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Analysts expected Yahoo Inc. Stock not found YHOO to post adjusted EPS of $0.14 Tuesday according to Thomson Reuters. A year ago the company posted adjusted earnings of $0.15 per share.

Instead Yahoo posted EPS of $0.17 and the stock dropped $0.11 to close at $41.68. So much for beating expectations.


A Deal Hanging In The Balance

The problem, for Yahoo, is the ongoing deterioration of the company’s advertising segment, highlighted by a revenue drop to $857.7 million, marking the seventh decline in the past 8 periods.

All this raised more concerns about the future of Verizon Communications Inc.’s (NYSE:VZC) deal to buy Yahoo – a deal that was already in question. Last week, Verizon’s attorney said a data breach discovered in July after the merger deal was signed might result in Verizon renegotiating the terms of the deal. Yahoo responded saying it was confident in the company’s core value.

Checking Under The Hood

Yahoo CEO, Marissa Mayer said in the company’s earnings release, "We remain very confident, not only in the value of our business, but also in the value Yahoo products bring to our users' lives."

Still, Verizon says it wants to know exactly what type of asset it is buying. The deal agreed to in July was for $4.8 billion and is expected to close in Q1 2017, assuming Yahoo shareholders and regulators approve. This also assumes Verizon doesn’t try to renegotiate the terms of the sale.

Inability To Compete

In addition to the hacks, Yahoo has simply not found a way to be competitive. There was some growth up until about two years ago when stagnation set in. CEO Mayer has not been able to help Yahoo rise to the level of other advertising platforms like Facebook Inc. (NASDAQ:FBF), Alphabet Inc.’s (NASDAQ:GOOGC) Google or Snapchat.

Without the ability to survive as a standalone platform, Yahoo is left to hope the offer from Verizon will stand – or at least not deteriorate to the point stockholders will refuse to approve.


One Tiny Glimmer Of Hope

Meanwhile, Mayer remains bullish on the company she heads saying she was “heartened” by the loyalty of Yahoo users despite the data breach. The company released numbers indicating that user engagement has remained about the same after the breach as before.

This information plus the better than expected earnings report could provide Yahoo some negotiating room in the event Verizon tries to change the deal terms.

Mizuho Securities USA analyst, Neil Doshi, cautioned that Verizon should take care with any planned renegotiation. “If they try to get too greedy,” Doshi said, “I think we could potentially see Yahoo talking to other potential parties just in case they try to push a much lower price.”

The San Francisco Chronicle noted that when Yahoo put its Internet properties up for sale, it spoke with 51 parties about a potential buy. With more than 1 billion monthly users, Yahoo continues to represent a desirable acquisition for any company – including Verizon – that wants to expand advertising revenue.

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