Yahoo! (NASDAQ:YHOO) has been gathering momentum lately. Too bad it probably won’t last.

Sure, the stock is up over 20% since announcing Google (NASDAQ:GOOG) guru Marissa Mayer as its fifth CEO in five years, it’s up 32% from its late August lows while the market is basically flat since then, and it’s at its highest levels since early 2010.

But why?

Trading China Growth for an EPS Boost

Yahoo! won a big $4.3 billion after-tax payday by selling half its stake in Alibaba … but as Jonathan Berr wrote back in May, the deal is akin to selling the family silver to make your monthly bills.

I find it hard to understand why Yahoo! has a better outlook now that it bailed out of this fast-growing market to mainly fund a big buyback. Bigger earnings might be in store for 2013 simply thanks to a trick of math — with earnings constant but fewer shares, the EPS number naturally inflates.

That’s hardly a strategy for growth.

No Fundamental Improvement

The Alibaba sale might have juiced profits, but the fundamentals remain ugly. Through Q3, Yahoo! has seen quarterly revenue decline year-over-year in seven of the past eight quarters. You simply can’t make more profits if you aren’t growing sales.

Well, that’s not true. You can slash and burn, and sell your big-ticket assets. But with Alibaba gone and the money earmarked for buybacks, CEO Marissa Mayer better figure out how to move that top line higher in a hurry, or she’ll need to add actual job cuts on top of pay cuts.

Content Is King

The lack of revenue comes from a multifaceted problem: Namely, the decline of “portal” pages as a destination and the importance of content as a driver of traffic.

Fewer web surfers are going to portals like Yahoo! and AOL (NYSE:AOL) as their default destination for news or messaging. For proof of this, consider that Facebook (NASDAQ:FB) has had a commanding lead over Yahoo! in the display advertising market for a while.

To replace this lost baseline traffic, both AOL and Yahoo! both have been forced into the content business with results that are mixed at best. And unfortunately, while there is some good original content on both Yahoo and AOL’s Huffington Post, there also is a painful over-reliance on third-party content.

That’s a bad long-term plan for two reasons: One, advertisers always have the option to target this content elsewhere; and two, content creators can only be assuaged by the intangible “compensation” of exposure for so long as they enrich these larger sites.

Yahoo! admittedly has some good content; I personally love what Jeff Macke is doing with Breakout in the finance vertical. But it needs a lot more stuff like this in a hurry.

Mobile Mess

If social media and the decline of portal traffic weren’t problematic enough, the mobile ad dilemma is pinching profits even more.

The biggest question in the mobile age is how to monetize mobile users, and thus far, nobody has a good answer for display advertising on tablets and smartphones. That means even if Yahoo! can figure out how to get more traffic from mobile devices, it still won’t result in a net gain for earnings because the profitability isn’t equal across the two platforms.

Countless articles point to the fact that scale and revenue have been the goal of mobile advertisers, but profits remain very elusive. (Here’s a good one by Business Insider’s Jim Edwards that points out continued big-time revenue growth at Millenial Media (NYSE:MM), but a continued lack of any profits.)

What Strategy?

Here we arrive at the hardest truth of all: A lack of real strategy.

Sorry, Marissa, but you’ll have to ultimately give investors more than vague statements to create “something valuable and delightful that makes them want to come to Yahoo every day,” or your desire to innovate “in some of the verticals like finance, sports, video and messenger.”

The only tangible plan, as far as I can see it, is that after October’s earnings report, The New York Times reported that Mayer claimed “Yahoo would renew its focus on its search business, modernize its home page, mail and messenger services, develop a mobile presence and seek out ‘double-digit million-dollar’ acquisitions.”

Mayer is going to save Yahoo with a $50 million buyout of … what, really? That’s like saying you’re setting off with a $20 bill to find parts for your broken-down space shuttle.

Furthermore, a buyout craze could smack of desperation – Hewlett-Packard (NYSE:HPQ), anyone? — but I guess in the absence of a real strategy, buyouts are as good a smokescreen as any.

On the Other Hand …

There are positive headlines to be sure. So, for balance, it’s worth noting that:

• Yahoo! has spent almost $1 billion on buybacks so far in 2012, and many are enthusiastic about future buybacks boosting the stock. As I mentioned, I’m skeptical … but as the recent rally shows, you can’t fight the tape.
• Yahoo!, of course, didn’t wholly sell out of Alibaba … it still has upside in its remaining stake.
• Goldman Sachs (NYSE:GS) just upgraded the stock with a price target of $24 partially because of this fact. Though you have to wonder why a smaller stake is good, but a bigger stake didn’t boost shares earlier this year …
• As for the buyout plan, there admittedly might be value in so-called “acqui-hires” where Yahoo! basically snaps up an upstart company for the talent — not the practical use of the actual company. This is common practice in Silicon Valley.
• Most important, Yahoo! is in the early stages of a turnaround that could take years to pull off. So it might be unrealistic to expect substantive steps out of the gate. After all, since Mayer took over in July she has been busy installing a new executive team — some of whom only took over about a month ago. There’s been little time for movement.
• Mayer apparently is up for the Time “Person of the Year” award … strange but true, and hard to argue with the halo affect of such a well-liked corporate exec.

Still, I remain convinced that the cons ultimately will outweigh the pros.

If you’ve ridden Yahoo! up lately, good for you. But I think it’s time to get out before the music stops.

Related Reading

• “Earnings were decent — hooray! — the wheels didn’t come off the bus,” said Colin Gillis, an Internet analyst with BCG Partners. “But there are still some serious issues facing her.” (New York Times)
• Nicholas Carlson over at BI gave a decent rundown of some big takeaways from Mayer’s first earnings call. The good is her poise… the bad is the specter of staff cuts and the multi-year (!!!) turnaround schedule. (Business Insider)
• Details of the “Not-So-Radical” meeting that revealed the real turnaround plan for Yahoo! (All Things D)
• The former interim CEO says that it’s going to take a long time to fix Yahoo! – not to mention a patient and pliable board that is notoriously cranky. (Bloomberg)

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a long position in Apple but none of the other stocks named here.