Wall Street to Yahoo: Shake Up and Innovate or Ship Out

One minute, you're on top of the world; the next, you're plunging down a deep, dark abyss, flailing your arms about grasping for help: Such is the topsy-turvy world of new media. Yahoo announced its earnings at the close of business day yesterday, and investors weren't happy.

Yahoo! Inc. reported a 38% drop in third-quarter profit, down from $253.8 million at this time last year to $158.5 million. The company's shares fell 2.5%, but if you looked last night at Yahoo's fancy finance page function (which helpfully gives stock histories for any publically traded company), you'd see after-hour bids raised the stock's value back up nearly 4%. Still, the company's price today, roughly $24-$25 per share, is a long way off from a 2006 high of $43.10 back in January.

Rivals, such as top search-engine Google and social networking mammoth MySpace, are finally taking a bite out of Yahoo's bottom line, according to analysts. This year, Google's value is up 1.4% as opposed to Yahoo's precipitous fall.

But all is not lost for the once famous Internet giant. Web traffic on Yahoo increased seven percent in the last year, growing from 100 to 106.7 million, according to Nielsen/NetRatings. Based on the company's highest growth areas in the last year, Yahoo needs to continue to cultivate and develop new services. Yahoo! Video grew a gigantic 245%, for example, in the last year, while other divisions, such as Yahoo! TV and Yahoo! Real Estate, saw increases of 38% and 30%, respectively. The company also announced a new upgrade to its overall system, which they say can help it better compete for advertisers.

It just goes to prove once again that necessity, along with Wall Street, is the mother of invention.