Vishesh Kumar
Yahoo! is even expensive after its stakes in other companies, cash and investments are taken into account. Standard & Poor's Equity Research Senior Director Scott Kessler calculates that those peripherals total about $8 a share, and he points out that it still would leave Yahoo! at north of 32 times forward earnings. "People have been making rationalizations for the company's valuation for a long time," says Kessler, who points to eBay as a more attractive investment opportunity.
Yahoo!'s steep P/E ratio
remains despite a roughly 45% decline in the stock since the start of 2006. Over that time frame, the company stumbled in delivering its new Panama search-ad ranking platform and saw weakness in its display ad business as well.
Yahoo!'s premium over the likes of Google and eBay is especially puzzling given the host of obstacles the company is facing. ThinkEquity analyst Darren Aftahi cited "employee turnover risk, slowing user growth, competitive pressure/poor execution in display and limited upside in search," in a research note cutting the company's price target last week. ThinkEquity makes a market in Yahoo! shares.
And the high-profile executive turnover that has plagued the company through its stumble may become more of a risk as Yahoo!'s new management team attempts to right the ship. "We note that Yahoo! has had significant executive management turnover, with the sudden departures of CEO Terry Semel, CTO Farzad Nazeem, and VP of Sales Wenda Millard," Aftahi wrote. "In addition, we believe that morale at the company continues to be low, as CEO Jerry Yang and President Sue Decker review each business unit to determine with non-core units should be eliminated."
Indeed, Decker seems to be outnumbered among Yahoo!'s top management in recently picking up shares. While she picked up 47,000 shares in August, chairman and former CEO Terry Semel has sold 183,000 since the beginning of the month, according to Yahoo! Finance. And in July, Yahoo! co-founder and "Chief Yahoo!" David Filo sold 166,000 shares.
Rather than proving to be a bellwether of top management sentiment at Yahoo!, Decker's move may instead prove to be an exception.
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