costs, closing product lines and divesting nonproductive businesses, rather than growth in revenues, which are expected to decline 15 percent from last year.
So Roy (who voted against a Microsoft purchase at $31 a share in 2008) waxed eloquently about Novo’s wisdom in hiring Big Mamma Bartz, who probably couldn’t manage a two-car funeral. Earnings growth is important. But any stupid can cut costs. Yahoo’s goal is to generate advertising revenue from its various proprietary and third-party content and its search and navigation services.
But Big Mamma can’t sell dollars for quarters. Since she took over, Yahoo’s revenues have sinkholed, from $6.6 billion in 2009 to an expected $5.2 billion in 2011. Roy is so pleased with this performance that he (and, incredibly, the board, too) wants to extend Bartz’s contract.
Meanwhile, Yahoo’s engineers are basically also a bunch of yahoos. When these guys take more than 45 minutes for lunch, they need to be retrained upon their return. During the past two years, Yahoo’s tech yahoos have been redesigning systems and codes, which should increase usership and engagement and improve ad revenues. But persistent issues (slow email, sporadic downtime, navigation problems between sites, data losses, etc.) have hurt the transition and diminished click volume — and revenues.
Neither I nor others who follow the stock have any confidence in Yahoo. Investment research firm Value Line sees a poor bet in Yahoo, which it rates at $10 a share.
Your only salvation is a merger, a buyout at a higher price by a consortium of fools, or a prayer for an industrial-strength corporate enema.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775, or email him at mjberko@yahoo.com. © 2011 Creators.com
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