Same old Yahoo: why better earnings don’t equal a turnaround

Wouldn’t it be nice if you could just wish something into existence? That’s what some in the media seem to be doing in hailing Yahoo’s(s yhoo) latest earnings report as evidence of a comeback. Yes, the numbers were mildly better than predicted and the company’s star CEO sounded full of vim — but that doesn’t mean Yahoo’s position is any less hopeless than a year ago.
In case you missed it, Yahoo’s earnings came in at 32 cents a share yesterday which is better than the 28 cents that analysts had predicted. On the investor call following the earnings report, CEO Marissa Mayer stressed partnerships and the “tremendous internal transformation in the culture, energy and execution of the company.” She claims to have fixed hundreds of pressure points in the Yahoo bureaucracy and boasted that company employees worldwide are now enjoying free cafeteria food.
These are tactics, not a strategy. The reality is that Yahoo is still getting pummeled in its core business of display advertising and its search business, while posting higher revenue, is still losing market share. Despite some nifty content offerings (especially its finance and sports), the company is struggling for relevance in a world where no one says “portal” anymore. And while its stock is flying high, a big reason for that is Yahoo plowing money from asset sales into share buybacks.
To get an idea of where Yahoo stands, recall that the company was once regarded as an internet “giant” and that it stood astride the tech world like Apple(s aapl) and Amazon(s amzn) do today. Now, look at the chart below to see its relative significance today:
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The other companies on the chart are not just other tech companies, but the companies with which Yahoo must compete directly. Google(s goog) and Microsoft(s msft) remain genuine giants while Facebook(s fb) is still much smaller but, unlike Yahoo, is poised for powerful growth in the next two years. And, as my colleague Mathew Ingram noted, “partnering with everyone else is not a winning strategy.”
Mayer said on the investor call that Yahoo’s biggest opportunities lie in “search, display, mobile and video” but gave little indication how it would dislodge its immediate competitors — let alone the likes of Twitter, Tumblr and other upstarts.
The best that can be said for Marissa Mayer’s Yahoo is that the company is not outright dysfunctional. But it still needs a competitive advantage and a growth strategy. Until it has those things, let’s not waste our breath talking of a turnaround.
(Image by  Olesia Bilkei via Shutterstock)