Enough, Yahoo!

Unlike the results documented in recent quarterly reports by tech giants such as Google and Apple, which shattered market expectations, Yahoo’s results continued to disappoint. Not only has their stock taken a beating, but the falling market standing and the Alipay mess begs the question, When will CEO Carol Bartz figure out a clear strategy? Although some shareholders have been questioning her position, the company’s board is still sticking by her.

According to eMarketer, the online ad market is expected to be worth $31 billion, and Yahoo’s share is projected to fall to 11% by the end of 2011 compared with the 16% share it commanded in 2009. Compare that to Google, whose market share was projected to reach 41% from 35% in 2009, and Facebook, which is projected to own 7% of the market compared with 2.4% in 2009. These are troubling statistics for Yahoo.

Yahoo! Financials
Yahoo!’s (NASDAQ:YHOO) Q2 revenues fell 5% over the year to $1.07 billion, compared with the Street’s estimate of $1.12 billion. EPS of $0.19 was a cent ahead of the market’s projections of $0.18. Yahoo attributed the decline in revenues to the unexpected drop in U.S. display advertising sales.

Display ad revenues increased 5% over the year to $0.47 billion but were shy of the market expectations of $0.43 billion. Search revenues fell 15% over the year to $0.37 billion, attributed to Microsoft’s failure to deliver on their search deal.

For the current quarter, Yahoo projects revenues of $1.05 billion to $1.10 billion compared with the Street’s projections of $1.12 billion.

Alipay’s Sell-Off
As mentioned above, the stock has been pounded by the recent concerns over the Alibaba Group, in which Yahoo! owns a 43% stake. The Chinese Internet player spun off their online payment service, Alipay, into a separate entity run by their CEO, Jack Ma, without compensating Yahoo for the loss. Alibaba claims to have notified Yahoo of the transaction, but it was completed without either the knowledge or the approval of the Alibaba Group’s board of directors or shareholders. Yahoo is still negotiating with Alibaba on the transaction.

Meanwhile, investors are running away. David Einhorn’s high-profile hedge fund Greenlight Capital sold off their 0.65% stake, or about 8.5 million shares, in Yahoo at an estimated loss of $20 million. Greenlight Capital had invested in Yahoo on the hopes of the value of the company’s stake in China’s Alibaba Group.

Yahoo Reorganizes Portfolio
Recently, Yahoo spun off their open source Apache Hadoop technology into a new company, Hortonworks. Yahoo expects that the creation of Hortonworks will increase the investment in the development of Apache Hadoop and accelerate its adoption across enterprises and technology vendors.

They have also been acquiring smaller assets. Earlier this quarter, they acquired advertising platform, 5to1, and the TV Tagging start-up, IntoNow. 5to1 was acquired for an estimated $28 million. 5to1 was founded in 2009 and has since raised $13 million in funding. It is an online advertising alliance with more than 20 major media publishers. The proprietary publisher-controlled platform offers advertisers premium inventory at mass scale. Yahoo is looking to leverage 5to1’s publisher partnerships and expand their own inventory.

IntoNow is known for their iPhone app that listens to and tags TV shows using their patented SoundPrint technology. The market estimates the acquisition to have cost Yahoo between $20 million and $30 million. IntoNow is working on creating an Android app and claims to have more than 600,000 users, averaging 25,000 to 30,000 tags daily.

But these acquisitions have done little for the company’s stock. Since the beginning of the year, Yahoo!’s stock is down 12% compared with NASDAQ’s growth of 6%. The stock is trading at $13.59 with a market capitalization of $17.7 billion. It touched a 52-week high of $18.84 in May of this year.

I am in agreement with Eric Jackson when he says, “Can Yahoo! be turned around? Sure. The stock is trading now at half of what it’s worth. Get rid of Bartz and half the board. Monetize the foreign assets better than locked up in the current form. Yahoo! shareholders can be golden for the first time in over a decade.”

I am pretty sure that Yahoo!’s traffic can be monetized a lot better than it has been. But the Carol Bartz–Jerry Yang combo just hasn’t delivered.

Enough!