Yahoo (Nasdaq:YHOO) is losing money, which is not a good thing on Wall Street. Right now, shareholders are probably trying to figure out if the dotbomb survivor's glory days have come and gone. Given that the stock is trading on the low end of the 52-week range many investors holding the stock are desperate for direction.
Yahoo's fourth-quarter and full-year results have been hashed and rehashed on virtually every news outlet already, but a few lowlights are worth mentioning again:
• Fourth quarter net income declined nearly 24% to $206 million from $269 one year ago.
• The company issued 2008 revenue guidance of $5.35-5.95 billion, below Wall Street expectations of $5.54-6.4 billion.
• The company is planning to cut 1,000 jobs to restructure itself for increased profitability.
• Investors are not taking the news well, as seen in the stock closing almost 9% lower on Wednesday's session.
Of Slugs and Sloths
For some reason, it seems like when we think of restructuring, we think of mega-cap companies in tired old industries like airlines and automobiles, not the internet. However, times have changed. Fact is, Yahoo's earnings show that even internet companies are not immune to sluggishness after the business transcends the initial stages of growth. As companies grow to large sizes, they can easily become fat and slothful, regardless of the industry they happen to be in. When revenue and net income begin to reflect such, restructuring commences.
I never thought we'd see the day when internet-oriented businesses would start falling into the same pitfalls as the mainstream corporations of years past. What it really goes to show is that business is business, regardless of whether it's shipping, retail or internet information. Regardless, the restructuring at Yahoo has begun, starting with the axing of 1,000 workers. In addition, the company is also working to restructure its relationship with AT&T (NYSE:T). The outcome of this will most likely be slashing per-subscriber payments for the DSL partnership. The bottom line here is that Yahoo has some real work ahead of it if it wants to buoy revenue. (For related reading, check out Cashing In On Corporate Restructuring.)
Microsoft Merger Rumors Persist
Investors are already aware that Google (Nasdaq:GOOG) now holds the No.1 rank for unique visitor traffic, and, interestingly enough, that's where the key could be for a turnaround in Yahoo's share price.
Undoubtedly, Microsoft (Nasdaq:MSFT) would like to gain on Google, and rumors have been circling for some time that the ol' Softy could eventually make a bid for Yahoo. By doing so, Microsoft would immediately elevate its status in the internet biz, but there are some hurdles ahead. Foremost, regulatory and antitrust issues always surround Microsoft, so a merger between the two companies would be complicated. However, with Yahoo's stock price hovering just above 52-week lows, there's never been a better time for Microsoft to step in. (To learn more, see our Mergers and Acquisitions Tutorial.)
The Bottom Line
Many in the industry feel Yahoo is not out of the woods yet. While it's in the middle of restructuring, revenue and net income could easily wane in the quarters to come, something that would likely drive the price even lower. Microsoft is likely already aware of this, and thus, if it in fact has any interest in Yahoo, it could be simply attempting to "wait it out" for a better price. At the present time, the Microsoft rumors are exactly that: just a rumor. However, something has got to give in Yahoo's story, and it will likely do so in the next few quarters.