2nd Quarter Blues: Not Much to Yahoo About

There seems to be no light at the end of the tunnel yet for Sunnyvale-based Internet giant Yahoo!, whose second quarter revenues fell by 2 percent yet another year. A 2 percent fall in itself is enough to cause discomfort to shareholders of a company. In the case of Yahoo!, this has happened for the sixth quarter in a row.

And it is the shareholders who are being punished for the company’s inability to get the show back on track and move ahead. The value of Yahoo’s stock has taken an abysmal 30 percent dive since 2005-end. That was when the trend of falling profits started. In the process, stockholders have lost almost $20 billion.

You cannot blame the company for not trying. They have tried everything they possibly could, including having a new CEO, striking strategic alliances, and upgrading their online advertising capabilities. None of it seems to have worked so far. Co-founder Jerry Yang, who is the new CEO and also Yahoo’s largest shareholder, said he was aware that a lot needed to be done for the company to get back to where it was earlier.

In the latest quarter, share prices have gone down by 4.1%, and shareholders ended up losing approximately $1.13 a share. This happened once the company had to bring down its forecast for the year-end revenues. At the end of Tuesday’s regular trading, Yahoo! stocks were at $27.53.

In the second quarter, Yahoo net income was $160.6 million, approximately 11 cents a share. This was below the net income during the same period last year, when the company bagged $164.3 million, or 11 cents a share.

Overall revenues during this period for this year have been $1.7 billion, which is actually an 8 percent improvement from its performance for the same period last year. However, compare this with the rate at which the rest of the industry has been performing, and the real picture emerges.

Its biggest rival, Google has been way ahead in the numbers game so far. Google registered a whopping 63 percent jump in revenues during the first quarter of 2007 itself. Talk in the industry is that it would announce revenue jumps of around the same magnitude during the second quarter as well.

Yang has a lot to do in the next 100 days, as he and other top executives analyze where things are going wrong and plan and implement strategies to help get the company back on track. Possible moves may include shedding any part of the business that is not generating the required revenues.

What is not on the anvil, however, is a mass layoff. CEO Yang and other top executives have emphasized that the workforce would possibly be increased. Most of the new personnel would be in the online advertising and search departments. The current workforce of Yahoo! stands at 12,400 employees.

However, both shareholders and industry watchers say that Yang and co. do not have the luxury of time. Ex-CEO Terry Semel’s repeated utterances, that all would soon be well, have left the shareholders with little patience. The agreement all around is that whatever has to happen has to be fast and instant.

Some of the strategies Yahoo! is relying on to pull itself out of its current rut include alliances with companies like Comcast Corp. and eBay Inc., besides partnerships with over 270 newspapers.

They are also pinning a lot of hopes on Panama, a new advertising approach rolled out this year. Another key area the company hopes to cash in on is graphic-dependent Internet advertising. It has acquired Right Media Inc. for $700 million to realize this.

However, none of this is likely to change things around immediately. The forecast for this year still remains grim, at $4.89 to $5.19 billion, down from the April projection of $4.95 to $5.45 billion. Whatever the company tries, there still won’t be much for shareholders to Yahoo about this year.