The past several years have been tough for Yahoo! Inc. (NASDAQ:YHOO) shareholders. The company that once flew sky-high during the tech bubble has seen its stock price and underlying business struggle to keep up in an ever-evolving internet landscape.
Recent developments, including the much-hyped purchase of media network site Tumblr, have led to renewed optimism surrounding Yahoo! Inc. (NASDAQ:YHOO)’s future potential.
Does the deal represent the catalyst Yahoo! Inc. (NASDAQ:YHOO) investors have been waiting for? Or would investors do well to steer clear of Yahoo! Inc. (NASDAQ:YHOO) entirely?
Much ado about something?
In the high-profile deal, Yahoo! Inc. (NASDAQ:YHOO) recently announced it would acquire Tumblr for $1.1 billion in a mostly cash deal. Through the acquisition, Yahoo! is eagerly absorbing Tumblr’s 50 billion blog posts and hopes it can broaden the reach of its business.
Yahoo! Inc. (NASDAQ:YHOO)’s long-suffering shareholders, who have seen their stock trade steadily downward since breaching $40 per share in 2006, are likely hoping this deal will propel the company into the future. Whether that’s true remains to be seen, but for the time being, Yahoo! does have some lucrative assets, including Yahoo! Finance, Yahoo! Sports, and its investment in Alibaba.
To that end, Alibaba reported fourth-quarter net profit skyrocketed 171%. Much has been made of how Yahoo! might monetize its 24% stake in Alibaba, with an IPO of the Chinese online shopping giant a likely scenario. Recent estimates have placed Alibaba’s worth in the $100 billion range.
For the time being, even with the financial windfall provided by Alibaba, Yahoo! is still struggling, largely due to the continued underperformance of its Search business. In total, Yahoo! saw GAAP revenue decline 7% in the first quarter year over year and reported flat adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The company’s Search business in particular saw revenue decline 10% during the first quarter as compared to the first quarter of last year.
Going back further, Yahoo!’s financial struggles are plain to see. The company’s revenue stagnated in 2012, flat from the prior year, and remain significantly below pre-recession levels.
Better tech alternatives to choose from
Technology stocks have seen a transformation in recent years, with many companies embracing the idea of paying competitive dividends to shareholders. Yahoo! has resisted this, focusing instead on growing its business through acquisitions like the Tumblr deal. Investors are hungry for yield in today’s uncertain economic climate, but they aren’t getting any income from holding Yahoo! shares.