Business Case - Stock Investment Analysis

Yahoo

Yahoo has grown up as a portal company. They learned early on that by being sticky, by having a web presence that forced users to stay on their site, they could find ways to profit from the page views. This has led Yahoo astray though. Not only has Yahoo given up overall profits in search of ever expanding user acquisition, they have allowed their search product to fall behind (Whitney: 15).

Google, Yahoo's chief competitor, has mastered the art of monetization, namely through contextual advertising. Contextual advertising is when a small piece of programming code is inserted into web pages which actually interprets the text and serves advertising based on keywords. Google's offering, Adsense and Adwords, produces 99% of the company's profits. This advertising network is built into both their search and branded sites. Web publishers are also growing to adopt Google's version of website advertising to gain monetization for their own traffic.

Yahoo has adopted this model of contextual advertising that has been so profitable for Google, but have yet to refine it enough to make a serious impact on the market. The program is still in beta (the internet's way of saying under-construction) and has not made any headway at attracting new publishers or advertisers (Whitney: 14).

Yahoo Financials

Yahoo trades on the NasdaqGS under the symbol, “YHOO.” For slight comparisons, to show where Yahoo needs to be, we are going to compare several key statistics with Google's results. With a 52 week range of 22.65 to 28.86 and a volume of 21,102,256; the stock itself is well traded. The current P/E of 55.57 seems high, especially when compared to the much more profitable Google; which has a P/E of 48.18. Here is a snapshot of the top level financials for Yahoo at the time of writing (Whitney: 19):

Across the top level, revenue has been strong as well since 2002. 2006 revenues come in at 6,425.7 (in millions). Looking at the company snapshot:

Cost of goods sold has increased as one might expect, throughout the ten year span of public trading. This is largely due to the increase of server space and supplemental acquisitions the company has made. These acquisitions include services like Flickr and MyBlogLog. Research and development is sitting at 13% in 2006, which is higher than Google's (which comes in at 11.6%). This is a positive mark for Yahoo. The EBT, or earnings before tax, as dropped to 17.1% - from 48.4%. This is a cause for concern. Google's stands at 34.9 to 37.8 for the last two years. In dropping to the profitability section, Yahoo's tax rate is 41.7%, up from 30.2%. This is not the highest it's been, though. In 2000 it was 72.7%. Google sits at 23.3%. Perhaps the biggest discrepancy I can see is that Yahoo's return on assets dropped from 18.95% in 2005 to 6.73% in 2006. Google remains strong at 21.41% (Whitney: 17).

Amazon

In the fourth quarter of 2010, AMZN's revenue increased 36% to $12.95 billion. Net income increased from $384 ...