Yahoo CEO Jerry Yang is stepping down and Carol Bartz has taken the reins as the company's new CEO. Most hope that she can fix Yahoo and return it to the place of dominance it once enjoyed. Or failing that, at least move it back into favor with shareholders. This will be difficult. The company was shaken by two rounds of layoffs during 2008 and a near shareholder coup over its treatment of Microsoft's acquisition bid, which contributed to its 59 percent stock price decline from its 2008 high of $30 per share to its current $12.31 per share (a $17 billion market cap).
But if you look at the Yahoo balance sheet, its stock is still overvalued, and, needless to say, Bartz has some difficult work in front of her to turn Yahoo around. Here's why. (Note that all the findings below are derived from Yahoo's 2007 Annual Report and 2008 third-quarter data. The company plans to release 2008 fourth-quarter data on January 27.)
Cash: Ideal. Income: Declining When evaluating the financial health of a company and determining whether or not you should invest your money in its stock, it's best to start with the easy figures, income and cash. And in that department, Yahoo, while still healthy, has hit some troubling times.
According to its latest quarterly filing data, Yahoo's operations have hit a snag. Its latest reported quarter, ending September 30, 2008, yielded the company about $54 million in profit, which is a sharp decline from its three previous quarters, which saw the company take profits of $205.72 million, $542.16 million, and $131.22 million, respectively.
That said, Yahoo has been able to increase its cash reserves. According to third-quarter data, its total cash on hand increased by about $100 million over the previous quarter, to $2.14 billion. Considering Yahoo's 2007 Annual Report claims the company had $1.5 billion on hand by the end of 2007, and given its current cash growth, we can expect its coffers to have grown significantly year-over-year once it reports its fourth-quarter earnings later this month.
While Yahoo still enjoys a healthy, albeit declining, profit each quarter as well as ample cash reserves, it's trailing far behind its main competitor, Google. Based on Google's financial data, the online powerhouse enjoyed a $1.28 billion profit during the quarter ending September 30, 2008, and its total cash on hand has grown to more than $8.3 billion. That's a far superior position to Yahoo.
Balance sheet health: Outstanding When it comes time to examine the value and growth potential of a company, its balance sheet can be a key indicator of whether or not you should invest money. With no long-term debt and billions in assets in its financial structure, Yahoo is in a good position.
According to its latest quarterly filing, Yahoo's assets--cash, investments, receivables, and property--are valued at $13.9 billion, while its liabilities are valued at just $2.3 billion. The balance can be found in the company's Stockholders' Equity section, which boasts more than $16 billion in retained earnings (the portion of the net income that is kept by Yahoo) as well as Additional Paid-in Capital (cash received from investors who are paying more than the par value for each share acquired). But Yahoo's balance sheet also includes $5 billion in Treasury Stock--stock that is repurchased by the company to reduce the number of outstanding shares on the market. That reduces the total amount of stockholders' equity, but it should be noted that it's the result of a repurchase performed in 2005.
Yahoo has no long-term debt, which is a major advantage for a company experiencing the kind of upheaval Yahoo is in the middle of, and the company has a healthy ratio of assets to liabilities. In other words, the balance sheet tells us there appears to be little need to worry Yahoo experiencing financial ruin anytime soon.
But competitor Google, once again, trumps Yahoo with $30 billion in assets and just $3.3 billion in liabilities. Google only has $13 billion in retained earnings and capital surplus, but it has yet to buy back any shares, so it has no Treasury Stock in its balance sheet. Much like Yahoo, Google is in an enviable position, but with more cash and more assets, it's in better shape than Yahoo.… Read more