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Internet media company Yahoo (NASDAQ: YHOO) is having a pretty good week. Yahoo stock rallied on Tuesday after Alibaba Group (NYSE: BABA), the Chinese e-commerce company in which it holds a large stake, reported a massive 32% increase in second quarter revenue.
But Yahoo stock has had a decidedly bad year. Even with the little rally seen this week, the stock is down almost 25% over the past year. It has been pretty much steadily declining since last November amid weak results from its core business. And within a few months it won’t have Alibaba to prop it up. Yahoo expects to complete the spinoff of its stake in Alibaba by early next year.
For a company that was one of the earliest players in the consumer Internet, Yahoo has had a curious path since the 1990s. It didn’t crash and burn like some of the fly-by-night dot-coms, but despite a significant first mover advantage, it also failed to secure a leading position – even as its cycled through a long list of chief executives and turnaround strategies.
Yahoo today is a $4.6 billion company, but it’s not in the same league as Internet leaders like Amazon.com (NASDAQ: AMZN) or Alphabet (NASDAQ: GOOGL), the parent company of Google.
When Yahoo recently reported third-quarter results, CEO Marissa Mayer noted that it would be a few more quarters until its results would reflect its ongoing strategy of focusing the business around a smaller number of services. While Yahoo reported a small increase in third-quarter revenue, sales excluding commissions to search partners fell 8%.
More concerning than financial results is the looming, persistent question of how Yahoo expects to rebuild its presence on the Internet. Yahoo was an Internet search engine before Google was a household name.
But while Google recognized the enormous value of Internet search in the early days of the consumer Internet and applied a laser focus and significant investment to search technology, Yahoo demurred and built itself into an Internet “portal.” Today it’s largely a media site and content aggregator and has had good success expanding into mobile.
But Yahoo remains a confusing business. Consumers may have a Yahoo email account or they may be casual readers of Yahoo News, but Yahoo is not the sort of online destination you’d think it would have to be to gain traction.
Would you notice if Yahoo went away tomorrow? Would anyone you know notice and how much of a disruption would it be? These are reasonable questions for anyone considering investing in Yahoo stock should ask.
Yahoo stock has more than doubled since Marissa Mayer was named CEO in 2012. But as the company continues to sputter more than three years later, it’s not clear how much this price growth reflects fundamentals and how much reflects hope that this was the leader who would figure out a winning strategy.
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