S&P warns Yahoo! of a ratings cut as revenue growth stalls

Neelabh Chaturvedi
If not Marissa Mayer at Yahoo, who?
If not Marissa Mayer at Yahoo, who?

Standard & Poor's Tuesday cut its unsolicited rating outlook on Yahoo! to negative from stable, citing prospects for poor revenue growth and higher costs for acquiring traffic.

The rating firm currently has a BB+ rating on the tech company, which has trailed its rivals amid high-level defections and growing doubts over the management's ability to turn a corner.

An unsolicited rating is a credit rating assigned at the initiative of the credit rating agency, not when an issuer requests for it. Still, the warning did enough to push Yahoo! Japan shares down by nearly 2 percent in Tokyo.

"We could lower our rating on Yahoo if the company's competitiveness in its display or search advertising businesses continues to decline and it is not able to reverse the negative operating trends affecting earnings before interest, tax, depreciation and amortization (EBITDA)," S&P said in a statement.

Yahoo! headquarters in Sunnyvale, Calif.
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A near double-digit percentage decline in revenue, excluding traffic acquisition costs, could indicate a worsening competitive position, S&P said.

The ratings agency noted that any debt-funded initiative to please shareholders or acquire a company could also prompt it to slash Yahoo's credit rating, which is already in junk territory.

So what would spur S&P to revise the rating outlook higher?

Yahoo CEO Marissa Mayer speaks during her keynote at the 2014 Cannes Lions, June 17, 2014, in Cannes, France.
Yahoo's business now worth less than nothing

S&P said some of the factors that could trigger a revision of the outlook to stable include the development and effective implementation of a business plan in which yahoo would maintain its market share, enhance the way it makes money from its assets, and avert the slump in EBITDA.

Yahoo will also have to demonstrate if it can improve its market share in search and display advertising.