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Roundtable: Should Investors Go Wahoo for Yahoo?

Aaron Steinfeld

Yahoo LogoDoes anyone remember the 90s? You know, the era of the dot com boom. When had amazing commercials, when a prince could be both fresh and from Bel-Air, when a Boy would meet the World, and when Zack Morris made a career of skipping classes but magically landed an acceptance letter to Yale? (Televised fiction at its finest.) There was also this huge online powerhouse called Yahoo–have you heard of them?

According to recent news articles, Yahoo has been seeing some short-term success. In fact, its stock has seen an increase around 70%. Can Yahoo reinvent itself while continuing to appeal to investors and consumers alike, or are the company's recent gains nothing more than a fluke?

In the grand scheme of things, it's easy to see how Yahoo has some legit staying power. The company has survived not only the dot com bubble burst, but an onslaught of competition from Google and, to a lesser extent, Bing. Regardless of its diminished popularity, however, the brand itself continues to stay relevant. Who knew Yahoo would buy Tumblr? Who know Yahoo could afford Tumblr? Let's move on to some scholarly opinions on the matter of Yahoo's future:

"Yahoo is facing an uphill battle and won't make it to the top.
  1. Yes, their share price has increased, but so have the equity markets as a whole, which can be largely attributed to the Fed's bond-buying program. Furthermore, a big driver of Yahoo's share price is their 24% stake in Chinese company Alibaba Group which reportedly tripled its net income in the first three months of 2013. Alibaba is expected to hold an IPO in the near future, which brings with it lots of uncertainty as the company will face new pressure from public shareholders. Yahoo's company performance, therefore, is inflated on two counts.
  2. They are well behind the competition. Shares of Facebook are up 30% this week alone after reporting a 51% year over year increase in its active monthly mobile users. Google performed a bit below analyst expectations but still reported a profit increase, and their market cap is 10 times the size of Yahoo's. Google is also heavily immersed in mobile and wireless. Notice a trend? Much like the fates of the Dells and HPs of the world have been sealed by the lack of a transition from desktop to tablet, Yahoo's future will remain murky at best unless they make a big push from desktop ads to mobile ads.
  3. Uncertainty among management. While CEO Marissa Mayer is still in the turn-around phase in her Yahoo tenure, having just completed her first year, let's not forget about those who are advising her. Just this week Yahoo board member Dan Loeb, founder and chief executive of hedge fund Third Point and an instrumental part in stabilizing Yahoo's top management (remember, Yahoo had 5 different CEOs from 2007 to 2012), sold a majority of his Yahoo shares (at a nice profit!) and relinquished his board seats. Two other directors that Mr. Loeb brought in with him are also departing.
Yahoo has a bevy of obstacles to overcome and several strong competitors who will be hard-pressed to relinquish any market share. For all the reasons above, I am calling this a fluke." ~Sean (@scrsilva)

More opinions after the jump >

"Although Yahoo! shares have performed strongly over the past year, now might be the time for investors to take profits, or at least refrain from adding to their positions. To the extent Yahoo! may present an attractive turnaround story, such a road will likely be long and fraught with challenges. While Yahoo! recently beat earnings expectations, the strong performance was thanks largely to a meteoric rise in profits at Alibaba Group, the Chinese e-commerce retailer in which Yahoo holds a 24% stake. Yahoo's top line revenue of $1.07 billion came in just below expectations, although within the company's previously issued guidance. Additionally, Yahoo's core businesses, search and display ads, posted less encouraging results, with pricing power in both businesses being hurt; the company ascribed lagging price per click in search to a shift to lower priced emerging markets and the decline in display ad pricing to the rise of programmatic buying. Notably, while this marked the first time that Yahoo! released Alibaba's results along with the core businesses (it previously disclosed these in quarterly and annual filings, as opposed to earnings announcements - in both circumstances the results are reported with a one quarter lag); the company did not provide much visibility into Alibaba's results, leading some analysts to question how sustainable such results are, or if they were the product of one-off gains. Also, remember that Alibaba is still privately held and there remains an execution risk around whether Yahoo! will be able to effectively extract the full value of its stake in an IPO, which was recently rumored to be imminent, although those rumors were quickly dispelled. Once that IPO occurs, investors will be left with a declining core business in a secular growth industry. Also, it is important to note that shortly following the most recent earnings announcement Yahoo! repurchased 40 million shares of its common stock from Dan Loeb's Third Point, the activist investor largely credited with the recent run up in the stock. This, move, which was criticized in some corners (but was not insider trading), is important for at least two reasons. First, Loeb, and the other two Third Point appointed directors, will be stepping down from the board; and more importantly, this buyback depleted the lion's share of the $1.9 billion in authorized share repurchases that Yahoo! had remaining at the time of their quarterly earnings announcement. That all said, some might see the dip in the stock following the Third Point repurchase as a buying opportunity. While Yahoo! be able to revive its core businesses, investors should be wary of the stock's recent run continuing." ~Josh (@jclarkson203)
"On this side of the search engine pond, Yahoo! is pretty much dead in the water. Quite simply put, Yahoo! is not considered one of the top search engines in the UK.
Acquisitions of the big names such as Tumblr may keep Yahoo afloat for the foreseeable however in the long run, without making a significant change to the usability of their website and of course, their branding / company perception, certainly in the UK, Yahoo! won't succeed / grow as a dominant search engine.
Yahoo faces huge competition as a news site, from the most popular outlets in the UK such as BBC, Daily Mail Online, etc., however it is interesting to see from recent Ofcom figures that Yahoo! news websites sit in 5th place on a popularity ranking, ahead of Sky News. Additionally, with recent acquisitions of teenage-designed apps such as Summly, the news summarising app, Yahoo! is showing some revised aggression towards the news game. Perhaps there is life in the old dog yet?" ~Laura (@laurathorburn)

Can Yahoo become a competitor? Or is it destined to become stale like last month's bread? You tell me. Prosek

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