Yahoo! Chapter 3
6-19-07: Investors have all but given up on this company. Even a change in top management has failed to excite investors. Terry Semel is out and Jerry Yang (co-founder) has now been appointed to take the company to the next level. Some analysts are saying this is just a temporary measure, but we believed Yang is in it for the long haul. After all, Yahoo! is his baby. Yeah, he’s no Steve Jobs, but we are willing to give Yang the benefits of the doubt. While a change at the top will not do much in the short term, we believed this move is due.
In recent years, Yahoo! (YHOO) has become too much “Hollywood-ish” as Semel focused a lot of the company’s resources towards the entertainment industry. Just look at the content on their homepage, it resembles that of Entertainment Tonight or Access Hollywood. Thus far, the company’s investment in Hollywood has failed to provide adequate return. While the content strategy sounded exciting to certain extent, Yahoo! lost its edge in the technological arena, while Google thrives. Perhaps Yang will find a way to make Yahoo! an innovator again.
A new CEO will undoubtedly change the course of this company’s strategy. We suspect Yang will re-evaluate its current strategy and make adjustments. There might be some layoff and reshuffling of management in the coming months, that is a given. To this extent, we expect large deals where Yahoo! will be acquiring companies to help in its fight against Google. The acquisition will be aimed towards obtaining technology rather than another advertising platform. We expect more partnership that will help the company distributes its content more efficiently across the Internet.
Trading in the $27 range, we believed Yahoo! is again a buy. It might take awhile to bear fruit, but we believed at current price, the downside risk is minimal. The one thing investors have going for Yahoo! is there are plenty of willing buyers. If the stock falls to the low 20s, there will be a buyout for sure. Sticking by the notion that we should buy companies that we use, we feel an investment in Yahoo! is relatively sound in the long term.
Comments
With the Yahoo earning annoucement and the stock tanking (at least right now), are you still bullish for the long term? It appears that it will be a buyout target now or within the next six months if the new management doesn't demonstrate outward and public signs of righting the ship. It's listing now.
Posted by: Adam | July 18, 2007 05:39 AM
Adam: I think in the next 6 months, we are going to see many changes at Yahoo!. In listening to the conference call, Yang appears to be very focused on changing things. We've listened to many Yahoo! conference call, but this one seems different. They are going to invest more on search, will probably shutdown some properties to bring cost more inline with revenue. I also think they'll be some major deals in the future. They seem to indicate they are in an investment mode. Long term, I believed Yahoo is a good stock to own, but that means being patient for at least a year. As far as buyout, that is definitely within the realm of possibility. I agree with you, this management team has about one year to turn things around and if they fail, it is time to sell.
Posted by: ibooyah | July 18, 2007 08:33 AM