If this were baseball, Yahoo would not be going to the playoffs. And, if the adage, “three strikes and your out” applied, then the current number two in search would have even bigger worries. At the beginning of last week, Yahoo announced softening in two of its key advertising markets—cars and financial services – and that third-quarter earnings would fall on the low end of expectations. How did the market take that news? It could have been worse, but the answer was clear as evidenced by the graph below.
Fig 1.1 – Yahoo stock softens after their softening announcement.
Unfortunately for Yahoo, this isn’t the first time that such a drop following an earnings related statement has occurred. In January, when the company announced its guidance for the first quarter of this year, investors it appeared wanted the company’s statement to exceed not match analysts’ estimates. Judge for yourself here. (Ignore the price at the top as that is the current price and explains why it is the same above. If you have a magnifying glass you can see that the dates differ.)
Fig 1.2 – Yahoo stock takes an early dive in January 2006.
One might think two single day declines greater than 10% might be enough for a company, especially in what is considered to be one Internet advertising’s best years. For Yahoo, though, they got the whole trifecta. Just take a look at what happened in July 2006 when the company announced that Panama, its next generation search platform and arguably most important product update would be delayed. (Again ignore the stock price as that is a reflection of the price when checking.)
Fig 1.3 – Yahoo investors showing the stock the love.
Clearly, there are high hopes being placed on Yahoo, and in many ways it’s understood. The company helped pioneer the modern day Internet experience, but it despite being worth more than $30 billion, many still seem critical as it lost its search dominance and has not kept up with Google. As seen below, Yahoo’s revenue exceeded Google’s for practically all of 2003 and 2004. Since 2005 though, Yahoo’s growth has slipped while Google’s has remained incredibly strong.
Fig 2.1 – Google vs. Yahoo Revenue by Quarter (inspiration from Google.Blognewschannel.com)
Continue to Part 2 (also in this issue) for more on Yahoo and the Internet.
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