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Yahoo! Inc (YHOO) and IBM (IBM), Relics of an Era Long Gone?

Yahoo Inc (YHOO) Marisa Mayer

Yahoo! Inc. and International Business Machines Corp  posted their second quarter results (Q2 2015) earlier this week and it is doubtful that investors are smiling to the banks. The trading price of the shares of IBM has dropped by 4.97% in the last two sessions. The trading price of the share price of Yahoo has also dropped by 2.23% in the last five trading sessions.

marissa mayer yahoo aol

A Quick Recap of Earnings

IBM posted a bland quarterly result that saw its share price fall nearly 6% after its earnings release. The firm post earnings of $3.84 per share on revenue of $20.81B in contrast to the consensus estimate of $3.78 in earnings on revenue of $20.95B. The reported earnings and revenue marks a 13% year-over-year decline in earnings and revenue. In fact, the reported revenue marked its thirteenth consecutive drop.

Yahoo   also had a similar story as it posted a less than stellar quarterly result. Yahoo posted earnings of $0.16 per share on revenue of $1.03B below the consensus estimate of earnings of $0.18 per share on revenue of $1.04B. The share price of Yahoo crashed as much as 3% in after-market trading after the earnings release.

This is Where it Gets Tricky

IBM  revenue was down 13% on an annual basis. 9% of the decline can be traced to currency headwinds as the dollar continues to strengthen against other currencies. The remaining 4% can be traced to the divesture of its business unit that sells low-margin data-center computers.

For Yahoo , the performance of the stock after the earnings release shows that investors are not impressed. The firm tried to increase its revenue but the expenses column all but wiped out those gains. CEO Marissa Mayer who has largely failed to impress investors said the firm is “investing heavily to grow market share through traffic acquisition.”

The worst part of the issue with Yahoo is that analysts have a grim outlook about its prospects. Robert Peck, an Internet analyst with SunTrust Robinson Humphrey said, “the core fundamentals are not executing according to plan… And the profitability they are guiding is going to get worse.”

Final Words

It is not realistic to expect a business to post stellar financial performance every quarter. Businesses have to grapple with events beyond their controls. No one is grudging IBM and Yahoo for failing to meet expectations in their second quarter financials.

Even the almighty Apple Inc. that posted the most profitable quarter ever in history in Q1 only managed to deliver a decent performance in the second quarter.

However, the core business of IBM and Yahoo raises some questions about where both firms are heading. These concerns in turn suggest that investors might want to reexamine the prospects of the two firms going forward.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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