Apple, Mobile Growth Can Turn Yahoo Around
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) doesn’t do anything small. What began as an absolute hysteria created by its line of iProducts, performance in the past weeks (stretching to months) is equally as frenzied. Even though Apple has the most sought after phone in the world, this is not the end-all judgment of a company’s health. What will keep this company at the top is its ability to enter new and emerging markets, its ability to offer consumers in those markets the products they want, and its strategic partnerships with other industry leaders.
One would hope those partnerships would be with those that are trending up. It was strange to hear of the recent move with Yahoo (NASDAQ: YHOO). It will take a while for this move to benefit either company – if it will at all.
It was recently reported that Yahoo and Apple have been discussing how more of Yahoo's services can play a prominent role on Apple's iPhone and iPad devices. Currently, there are apps that come pre-installed on the iPhone that feature Yahoo Finance and Yahoo's weather site. Now, the companies are discussing the possibility of loading more content from Yahoo News through an expanded Siri partnership.
The main questions investors and analysts alike are asking are, “Is this arrangement mutually beneficial?” and “Which company/stock will see more growth?”.
For Yahoo, this could be a godsend. The company has faced some serious obstacles. It has been struggling to make itself known as a force in the online search engine world – or in any other world for that matter. Microsoft's (NASDAQ: MSFT) Bing officially overtook Yahoo over two years ago, with its share of searches currently at 19.1% compared to Yahoo's, which fell to 14.5%. Not only that, Microsoft’s Bing gained an all but exclusive relationship with Facebook, displaying friends when a Facebook account is linked via Facebook Connect. Users then have the option to send messages to their friends in the search results. Yahoo has not put forth any effort into being more convenient or comparable.
That being said, CEO Marissa Mayer is doing her best to turn Yahoo’s fortunes around – and it’s starting to work. Her most recent push is to increase the company's presence on mobile devices. This is an extremely strategic move as mobile is not only the future – it is here now and needs to be capitalized on.
A deeper partnership with Apple, which some estimates say will sell more than 200 million iPhones and iPads this year, could potentially reverse Web traffic declines that Yahoo has seen. Moreover, the company could begin to be a more competitive mobile-software player.
The stock has been seeing positive movement in the past three months, starting at just over $19 at the beginning of this year to its current price of over $23 nearing its 5-year high. With a P/E of 7.39 and EPS of 3.28, the first quarter results to be announced early next week have investors starting to be hopeful.
So what’s in it for Apple? This is not a cut-and-dried case of sticking it to its competitor Microsoft. Yahoo has a recent (and perhaps tenuous) partnership with Microsoft which powers Yahoo's search service. Nor is it a movement against Google, as Apple has a deal to use Google's Web-search service as the default in the iPhone and iPad web browser.
Trading has been rough for months. The stock sits around its 52-week low and is down over 20% year-to-date. In total, the stock is down about 40% from its peak above $700 late last year. With Apple earnings on the horizon, investors are going to be closely watching income, revenue and margin trends.
I see this announcement at least in part as an effort to ease the minds of investors. To be sure, Apple is still the most valuable company, and not just by market cap – this company has a culture of innovation folded into its DNA. While other competitors are stepping up their game (ie Samsung Galaxy 4S), Apple still has a commanding lead in brand recognition and consumer loyalty.
Not only that, even though growth has slowed, Apple is still expanding. Its fundamentals are still looking up, even if Wall Street has fears of waning momentum. The key lies in expanding growth into other markets. Apple must begin tapping consumer demand in other countries and in other market sectors. Currently, it is gearing ad campaigns and improvements toward providing business solutions. While this could be beneficial, it also must take care of its consumers, which it is now only hinting at doing through releases of upgrades.
What should be on Apple’s radar is the Google/Motorola partnership, which is making the most notable movement toward combining phone and PC with its new Webtop. This device is the most forward attempt at a smartphone/PC hybrid that acts like a computer once docked on the ‘Lapdock.’ As Apple has no equivalent product, this could have an effect not only on financials, but also on company perception.
Or perhaps even more plausible is the Intel/Microsoft partnership to produce a tablet/laptop hybrid. Prototypes are already built for a Windows 8 supported device that could be the best of both worlds in terms of mobile computing. Apple is not attacking these directly, and this could actually be a smart move.
Apple could be acknowledging what several companies often overlook: market saturation. Smartphone growth in the U.S. is slowing because it has reached a saturation point. Apple is extremely well-positioned in other markets to compensate for that, and is also able to maintain brand loyalty through its host of other products. But it must get into other expanding markets, and do so in a way that limits the growth of its competitors in the same market.
Google can continue growth because of its diversification, obtaining the majority of its revenue through advertising. Slow sales at home will not impact either of these companies. However, Microsoft currently has no means to capitalize on overseas growth and thus loses the advantage.
Yahoo may finally have an effective leader at the helm. Mayer’s focus on mobile is the right move. I also encourage a continued look toward Apple for growth and profitability as it is poised for continued expansion into emerging markets.
Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!