Yahoo! (NASDAQ: YHOO) is a company that has struggled for years to turn around its advertising business. However, despite no revenue or earnings growth in the past three years, shares of Yahoo! have tripled since 2011. This trend continued when Yahoo! reported its second-quarter results Tuesday afternoon. Profit and revenue were both down year-over-year, although an update on its Alibaba agreement helped stem some of the losses.
Yahoo! reported second-quarter earnings of $272.56 million, or 26 cents a share, compared to $335.01 million, or 30 cents a share, in the second quarter the year before. Revenue, ex traffic-acquisition-costs, was $1.04 billion compared to $1.07 billion in the second quarter the year before. These results were a huge miss as analysts on average expected earnings of 38 cents a share and revenue of $1.08 billion.
For most companies, missing this badly on an earnings report would lead to shares plummeting. Yahoo! is not most companies, and for years has been trading based on the value of its Alibaba stake. As such shares had a more modest drop due to an update on its agreement with Alibaba.
Alibaba agreement amendment
Yahoo! announced that the total number of shares it would be required to sell in Alibaba’s IPO was reduced from 208 million, or about 40% of its remaining stake, to 140 million shares. This was cause for celebration as there is a belief that Alibaba shares have significant room for growth from its planned IPO price.
Yahoo! also announced that it would return at least half of its after-tax proceeds from the IPO to shareholders. This allayed fears that Yahoo! would choose to spend its profits from the Alibaba IPO instead of returning that value to shareholders.
It is to be seen whether this poor earnings report foreshadows more problems for Yahoo! moving forward.