The company’s recent quarterly results confirmed what many had already known about Yahoo!: it’s a company that’s still in transition, with demonstrated progress toward its strategic vision, but with a lot of work left to do.
It’s not easy to turn around a giant ship
Yahoo!’s long-suffering shareholders, who have seen their stock trade steadily lower since breaching $40 per share in 2006, are likely hoping a new CEO and renewed focus will propel the company into the future. Whether that’s true or not remains to be seen, but for the time being Yahoo! Inc. (NASDAQ:YHOO) does have some lucrative assets, including Yahoo! Finance, Yahoo! Sports, and its investment in Alibaba.
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.
Moreover, Yahoo! Inc. (NASDAQ:YHOO) has been active in the mergers and acquisitions space recently. In a high-profile deal, Yahoo! announced it would acquire Tumblr for $1.1 billion in a mostly cash deal. Through the acquisition, Yahoo! Inc. (NASDAQ:YHOO) is eagerly absorbing Tumblr’s 50 billion blog posts, and hopes it can broaden the reach of its business.
Unfortunately, despite the broad optimism boosting Yahoo’s share price, the business itself continues to struggle.
On the positive side, Yahoo’s adjusted earnings per share rose 17% in the second quarter. Revenues, meanwhile, were down 1%–not a good sign, as cost cuts can only get a company so far.
Better alternatives among tech giants
For investors interested in technology stocks, I’d offer Cisco Systems, Inc. (NASDAQ:CSCO), as a viable alternative. Cisco, like Yahoo!, is in a period of transition itself. The company is undergoing a number of changes, including ditching non-performing products, after years of disappointing financial results. The only difference is that Cisco is much further ahead in its turnaround than Yahoo! Inc. (NASDAQ:YHOO) appears to be.
There’s a great deal of evidence that suggests Cisco Systems, Inc. (NASDAQ:CSCO) is getting itself back on the right track. Cisco’s most recent quarterly net sales increased 5% year over year, and GAAP earnings per share increased an impressive 15% versus the same period in 2012.
And, unlike Yahoo!, Cisco Systems, Inc. (NASDAQ:CSCO) rewards its shareholders handsomely through a strong dividend yield and hefty dividend increases.
Since re-instituting its payout in 2011, Cisco has nearly tripled its dividend to its current level. At recent prices Cisco Systems, Inc. (NASDAQ:CSCO) yields 2.7%–significantly higher than the yield available on the broader market.
Even among non-dividend paying tech firms, there are better options than Yahoo! Inc. (NASDAQ:YHOO). Google Inc (NASDAQ:GOOG) has been on fire lately, and is the unquestioned champion of search.
