Is Yahoo! Losing its Nerve? - A Closer Look at the Results
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So what was it about these financial results that was awful enough to inspire such a drop in the price of Yahoo! stock? Keep in mind as we take a look at these figures that I'm not really a financial analyst; I'm just a layperson who has spent a few years reading company financial results as part of my job. And maybe that's why I don't quite see why everyone is so horrified.
Yahoo!'s gross profit increased 34 percent over the year-ago quarter -- and net income for the fourth quarter nearly doubled, from $373 million in 2004 to $683 million in 2005. On a per-share basis, that's $0.46 versus $0.25 a year ago.
Revenue for the quarter was up, too, of course. It reached a total of $1.5 billion, a 39 percent increase from the $1.08 billion earned in the comparable 2004 period. In order to get a better picture of Yahoo!'s revenue, one should subtract the advertising commissions that it paid to other websites. After performing that bit of math, we find out that the company's fourth-quarter revenue came to $1.07 billion, which was in line with analyst estimates -- and still up 36 percent from the same period a year ago.
So if it's not obvious from the quarterly results what has everyone upset, what about the year-end results? For all of 2005, Yahoo! earned $1.9 billion, or $1.28 per share, on total revenue of $5.26 billion. That's much better than it did in 2004, when the company's net income was $839.6 million, or $0.58 per share, on total revenue of $3.57 billion. Most companies, and their stockholders, would be ecstatic to see that kind of growth.
But industry analyst Safa Rashtchy of Piper Jaffray put a finger on the problem. "Yahoo! has a good story going; it's just not as good as Google's," though, as of this writing, Google has not yet released its financial results for the quarter. "We would expect to see faster growth in a growth market that seems to be on fire like this one." Indeed, another commentator pointed out that this was the second consecutive quarter in which Yahoo!'s earnings growth was interpreted by investors as a sign that the company isn't leveraging the exploding online advertising market as well as Google. So the analysts are looking for growth -- but they just might be looking in the wrong place.
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