Yahoo: Zacks’ Bear of the Day Play

Yahoo! Inc. (YHOO – Analyst Report) has seen its shares lag in 2014 as investors await the Alibaba IPO. This Zacks #5 Rank (Strong Sell), however, is struggling to grow earnings with negative growth expected this year and next.

Yahoo is a leading Internet content provider and one of the top destinations on the web. It also owns about a 23% stake in the Chinese company Alibaba which is scheduled to go public in September in what will likely be the largest IPO ever.

And while Yahoo will reap the rewards from that investment, and will share that with shareholders, analysts aren’t too excited about the rest of Yahoo’s business right now.

Second Quarter Results Brushed Off

On July 15, Yahoo reported second quarter results and met the Zacks Consensus Estimate of $0.30.

Analysts didn’t like what they saw as display advertising price per ad declined year-over-year for the sixth consecutive quarter.

Yahoo also guided lower on revenue for the third quarter.

But don’t worry, there’s Alibaba. Its revenue in the second quarter jumped 46% year-over-year, soothing the worry warts who were concerned with the 39% revenue growth in the first quarter which seemed “light” compared to prior quarters.

Earnings Estimates Cut for 2014 and 2015

The analysts love the Alibaba part of Yahoo. But in the meantime, they have been slashing Yahoo’s earnings estimates for both 2014 and 2015.

4 estimates have been cut for 2014 in the last 2 months, pushing the 2014 Zacks Consensus Estimate down to $1.06 from $1.30.

The cuts to 2015 have been even more extreme as the Zacks Consensus has almost been cut in half to just $0.87 from $1.51.

That is negative earnings growth of 18% for both years.

It’s not moving in the right direction on earnings.

Shares On Hold in 2014

Shares of Yahoo rallied in 2013 on hope that the latest CEO, Marissa Mayer, would turn the company around.

But in 2014, shares have gone nowhere.

Yahoo isn’t exactly cheap either. It trades with a forward P/E of 35.

Certainly, Internet companies tend to be on the more expensive side but usually investors are paying for the earnings growth. Right now, that’s nowhere to be found at Yahoo.

If you really want to own an Internet content provider, you should consider Baidu Inc. (BIDU – Snapshot Report) instead. The Chinese company is expected to grow earnings by 22% this year and another 41% next year.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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