Meanwhile, Yum! went begging. A former division of PepsiCo that
runs thousands of Kentucky Fried Chicken, Pizza Hut, and Taco Bell
eateries, Yum! had produced $8 billion in revenues over the previous
four quarters, on which it earned $633 million—making it more than 17
times Yahoo!’s size. Yet Yum!’s stock-market value at year-end 1999
was only $5.9 billion, or 1/19 of Yahoo!’s capitalization. At that price,
Yum!’s stock was selling at just over nine times its earnings and only
73% of its revenues.^6
As Graham liked to say, in the short run the market is a voting
machine, but in the long run it is a weighing machine. Yahoo! won the
short-term popularity contest. But in the end, it’s earnings that matter—
and Yahoo! barely had any. Once the market stopped voting and
started weighing, the scales tipped toward Yum! Its stock rose 25.4%
from 2000 through 2002, while Yahoo!’s lost 92.4% cumulatively:
Commentary on Chapter 18 477FIGURE 18-2 Yahoo! vs. Yum!
2000 2001 2002
Yahoo!
Total return (%) –86.1 –41.0 –7.8
Net earnings ($ millions) 71 –93 43
Yum!
Total return (%) –14.6 49.1 –1.5
Net earnings ($ millions) 413 492 583Notes: Total returns for calendar year; net earnings for fiscal year. Yahoo!’s net earn-
ings for 2002 include effect of change in accounting principle.
Sources: http://www.morningstar.com(^6) Yum! was then known as Tricon Global Restaurants, Inc., although its
ticker symbol was YUM. The company changed its name officially to Yum!
Brands, Inc. in May 2002.
PAIR 3: COMMERCE ONE AND CAPITAL ONE
In May 2000, Commerce One, Inc., had been publicly traded only
since the previous July. In its first annual report, the company (which