More reasons for Yahoo! (YHOO)
Yahoo! (YHOO) – Despite recent negative sentiments surrounding Yahoo!, especially when the company is compared to Google (GOOG), we remain bullish on this company’s outlook. As the world’s largest provider of online content and services, we believed YHOO is extremely undervalued at this level. Here are some key points:
Online advertising is still in its infancy stage and yet companies like Yahoo! and Google has been able to make billions. According to recent industry report, less than 10 percent of advertising is online. However, more companies (large companies) are planning to allocate more of their advertising budget towards online advertising. To put things into perspective, recent studies have estimated companies spent $4.2 billion in the third quarter of 2006. That is one quarter! This number represents a 33% year-over-year increase. As a leader in the number of unique visitors, we believed YHOO stands to capitalize. The long term outlook is strong. As ad revenue grows so will Yahoo! (YHOO).
While the current valuation multiple is significantly higher than the overall market average, we believed the growth that YHOO has been able to deliver justifies the above average P/E. Looking over the company’s financial; YHOO has been able to deliver 80 percent annualized growth over the last 10 years. What is interesting is despite this growth, the stock is currently trading near its 10-year lows on a P/E basis. In our view, the recent underperformance of this stock indicates potential for considerable upside. With recent management shuffle and company refocus, we believed YHOO can and will reignite growth.
We see many catalysts that can lead this stock higher. For now, the hope is on the company’s new ad platform, which has been dubbed “Project Panama”. According to industry insiders, this technology is as good as Google’s. Panama released in the U.S this month and will be available worldwide in the coming months. While Yahoo! still needs to prove itself, we hear the overall responses have been positive. If Yahoo! can better monetize their search, we see accelerated revenue and growth in 2007 and 2008. Therefore, trading at around $29 per share, we still believed the stock remains a buying opportunity.
