The CEO Effect

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

Ever since the appointment of Marissa Mayer, Yahoo (NASDAQ: YHOO) has caught the attention of growth investors. The shares are up 26% since Ms. Mayer has joined the ranks, and the future looks bright for the company as it is moving away from its media strategy towards a more product based one. Here is a brief analysis of what Ms. Mayer has done post her appointment:

The Flicker of Hope:

Flickr is an online photo sharing service which had been in deep waters ever since its acquisition by Yahoo in 2005. While the service was loved by many, it was gradually dying due to the lack of support in the media based strategy employed by interim CEO Ross Levinsohn. Being insisted on by Flickr fans to make internet awesome again, Ms. Mayer heeded the advice and Flickr has seen a lot of improvements since then. Yahoo has also announced a new iPhone app for Flickr that puts it in direct competition to Facebook (NASDAQ: FB) owned $1 billion app Instagram. With users apparently angry after Instagram's recent sneaky play on the rules and regulations of the app and the twitter integration issue, they might want to head over to Flickr as an alternative.

An eye for the Mobile Pie:  

While Yahoo was overtaken on the web front in entirely every way by Google (NASDAQ: GOOG), Mobile is still pretty much game for both of the companies. What makes mobile searches pretty much different from desktop searches is the mobility aspect of it with location based searches. While you may want to see the most relevant or famous search items when doing a desktop search, on mobile you would want to see the closest ones to your location. On that note, there is still a lot of work going on in mobile search and Yahoo might be able to break the code keeping in view that Mayer was orchestral for the launch of Google maps-Google’s largest location based initiative. Mayer has been eyeing the mobile opportunity and has been instrumental in the overhaul of Yahoo mail product which is being updated across all platforms-mobile and desktop. Encouragingly, the product is among the top priorities as Yahoo entered a search deal with AVG in which AVG will help promote Yahoo’s search with its 121 million users.

The People Strategy:

Tech based firms are only as good as their employees. There is always a war ensuing between tech companies to lure employees from competitors. Marissa has been trying to lure Google employees to join Yahoo as a part of her strategy, she has been successful in hiring her former colleague Henrique De Castro as COO of Yahoo. There are also a lot of other people she has been able to hire from her ex-employer that could definitely help Yahoo in the long run. As a part of her “people strategy;” Yahoo also appointed the entrepreneur Max Levchin to the board of directors who has been one of the co-founder of PayPal in the capacity of CTO. Yahoo also acquired a San Francisco based tech start-up called Ontheair, which many are saying is an effort to take under its wing the talent of its five member team which also boasts of ex-Google employees.  

Sum of parts analysis of Yahoo:

Yahoo currently has a stake of $5.9 billion in Alibaba and a stake of $4.4 billion in Yahoo Japan. With around $10 billion of cash and cash equivalents, Yahoo’s assets consist of a total of $19.9 billion. As Yahoo currently trades at a market cap of 22 billion, the market values Yahoo’s core business at ~$2 billion, which is dirt cheap considering that even Flicker will be much more than that if Yahoo tries to sell it (An assumption as Instagram was purchased by Facebook for ~ $1 billion when it was not even as popular as Flickr).  

The Bottom Line:

It is high time for Yahoo to shine again with its mobile and product based offerings and the company seems to be moving in the right direction. The company has a considerable economic moat with net cash holdings of $10 billion. A sum of parts analysis clearly reveals that the market is not doing justice to the core Yahoo business. Hence, I rate it as a buy. 


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