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Facebook Inc (FB): What Had Yahoo! Inc. (YHOO) Investors Spooked?

While aggregate paid clicks were up some 24% compared to the same period a year ago and up 9% sequentially, costs per click declined 6% year-on-year and 2% compared to the previous quarter. Google seems to be having more trouble than Facebook in the mobile advertising arena however.

Valuations and Metrics

Despite the trouble Yahoo! is having, the stock still seems priced very reasonably. It trades at only 7.26 times trailing earnings, a bargain compared to Google’s 24.63 and Facebook’s monstrous P/E of nearly 1,800. The price-to-sales is perhaps a little high at 5.25, but the price-to-book is only 1.82.

The operating margin of 16% is on par with the industry, but dwarfed by Google’s 27%. The return on equity, on the other hand, is very good at 29%. Finally, the company does have a very healthy balance sheet, due in part to its Asian investments. The company has almost no debt on the books, and some $4.18 billion in cash.

The Bottom Line

While Yahoo beat big-time on EPS, its ad revenue had investors worried. CEO Marissa Mayer is clearly working hard on turning around this ailing business, but like all great projects, this may take a while. A bright spot in the report is the company’s Asian holdings, which are proving to be very profitable, in fact more so than its operations. Looking at valuations, the stock is priced very reasonably compared to competitors, although this alone is not enough to provide further upside for the stock. Cautious investors will be looking very close at how well the company is able to beef up advertising revenue this year.

The article What Had Yahoo! Investors Spooked? originally appeared on Fool.com and is written by Daniel James.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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