Declining ad revenue
In the second quarter 2013, Yahoo! produced more than $1.13 billion in revenue, 7% lower than the revenue of $1.22 billion in the second quarter last year. The decline in sales this year was mainly attributable to the decreasing revenue of both display and search advertising. However, its operating income surged by as much as 150%, from $55 million in the second quarter of 2012 to $137 million in the second quarter of 2013, mainly due to the much lower restructuring charges and lower traffic acquisition costs.
According to the Wall Street Journal, the Interactive Advertising Bureau reported that the U.S. online advertising market experienced good growth of 15% last year. However, Yahoo! Inc. (NASDAQ:YHOO)’s display-ad revenue – 40% of the total sales – experienced a 12% decline. The search-ad revenue also dropped by around 9%. In contrast, its peers, including Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) have been growing their advertising revenue. In the first quarter 2013, Facebook’s advertising revenue increased by as much as 60% to $1.25 billion, accounting for 85% of its total revenue, while mobile advertising revenue represented around 30% of the total advertising revenue. Google Inc (NASDAQ:GOOG)’s revenue (including advertising and other) came in at $12.95 billion, 22% growth compared to first-quarter 2012 revenue of $10.65 billion. Most of its revenue, $8.64 billion – 67% of the total revenue – came from Google Sites.
The growth in EPS and potential share buybacks
The EPS came in at $0.30 per share, year-over-year growth of 68% compared to the EPS of $0.18 per share last year. However, Yahoo! has lowered its full-year guidance, which disappointed investors. The full-year revenue guidance has decreased from the range of $4.5 billion-$.4.6 billion to the range of $4.45 billion-$4.55 billion.
The growth in Yahoo! Inc. (NASDAQ:YHOO)’s EPS also resulted from the company’s share buybacks. In the second quarter, Yahoo! bought back 25 million shares for around $653 million. It reported that in the past several quarters, it had completed its commitment to return $3.65 billion to buy back 190 million shares from the Alibaba deal proceeds to shareholders. Looking forward, it expects to repurchase an additional $1.9 billion worth of shares, representing 6.5% buyback yield to its shareholders at the current market cap of $29.10 billion.
Are Google and Facebook better buys?
At $26.90 per share, Yahoo! Inc. (NASDAQ:YHOO) is valued quite expensively, at nearly 20 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Yahoo!’s valuation stays in between Google Inc (NASDAQ:GOOG)’s and Facebook Inc (NASDAQ:FB)’s. At $26.30 per share, Facebook is worth $63.64 billion. The market values Facebook at a much higher EBITDA multiple at 42.32. Among the three, Google seems to be the cheapest. At $919.60 per share, Google Inc (NASDAQ:GOOG) is worth $305.1 billion. The market values Google at 15.67 times its trailing EBITDA.
