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I remember when I started Richard Holway Ltd in 1986, it cost an absolute fortune to obtain any real time stock information. I dreamed of owning a Bloomberg or Reuters terminal at c£30,000 pa min. In reality I relied to the FT and yesterday’s closing prices. But for many years now, I (and the rest of the TMV team) get all the financial data we need for free – mainly from the really excellent Yahoo Finance. We have all the stocks we follow setup there and, on a personal level, I have all my various portfolios modelled so I can get an update literally minute-by-minute (if my nerves are strong enough)
In the middle of last year, Yahoo poached Marissa Mayer from Google for the top job. And I decided that was the time to add Yahoo to the Holway Portfolio. I have been rewarded with a 70% rise since; 35% YTD.
But turning around Yahoo is proving more difficult than one suspects even Mayer thought. Must admit I took issue with her ‘home working’ policies. But it’s trading performance which gives increased cause for concern. Revenues in Q2 fell 7% to $1.2b. EPS rose 19% and profits were up 46% at $331m – all on the back of cost savings. Staff numbers are down 9%.
Sure, Yahoo is growing its mobile business – mobile email up 120% and the Yahoo app for iPhone & Android up 55% - but this is from a small base and has failed to compensate for declines in its main business which is still firmly PC based. On top of that its average price per ad had slipped a pretty alarming 12% in Q2.
Mayer believes that revenue growth will be achieved by Q4. As so many others have found, moving an ‘old’ PC-based business into the mobile world is a hard task. In my view, Yahoo has some great assets (like finance, US sports coverage, news etc) which can still appeal to advertisers. It needs to up its game in video too and position itself for a younger audience.
The fact that the shares rose modestly in after hours trading was almost entirely down to a 71% increase in revenues and tripling of profits at Chinese internet company, Alibaba, where Yahoo still has a 24% stake. Alibaba is preparing its own IPO. Previous Alibaba share sales by Yahoo have fuelled a $5b share buyback plan; still leaving Yahoo with $4.8b cash at the period end.
