Wednesday, October 19, 2005

Yahoo! Q3 2005: Growth Slowing Down

Yahoo! did okay but are not really blowing anyone away. To me the most important thing is the fact that growth is slowing. It is expected to slow, but the question is where the long term level of growth is for Yahoo!? This of course partly will be determined by Google's doings.

Yahoo! grew YOY (Year Over Year) EBITDA (Earnings Before Income Taxes Depreciation and Amortization) by 48%. That is a nice yearly growth rate for most companies. However, for Yahoo! it is the slowest YOY growth since Q4 2001, which was the time when everyone was still licking the wounds after the bubble burst. I believe that the growth rate will fall further. A 30% growth rate does not seem far ahead.

Since new years Yahoo! is up on EBITDA with 48% (same as YOY as it includes the four last Q reports) but about 12% down in share price. This means that Yahoo! has been getting a lot cheaper on P/E (Price/Earning - the price you as investor pay for one dollar in earnings). The reason is that Google keeps adding momentum and keeps outgrowing Yahoo!. Its just more fun as an investor to own a share in a faster growing company. I am still an investor in Yahoo! and I will stay that for a very long time I think. But I do think that Google Thursday will show more momentum and that they will be the more fun company to have stocks in. Their P/E is only slightly higher than the one of Yahoo! so there should be sufficient room for it to grow even more, as Google should be rewarded for the significantly higher growth - almost double the growth. Lets see what happens Thursday when Google reports Q3.

Please feel free to comment on Yahoo!'s result or my assessment of it.

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