Originally appeared on Medill Reports
Much like the VCR, rotary phones and dial-up modems, Yahoo Inc. may be slowly headed for the digital dumpster.
Analysts argue that Yahoo is losing ground to competitors that did not even exist a decade ago such as Facebook Inc. and Twitter Inc. Rick Summer, an analyst with Morningstar Investment Services Inc., said in a note that Yahoo’s competitors are able to “gather superior information about [their] users,” which makes them a more attractive option to Yahoo.
That advantage was evident in Yahoo’s latest quarterly results. Yahoo’s fourth-quarter earnings rose nearly 30 percent from the year-ago period but that was mainly because of an aggressive share-buyback program.
During the last three months of 2013, the company repurchased 6 million of its shares at a cost of $231 million, an average price of $36.42 per share.
Executive compensation is frequently tied to growth in earnings per share so companies often buy back shares to improve that number. But an increase in earnings per share tied to a decrease in the number of shares outstanding doesn’t translate into an improvement in net income or cash flow.
Yahoo shares opened down 6 percent Wednesday as investors showed their displeasure with revenue figures that fell for the fourth straight quarter.
In the quarter ended Dec. 31, Yahoo earned $348 million, or 33 cents per diluted share, up 28 percent from the $272 million, or 23 cents per share, in the same quarter the previous year.
The Sunnyvale, Calif.-based company’s earnings bested Wall Street’s expectations. Analysts surveyed by Zacks Investment Research Inc. had been expecting Yahoo to earn 30 cents per share.
Sales, however, fell by nearly 6 percent to $1.26 billion from $1.35 million in same quarter the previous year.
Sales of display advertising, which make up nearly 41 percent of Yahoo’s business, fell by nearly 6 percent from the year-ago quarter.
“Yahoo may be able to turn around its core business but the divide between possible and probable is wide,” Summer said.
During a conference call with investors, CEO Marissa Mayer said she felt positive about the company’s situation. “Getting overall company growth to a pace we are happy will take multiple years, but I am very pleased with our progress,” Mayer said.
Mayer, one of the highest-profile women in the technology industry, has had some successes in her first year in charge. The former Google executive acquired blogging site Tumblr in an animated GIF press release, refreshed Flickr and offered Yahoo users 1 terabyte of free storage. She also brought in high-profile talent including David Pogue from the New York Times and Katie Couric from ABC News.
“2014 is about doing bigger things in key areas of growth, fewer changes, but each larger and more strategic,” Mayer said, addressing Yahoo’s revenue decline and the recent departure of Chief Operating Officer Henrique de Castro.
“Ultimately, Henrique was not a fit for the company and that’s a very regrettable conclusion,” Mayer added.
For all of 2013, Yahoo earned only $1.36 billion, or $1.26 per share, down 65 percent from $3.94 billion, or $3.26 per share, in 2012.
Revenue did not tumble as dramatically, falling 6 percent to $4.68 billion from $4.98 billion.
Yahoo shares closed Wednesday at $34.89, down $3.33, or nearly 9 percent.