At this point, Yahoo! Inc. (NASDAQ:YHOO)!‘s well-publicized acquisition of next-generation blogging platform Tumblr should be old news to anyone with an Internet connection. Tech experts and investors agree that Yahoo!’s alternately maligned and celebrated $1.1 billion purchase represents a watershed moment in the history of the Sunnyvale, California-based technology company. It remains to be seen whether this turns out to be a prescient acquisition that improves Yahoo! Inc. (NASDAQ:YHOO)’s place in the tech landscape or a white elephant that sets its operations back by years.
Yahoo! has also expressed interest in purchasing the potentially disruptive online streaming service known as Hulu. If these reports are accurate, the company might be in line to control a significant share of the post-cable market for shows, movies, and other videos. More importantly, Yahoo! Inc. (NASDAQ:YHOO) might genuinely be able to compete with larger rival Google Inc (NASDAQ:GOOG) in the all-important online video and multimedia space. Although Hulu is not yet in a position to take on YouTube, investors would be wise to watch this situation closely.
In the same league? Yahoo!, Google, and AOL
Operationally, Yahoo! Inc. (NASDAQ:YHOO) straddles the line between the search-based platforms that have made Google Inc (NASDAQ:GOOG) so successful and the content-focused business model that has kept AOL, Inc. (NYSE:AOL) from disappearing into ignominy. The company’s search and multimedia offerings are more varied than those of AOL, but less integral to users’ everyday online experiences than those of Google. As such, it might be useful to conduct a side-by-side comparison of all three of these firms.
Google Inc (NASDAQ:GOOG) is the largest of the three. At last check, the company’s market capitalization came in at just over $290 billion. In comparison, Yahoo!’s market capitalization sits between $28 and $29 billion, and AOL’s valuation comes in at $2.6 billion. Google also earns far more revenue than Yahoo! Inc. (NASDAQ:YHOO) or AOL, Inc. (NYSE:AOL). In 2012, the company earned $11.2 billion on gross revenue of $53.5 billion. This made for a robust profit margin of over 20%.
Meanwhile, Yahoo! earned about $4 billion on revenue of just under $5 billion. While it is unclear whether this profitability can be sustained, these numbers made for a margin of over 80%. Finally, AOL earned just over $1 billion on total revenue of $2.2 billion. The company’s profit margin sat near 50%.
These companies’ balance sheets display little similarity. Whereas Yahoo! Inc. (NASDAQ:YHOO) has a small debt load of about $36 million and a cash hoard of around $3 billion, AOL, Inc. (NYSE:AOL) has about $104 million in debt and $467.8 million in cash. Google Inc (NASDAQ:GOOG) has more than $11 billion in debt and over $50 billion in cash. It also has an ample operating cash flow of over $16.5 billion. In contrast, AOL, Inc. (NYSE:AOL) has a narrower cash flow of $386 million. In a worrisome development, Yahoo!’s cash flow recently turned negative. Of course, this may be partially due to its recent spending spree.