In Definite Need of Some Excitement

 | Mar 14, 2013 | 9:00 AM EDT
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Marissa Mayer, the new CEO of Yahoo! (YHOO), has done something no other CEO of Yahoo has been able to do -- she got the stock to go up! In the last year, shares have risen 53%. Although most of it has come from an 80-million-share buyback, investors have to ask themselves: Now what? Where does the company go from here? What are the catalysts that can get the stock higher?

At the end of January, Yahoo reported another lousy year. Although fiscal 2012 was the first year the company has reported revenue growth in five years, let's not kid ourselves; it was a mess. The top line rose just 2%. Operating income dropped 22%. Operating margin fell 500 basis points. Free cash flow was in a free fall, declining 32% to just $221 million. This isn't exactly a recipe for success.

Now what? Ken Goldman, Yahoo's chief financial officer, has been on the road meeting with the investment community. I heard Goldman speak less than a month ago, and he told the crowd that 2013 was a "rebuilding year" -- which is investment speak for "no revenue growth." The consensus revenue estimate is $4.578 billion, or 2.5% growth. Yawn.

Management also talked about continued cost-reduction and share-buybacks. Yahoo may be interested in a few small acquisitions, too. Mayer has said Yahoo's mobile strategy is very important, but she has yet to articulate how a mobile strategy is going to drive revenue growth.

Management has done everything Wall Street had wanted it to do. It's dumped Alibaba. It's bought back stock. Now what?

I'm afraid the management team is running out of time to articulate a growth strategy. Once the market corrects -- and you know it will -- hedge funds will take profits in Yahoo and leave the stock for dead. Management needs to keep the momentum going. Yes, they fixed some long-forgotten properties like Flickr, remade the homepage and tinkered with Mail. But now what?

Maybe management should announce Yahoo is a content company? Perhaps it should acquire and Netflix (NFLX)? Or how about going after Pinterest? Yahoo needs to add some excitement and growth. Otherwise investors will turn their back on it again and the shares will fall back to $15.



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