Yahoo: Media Properties Are Likely The Key
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yahoo! (NASDAQ: YHOO) is not the internet darling that it once was. The rise of Google (NASDAQ: GOOG) and Facebook have put plenty of pressure on Yahoo, and the stock has disappointed for the last several years. Although the company still faces plenty of risks, I believe it can recover, and its fundamentals seem to be moving in the right direction. With hits on Yahoo's search engine decreasing, it is now shifting its focus to media properties in what appears to be a reasonable strategy. Also, with the Alibaba deal finally materializing, Yahoo is looking to unlock shareholder value and therefore presents a good prospect for investors.
Key Positives for Yahoo:
- Focus shift from search to media properties:
Yahoo is looking to shift its focus from search revenues to media properties, as is evident from the above chart. Yahoo acquired IntoNow (enabling it to provide enhanced media experiences and video programming and bolster social engagement) and launched Livestand (a personalized living magazine to create a personalized digital experience tailored to users’ interests, killed just 6 months after its release) in 2011 to realize this strategy.
In a recent development on July 6, Yahoo entered into a strategic relationship with Facebook. The agreement, which includes a patent portfolio cross-license, focuses on bringing premium media experiences to consumers and advertisers through promotion and distribution across both Yahoo and Facebook networks. This could work well for both companies, as Yahoo employs a staff that creates timely content but lacks reach, while Facebook has the got 900 M+ active users but no content whatsoever of its own. This step will create world class opportunities for advertisers to market their products and events, resulting in much needed exposure for Yahoo.
With Google and Microsoft clutching a higher share of the search revenue market, 66.7% and 15.4% respectively, and Yahoo’s search share decreasing y/y, it seems like a prudent move for Yahoo to reinvent its strategy and gain space in media properties.
- Alibaba sales to act as a catalyst: According to a recent development Alibaba will sign a $ 1 billion loan with seven banks to initiate a buyback for its stock. It is looking increasingly probable that Alibaba will succeed in building the capital required to conclude the deal with Yahoo. It will likely purchase up to half of Yahoo’s stake in Alibaba for a minimum value of $7.1 B and it is likely that some of the sale proceeds will be distributed to shareholders and could therefore result in a material dividend.
Apart from the above positives, Yahoo is looking to enter into the TV market with an alliance with Comcast's (NASDAQ: CMCSA) CNBC network. According to Ross Levinsohn, “partnering with CNBC will allow Yahoo! Finance to expand its offerings instantly and enhance its position as the most viewed and utilized finance site in the world."
Yahoo has taken some excellent strategic steps in 2011 and 2012, and its prospects are looking much brighter than they did a couple of years back. Although Yahoo may not reach the premium position it once held in the market, the current price largely underappreciates the Asian assets and overlooks the results its change in strategy will bring. Therefore, I rate this stock as a buy.
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