Yahoo (YHOO) Stock Up as Starboard Advocates Against Alibaba Spinoff

Yahoo (YHOO) stock is gaining in early-morning trading on Thursday, after Starboard Value called for the company to sell its core search and display advertising businesses.
By Amanda Albright ,

NEW YORK (TheStreet) -- Yahoo!  (YHOO) stock is rising by 0.76% to $33.22 in early morning trading on Thursday, after activist investor Starboard Value urged the company to sell its internet business.

Earlier this year, the Sunnyvale, CA-based technology company announced that it is spinning off its remaining holdings in AlibabaGroup (BABA) into a new company called Aabaco Holdings.

"The proposed spin-off of Aabaco Holdings, Inc.  is not Yahoo's best alternative," Starboard said in a letter on Thursday to Yahoo's leadership. "Instead, you should be exploring a sale of Yahoo's core Search and Display advertising businesses and leave Yahoo's ownership stakes in Alibaba Group and Yahoo Japan in the existing corporate entity."

Starboard believes Yahoo's stock price was being determined by Alibaba, and separating its core business would improve talent recruitment.

"Top talent wants to be able to directly contribute to, and be rewarded by, its company's stock price performance," Starboard noted. 

Separately, TheStreet Ratings team rates YAHOO INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate YAHOO INC (YHOO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 15.1%. Since the same quarter one year prior, revenues slightly increased by 6.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although YHOO's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 5.09, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for YAHOO INC is rather high; currently it is at 67.91%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, YHOO's net profit margin of 6.22% is significantly lower than the industry average.
  • Net operating cash flow has significantly decreased to $137.28 million or 52.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 34.33%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 98.80% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • You can view the full analysis from the report here: YHOO

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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