NEW YORK (TheStreet) -- No one doubts Marissa Mayer is good at her job. Prior to her being installed as Yahoo!'s (YHOO) CEO, that position was a turnstile of failed promises. But now she is under increasing pressure to come up with a strategy for the company as Alibaba readies its initial public offering.
Mayer's arrival at Yahoo! spurred an immediate recovery. Yahoo! is no longer a laughingstock. As for the stock itself, currently trading around $35.50, you'll be hard pressed to find a stronger turnaround story, even with the shares down 12% for the year to date.
Still, the company is light years ahead of where it was just 12 months ago, up 33%. Since Mayer's arrival, shares have soared 155%.
But they won't go much farther without some catalysts. The honeymoon's over. We're approaching Mayer's two-year anniversary. It's time to change the narrative of "Yahoo! will be okay because it owns part of Alibaba."
Sure, by virtue of its 24% stake, Yahoo!'s cash situation will improve once Alibaba files its IPO. But absent a clear and comprehensive strategy, Alibaba alone is not going to drive Yahoo!'s stock.
Mayer has made a lot of moves, including the acquisition of Tumblr. There has also been speculation she is interested in Yelp (YELP). There have been talks about online video and possibly movie and music streaming.
To her credit, Mayer understands she cannot just sit idle and expect the company to grow. From where I sit, Yahoo!'s ambitions appear too scattered. Not wanting other groundbreaking end-markets like Facebook (FB), YouTube and Twitter (TWTR) to escape her grasp, she's operating with fear.
These are a few of the businesses Yahoo! could have easily dominated had it had someone of Mayer’s caliber and intuitiveness a decade ago. But times are different. Today, her job is to define what Yahoo! should be.
Will it be strictly a media company that focuses on content delivery or will be a technology company with an innovative strategy? That's an important distinction that needs to be made.
Mayer can't continue to waver expect to be efficient at both. It doesn't work. While investors and analysts will focus on this afternoon second-quarter results, there won't be any surprises.
Both revenue and earnings will meet or exceed estimates. Paid clicks will continue to tend higher. Yahoo! will deliver on the higher-end of its traffic forecasts. And, of course, there will be updates on Alibaba.
Investors should be more interested on Mayer's long-term views and to what extent she can turn Yahoo!'s assets into meaningful long-term revenue. She was brought in for her vision, engineering brilliance and to build growth.
Instead, she seems content with living in the shadows of Alibaba, while trying to compete with old media like CBS (CBS). She's got time to figure it out. But time will eventually run out.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate YAHOO INC (YHOO) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Although YHOO's debt-to-equity ratio of 0.09 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.20, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for YAHOO INC is currently very high, coming in at 83.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.50% is above that of the industry average.
- Compared to its closing price of one year ago, YHOO's share price has jumped by 31.51%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- YAHOO INC's earnings per share declined by 17.1% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, YAHOO INC reported lower earnings of $1.26 versus $3.28 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $1.26).
- You can view the full analysis from the report here: YHOO Ratings Report