Will Mayer Make Yahoo! Continue Moving Upwards?

Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The share price of Yahoo! (NASDAQ: YHOO) has been moving upwards in the past few months, recently reaching its 52-week high. There are a number of factors responsible for the hike in share price, including the structural changes brought by the new CEO of the company Marissa Mayer.

Mayer, formerly an executive at Google (NASDAQ: GOOG), joined Yahoo! in July 2012. Since then, she's made several changes at Yahoo! in an attempt to help the company revamp its business and to make its financial position stronger. Yahoo! reported positive financial performance for the fourth quarter of 2012, and the prospects of the financial performance of the company seem bright.

Yahoo!’s Financial Performance

Yahoo! reported better than expected numbers for its fourth quarter in 2012. The company reported profits of $272.27 million or $0.32 per share against the analysts’ estimate of $0.28 per share. The revenue of the company stood at $1.346 million which increased by 2% against the company’s revenue in the same quarter last year.

For the year 2012, the profit of the company was $1.407 million which was 35% higher than the profit in 2011. Yahoo has exhibited significant growth when compared to the past year. The fourth quarter was the first full quarter for Mayer since she joined the office. She said, “I’m proud of Yahoo!’s 2012 and fourth quarter results.” In 2012, Yahoo! exhibited revenue growth for the first time in four years, with revenue up two percent year-over-year.” The following chart represents the financial performance of the company over the past five quarters.

It can be observed from the chart that the company’s revenue has improved slightly in the fourth quarter. The hike in the profit margin in Q3 2012 is due to the gain acquired by the company through sale of its assets. This was a part of the restructurings conducted by the new CEO.

Although the improvement in the company’s financial performance is slow, there is improvement nonetheless. In the past, Yahoo!’s performance has not been very impressive, and the investors are aware of this fact. However, Mayer has won the confidence of investors and analysts, and there are positive expectations regarding the future of the company under Mayer’s reign.

Since change cannot come overnight, the financial performance of Yahoo! is still weak when compared to its competitors. The competitors of Yahoo! are Google and AOL (NYSE: AOL).

Google holds the strongest position among the competitors of Yahoo! with an EPS of 32.21 and the revenue of $50.18 billion. Google recently entered into a deal with Yahoo! that includes the appearance of Google ads on some of Yahoo!’s websites. The deal allows Google to put its Adsense ads on Yahoo!’s network in an attempt to ensure that Yahoo! visitors are met with relevant and better targeted ads.

On the other hand, AOL holds the EPS of 11.21 against Yahoo!’s EPS of 3.28. This shows that Yahoo! is still a weak entity against its competition. AOL operates numerous web services that directly compete with the services provided by Yahoo!; however, the size of the business of AOL is smaller when compared to that of Yahoo. AOL holds a market capital of $3.01 billion while Yahoo holds a market capital of $24.57 billion.

Yahoo’s Market Performance

Yahoo’s market performance has been commendable in the recent past. Currently the shares of the company are being traded within the range of $21.02 and $21.25, while the 52 week range of the share price has been between $14.35 and $21.43. The difference between the two extremes shows the extent by which the share price of the company has improved. The following chart represents Yahoo’s market performance over the past year.

 

It can be observed from the chart that the share price has followed an upward trend since August 2012, and the reason behind this trend is the positive expectations surrounding the company after the appointment of Marissa Mayer as the CEO and the improving financial performance.

After the analysis of the relevant factors, in my opinion, investors should buy the shares in the company. The rationalization behind this recommendation is that there is sufficient evidence pointing toward the fact that Yahoo’s position will strengthen further in the prospective periods and this will reflect positively on the market performance of the company.


muhammadbazil owns shares of Google. The Motley Fool recommends Google. The Motley Fool owns shares of Google. 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!

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