iBooyah.com Investment Matters

The big three internet companies will report in the next couple of weeks, we are referring to Ebay, Yahoo and Google.  Ebay will likely surprise the market by beating their numbers handily.  We also believed the company will increase their guidance for the year. Our view is Ebay is still currently undervalued, this stock should be trading in the high 30s.  An increase to $37 per share is indeed possible if the company does report great numbers and provide an optimistic guidance. 

The recent search monetization efforts Ebay signed with both Yahoo! and Google should provide a positive impact on their bottom line. Furthermore, Ebay is still the king of online auction. No one comes close.  The Paypal unit continues to dominate.  There were concern Google’s payment system will have an impact on their business, but so far that has not been the case. The company also recently increased their auction fees so that should help as well.  The Skype unit is also looking promising as they are making progress to integrate.  Bottom line, look for opportunities to buy Ebay on any weakness.

Yahoo! (YHOO) has been a great performer this year. We predicted the Panama ad system will boost their earnings.  While the jury is still out, the early reports have been very positive. There have been several reports the new system’s click-thru rates have increased in the high teens.  If this is indeed the case, it should definitely help last quarter’s earnings.  The new ad system has been out since early February so Yahoo! has been receiving about little 7 weeks worth of improved clicks. 

It is our view the company will provide an aggressive guidance when they report in the next couple of weeks. This should hopefully push the stock to the mid 30s. The main reason for our view is the CEO recently mentioned he was “very happy” with the new ad system and reaffirmed their numbers for the quarter.

In terms of Yahoo! stock, the stock is up about 25% from the beginning of the year. Most of this was due to the recent excitement over Panama. The rational for bidding this stock up is simple; the more clicks, the more the company makes.  An improvement in clicks will then lead advertisers to spend more. Aside from the search business, Yahoo! is still the most visited site on the web.  Their other advertising business is still quite lucrative. Sometimes people tend to forget that they still earn a lot of money from the display advertisings.

Google (GOOG) is still the king of search and continues to take market shares from rivals (yhoo and msft).  However, GOOG has taken a hit in recent months, despite reporting stellar profits last quarter.  The expectation for Google is so high that a great profit is no longer enough. It needs to be eye popping to keep the stock above $500 per share. This is fundamentally the main risk with Google.

In terms of the stock, Google is actually cheaper than Yahoo! when comparing their price to earnings (P/E).  Sometimes it is difficult to see that a $450 stock is cheaper than a $31 stock, but yes GOOG is cheaper.  We are also bullish on Google in the long term.  As the company branches out beyond search, they will naturally encounter some bumps, but their continued effort to innovate and take chances on new markets impresses us.  We believed this stock should be trading above $500 per share.  This quarter’s earning might just provide the extra bump to keep the stock above the $500 mark.