Should You Buy Yahoo?
Nathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Higher with Mayer
On July 16, 2012, Marissa Mayer was appointed President and CEO of Yahoo! (NASDAQ: YHOO), effective the following day. The stock price was $15.65.
Since then, it's been a wild ride. As of the time of editing this article (3:00PM CST - 2/8/13) shares of Yahoo! are valued at $20.50 at close of day on news that the company just inked a non-exclusive deal with Google - Mayer's former employer - to team up on contextual advertising. This movement represents a roughly 30% increase in the stock price from the date that Mayer took over and is less than 2% off of its 52-week high of $20.88.
The focus of this article is to reflect on some of the important events that have influenced the company since Mayer took over as CEO.
In fact, many of Yahoo's most popular products and services have been shown some love since Mayer took over. Mail, Sports, the iconic Yahoo! Homepage, and Flickr have all received facelifts in the past few months. And - if Mayer's recent interview with Bloomberg at Davos told us anything - many more product updates are in the works.
Bizarre Mexico Lawsuit
On Dec. 3 2012, CNNMoney reported that Yahoo was ordered to pay $2.7 billion in a case brought by Mexico's Worldwide Directories and Ideas Interactivas. The plaintiffs sued Yahoo and Yahoo de Mexico for "breach of contract, breach of promise, and lost profits arising from contracts related to a yellow pages listing service." Doug Anmuth, an analyst for JPMorgan, said there was "little clarity" on the ruling and that it "appears high based on the seemingly small size of Yahoo's business in Mexico."
Yahoo filed an appeal in mid-December and... here's where it gets bizarre. Since then, Yahoo! has hired a new law firm to handle the appeal, the judge who originally oversaw the ruling has moved to a different position within the Mexican legal system, Yahoo Mexico's general counsel left the company and joined Google as a corporate counsel, and barely a word was spoken of any of it at the Jan 28th earnings call.
Yahoo has simply said it plans to "vigorously" appeal the judgment against it, which it has characterized as "nonfinal."
Asian Assets/Buyback Program
Yahoo! currently holds two significant Asian investments. First is Yahoo! Japan - a publicly traded Japanese company of which Yahoo! owns a 35% stake. On Jan. 30, Eric Jackson of The Street reported that Yahoo! Japan was valued at $24 billion, higher than Yahoo!'s value of $23.3 billion at the time. "The good news for Yahoo shareholders..." he said "is that their stake in Yahoo Japan is worth $8.2 billion today vs. $5 billion a year ago." He went on to add "net of taxes and fees, that Yahoo Japan stake is worth $5.07 per Yahoo share vs. $2.83 per share a year ago."
Additionally, Yahoo! owns a 20% stake in Alibaba - a Chinese e-commerce/web services company. On Sept. 18 of 2012 Alibaba said it paid Yahoo! about $6.3 billion in cash and $800 million in preferred shares along with a $550 million one-time cash payment to buy back roughly half of Yahoo!'s stake at the time. Yahoo! said it would return $3 billion of the proceeds from the sale to its shareholders in the form of stock buybacks. During the Jan. 28 earnings call, Yahoo! reported it had bought back 80 million shares worth $1.5 billion in the quarter ended Dec. 31.
On Jan. 15, CNNMoney reported that Jack Ma - founder and influential leader of Alibaba - was stepping down from his Chief Executive role at the company. This instantly fueled speculation that Alibaba, China's largest e-commerce company, was preparing for an IPO. While the official value currently documented for Alibaba is $38 billion, speculations based on the timing of the IPO and the growth of Alibaba's business suggest the company may debut with a price tag in the $50 - $70 billion dollar range. If those speculations are accurate, Yahoo!'s stake in Alibaba could be valued at north of $10 billion pre-tax.
While she has certainly made a splash, Marissa Mayer isn't the only new kid on the block stirring things up in Yahoo!'s executive suite. Since becoming CEO, Mayer has brought on some key talent to help her steer the ship.
In August of 2012, Mayer made her first major hire when she announced Kathy Savitt - Chief Exective of Lockerz at the time - would come on board as Chief Marketing Officer. Shortly after hiring Savitt, Mayer tapped Jacqueline Reses - who led the US media group at private equity firm Apax Partners - as Executive VP of People and Development.
On Dec. 13, Yahoo! appointed Max Levchin - who started Paypal more than a decade ago with Peter Thiel and served as Yelp's Chairman - to its Board of Directors. Mayer also picked up Henrique de Castro - a former colleague of her's from Google - to fill Yahoo!'s COO position. These executives, along with the other 11,500 Yahoo! employees, all play a unique role in helping Marissa pull off what could be the biggest tech turnaround story since AOL.
On Jan. 28, Yahoo! announced earnings of 32 cents per share, handily beating analyst estimates of 28 cents per share. However, emotions were mixed as Yahoo! reported weakening display ad sales and slow projected growth throughout 2013 while also reporting an increase in overall revenue. Shares initially surged in after hours and early morning trading, but retreated quickly in the following trading sessions.
On Feb. 1, it was reported that Dan Loeb - director of Yahoo! and founder of investment firm Third Point - announced his firm had sold 11 million shares of Yahoo! stock. According to Third Point, the sale was "motivated... by a desire to maintain a roughly consistent percentage holding of Yahoo!'s outstanding shares" as the company pursues its multi-billion dollar buyback authorization. It was also reported that Third Point retained 62 million shares of Yahoo! stock.
On Feb. 6, Yahoo! announced that it would begin using Google's AdSense and AdMob services on its Finance, News, Sports, and Autos sites. “By adding Google to our list of world-class contextual ads partners, we’ll be able to expand our network, which means we can serve users with ads that are even more meaningful,” Yahoo said on its blog.
Right now, the future's looking bright for Yahoo. It has a fresh management team with a proven track record in the industry and a hefty pile of cash and profitable investments. While Yahoo is arguably in the best position it has been at in years, at this point a bet on Yahoo is still a bet on Mayer's vision and ability to execute.
However - while I personally fully believe in her vision and her ability - this is by no means an endorsement of Yahoo! stock or advice to buy or sell any stock. My goal is simply to educate, amuse, and enrich. Good luck to all of you! And thanks for reading my first post.
Fool blogger Nathan Bradham was LONG YHOO at the time of this article. The Motley Fool has no position in any of the stocks mentioned. 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!