Q. I have been an investor in Yahoo Inc. for five years. I’d like to know what current problems are holding back its stock price.
–R.V., via the Internet
A. What’s in a name? This online firm’s famous–albeit quirky–brand name continues to gain value as it increases its clout in a fiercely competitive field.
Besides expanding its online search engine index to more than 20 billion documents and images, it is transforming itself into a media company by producing more of its own content.
Its global reputation is growing through joint ventures with partner Softbank and substantial stakes in Yahoo Japan and Chinese online commerce site Alibaba.com. The latter $1 billion cash investment helps it compete with eBay Inc. in China.
This year’s online industry bonanza is strong advertising revenue, with big U.S. firms increasingly willing to shell out big bucks because more Americans are using the Internet.
But though the potential of online advertising has barely been tapped, its progress will be subject to economic and industry fluctuations. That means volatility. In addition, Yahoo is generous in granting stock options to employees, a practice outside investors criticize as giving away too much in profits.
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Shares of Yahoo (YHOO) are down nearly 6 percent this year following gains of 67 percent last year and 175 percent in 2003. The company’s finances remain strong, with nearly $4 billion in current assets and just $750 million in convertible debt outstanding.
There was a 47 percent jump in revenues from Yahoo’s page banner advertising and paid search listings during its recent quarter, with premium services such as broadband bundled with high-speed Internet also experiencing big gains. But quarterly earnings were up only slightly because the year-earlier quarter included gains from sale of its Google Inc. stock.
Shares of Yahoo receive a consensus “buy” recommendation from analysts who follow them, according to Thomson Financial. That consists of 12 “strong buys,” 16 “buys,” eight “holds” and one “sell.”
The company is reportedly one of several in separate talks with Time Warner Inc. about buying a stake in its America Online division to gain access to its vast number of visitors.
Yahoo earnings are expected to increase 54 percent this year, versus 12 percent expected for the Internet information providers industry. Next year’s estimated 30 percent increase compares to 16 percent forecast for its peers. The projected five-year annualized growth rate is 30 percent, versus 13 percent expected industrywide.
Yahoo’s image has been tarnished lately by reports that it has made deals with “adware” companies that spawn pop-up online ads. Elsewhere, a press freedom group has alleged that the firm provided information in China that helped the government jail a journalist.
Q. My wife and I are investigating options to pay for our daughter’s college tuition. She is a high school junior. How does the PLUS loan work?
–M.V., via the Internet
A. With high education costs, it’s understandable why two-thirds of students graduate with debt.
Just remember that a loan is not a scholarship, because it must be repaid. Relative costs of different universities should be weighed carefully, since graduating with a heavy debt load can seriously affect a graduate’s career decisions and parents’ retirements.
The federally sponsored Parent Loan for Undergraduate Students (PLUS) is a low-interest education loan for parents of undergraduate dependent students and can fund the entire cost of an education. It is not based on income or assets, and no collateral is needed.
The variable loan rate, currently 6.1 percent for loans disbursed until June 30, is linked to the T-bill rate and can never exceed 9 percent.
“You have a 10-year period from the time you take the loan out to repay it,” explained Martha Holler, a spokesman for Sallie Mae in Washington, D.C., one of the institutions offering the loans. “Loan money goes to the school and applies it to the child’s account, with any excess given back to the parents for expenses.”
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].