Yahoo! Inc. (NASDAQ:YHOO)‘s revenue growth has been sluggish for the past several quarters, and despite a string of acquisitions it has still not shown tangible improvement in its market share for advertising. CNBC talked to Darren Chervitz, Portfolio Manager at Jacobs Asset Management about investors’ likely reaction to a probable bad quarter for Yahoo! Inc. in terms of revenue growth.
“They are dealing with some headwinds in the display advertising business. I believe Marissa (Yahoo CEO Marissa Mayer)’s kind of honeymoon period is over and people are going to want to see more results from core Yahoo. For the next six months the stock is going to be driven primarily by how Alibaba performs and we are comfortable with that. We believe Alibaba is a promising company in its own right. It has more market share in China than Amazon does in the U.S. But certainly Yahoo needs to show more growth,” Chervitz said.
Alibaba Group Holding Ltd (NYSE:BABA) has been driving Yahoo! Inc.’s stock for the past couple of years but as Yahoo! Inc. (NASDAQ:YHOO)’s stake in Alibaba Group Holding Ltd is scheduled to be spun off, the tech giant must tackle the challenges it is facing on the advertising front and it must tackle them fast. Chervitz does feel that Mayer has pushed revenue in some of the faster growing areas such as mobile and video but he maintains those things will take time to show up on the company’s actual profit and loss statements.
“When they spin off the stake at the end of the year that’s when all the pressure is going to be on Yahoo to show that there is a value in their core asset. Again, we believe there is. They made an acquisition a while ago in Tumblr that’s approaching half-a-billion users. It’s one of the fastest growing social networks out there,” Chervitz said.
Chervitz shows faith in how Mayer is invigorating the company’s product line by making valuable acquisitions like Flurry, BrightRoll and Tumblr but he fears that due to the long term nature of her plans investors are going to ask for more before those acquisitions start contributing to Yahoo! Inc. (NASDAQ:YHOO)’s revenues. In the words of Chervitz, Mayer’s honeymoon period is about to end. Investors would like to see some sort of revenue growth in today’s earnings call but Chervitz says that investors are not going to see that.
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