Yahoo Breakout: A SWOT Analysis
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Evaluating a company's Strengths, Weaknesses, Opportunities, and Threats (SWOT) allows us to develop a detailed picture of company's resources and competitive position in the market. Today, we take a look at the software giant Yahoo! (NASDAQ: YHOO), a company that is currently in the process of re-imagining itself from the ground up.
Strengths
Marissa Mayer: Yahoo's most obvious strength is the sudden reversal of investor and employee sentiment following Marissa Mayer's arrival. Yahoo's shares have reached their highest level in a year and a half on analyst optimism.
Improved stock performance: Yahoo shares recently hit $19 for the first time since 2010. Non-GAAP EPS, excluding restructuring charges and the impact of the Alibaba transaction, was $0.35 in the quarter, 66% higher than 3Q 2011. Yahoo! has a strong balance sheet, with $9.4 billion in cash equivalents and investments. Search revenues ex-TAC performed well in the third quarter, growing 11% YoY.
Low bar: Yahoo! trades with a P/E of 5.6. The S&P500 average is currently 16.47. Moreover, the bar that Yahoo! will have to jump to satisfy Wall St. is set only an inch above the ground. Mark Zuckerberg will have to pole vault in order to justify Facebook's current valuation.
Analyst Upgrades: Goldman Sachs joined a growing list of analysts who have recently upgraded Yahoo's stock. Yahoo! recently made Goldman Sach's “Conviction List,” raising its target price on the stock from $22 to $24. Goldman analysts noted that company buybacks were driving a “revaluation” of the stock.
In October, Susquehanna upgraded the stock to "positive" from "neutral" and raised its price target to $20 from $17. Analysts at Cantor Fiztgerald and Nomura have also adjusted their 12-month price targets.
Home Page revamp: Yahoo! is free to tinker with its home page until it finds the right mix because it's not a social media haven. Nor is the look-and-feel of Yahoo's home page tied to a specific hardware product, operating system or vertical integration strategy.
New Talent Share buyback indicates increasing share compensation for new talent and on lookout for new small aquisitions with an eye towards absorbing new talent.
Share buyback: Yahoo! repurchased $190 million in stock in Q3 alone.
Weaknesses
Uncertain future of content sales department: Mayer's pivot in favor of engineering (R&D, aqui-hires) will force a restructuring of Yahoo's sales department.
Mobilizing its customer base: Yahoo! has to figure out how to translate its largely PC-based audience into a Mobile-based audience without alienating PC-users.
Opportunities
Strategic partnerships: With Wall St.'s renewed interest (Yahoo! has managed to rise even while the rest of tech has been depressed) any future partnerships, particularly if conducted conservatively, are likely to be viewed a priori in a positive light.
Mobile: Marissa Mayer recently announced that 50% of Yahoo's future projects would focus exclusively on the Mobile Web.
Threats
Competition: Fighting the battle for mobile while pivoting to mobile is going to be difficult to sustain as it will require fighting on two fronts simultaneously, as Yahoo! must also defend its PC Internet based audience and advertising network. Yahoo's rivals, including Facebook (NASDAQ: FB), Google (NASDAQ: GOOG), and Disney (NYSE: DIS) are spending billions on their mobile strategies.
The Walt Disney Company's original made-for-2009 Mobile strategy was something only an advertiser could love. SMS alerts and marketing campaigns, games, sweepstakes programs and a video-enabled mobile Web site, both a WAP version and one optimized for the iPhone’s Safari browser and touchscreen capabilities.
The company has since upped its game. Disney Interactive Labs exclusively targets the teens/tween demographic. Disney is currently both the largest and most prolific mobile app brand, a trend that Disney's recent purchase of the Lucasfilm/Star Wars franchise will almost certainly accelerate.
Google's R&D efforts have been directed at the intelligent device space, with the Android OS, Nexus phone handsets, tablets, driverless cars and Google Glass Project dominating the company's focus. Nevertheless, Google's mobile strategy has played out almost flawlessly. Google properties have a 93.95% smartphone penetration, according to ComScore.
Facebook's legacy as a gaming platform gives the world's most popular social network a leg up on the competition. Instagram, TripAdvisor™, FarmVille, CityVille 2, TexasHoldEm Poker, PetRescue Saga are just some of the biggest winners in November, with a 72% increase in MAUs (Monthly Active Users) from October.
Facebook AppData Results By Highest MAU Gains For November, 2012
Foolish Conclusion
Yahoo's strengths clearly outweigh its weaknesses. As of this writing, Yahoo's share buyback program is only 25% complete, which puts a nice cushion under any future declines. Revenues have increased for three quarters in a row after eight consecutive quarters of decline. Mayer now has to figure out a way to expand the company's core audience and overhauling Yahoo's advertising division.
FatalX has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google, Goldman Sachs Group, and Yahoo!. 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!
