Yahoo! - A Good Play For Growth Investors

Brahamjit 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) has been in sore need of some good news--and here it is. Yahoo! recently announced its Q4 earnings results, which have cast Yahoo! in a positive light as it posted revenues at $1.22 billion and non-GAAP EPS of 32 cents, a YoY increase of 4% and 28%, respectively. But the absurdity is that while Yahoo! has provided beats on both revenue and EPS estimates, its shares have been down almost 3% since the earnings report. I feel that it is totally unwarranted given the improvement Yahoo! has undergone after Mayer’s arrival as CEO and the plans she is hatching for the revival of this lost internet darling. As investors continue to be skeptical, I believe there is a window of opportunity to jump on this bandwagon of success.

Since the arrival of Marissa Mayer, there has been talk of how following a product-based strategy would help Yahoo! in the long run and how Marissa Mayer would be the perfect person for it. As Yahoo! delivered a 14% jump in search-advertising revenue, this particular view seems to be validated. This increase marks the second quarter of double-digit growth. According to BGC Partners analyst Colin Gillis, “Search is the area that Mayer can improve the fastest,” and that’s occurring.

 

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Yahoo! has been working pretty hard to improve its other products as well. One such product has been Flickr, and the photo sharing platform has seen a lot of improvements since the appointment of Mayer.  Yahoo! recently announced a new iPhone app for Flickr, putting it in direct competition with Facebook (NASDAQ: FB)-owned billion dollar app Instagram. I believe that Flickr could see high traction after Instagram's recent sneaky play on the rules and regulations of the app and the Twitter integration issue.  While Instagram has had no particular effect on the revenues of Facebook yet, Sterne Agree analysts believe that the company could generate $500-700 million in advertising revenue over the next three years. I believe that Flickr could steal a major piece of the advertising pie, along with an opportunity to increase the customer base as it continues its battle with Instagram in the image-based-services arena.

Furthermore, I believe that Yahoo!’s growing focus on mobile strategy shows a ray of hope to growth investors who are positive for the mobile sector. While I concur that Yahoo! has been outdone by Google (NASDAQ: GOOG) on nearly every front on the web, I continue to see Mobile as an equal opportunity platform for both the companies. My reason for this belief is that mobile searches are inherently different from desktop searches, as location plays a key role. This can be illustrated by the simple example of how a user wants to see only the nearby places when he searches via his smartphone. On that note, there is still plenty of work remaining to improve mobile search, and Yahoo! might be able to come out on top in this arena considering that Mayer was instrumental in the launch of Google’s largest technological milestone - Google Maps.

Furthermore, Mayer is also trying to lure employees from her ex-company, with success in some cases. She has been successful in hiring her former colleague Henrique De Castro as COO of Yahoo!, along with Max Levchin as a member of the board of directors who has been one of the co-founder of PayPal in the capacity of CTO. Yahoo! has also been working toward increasing the talent pool by acquiring companies like Ontheair and Snip.it.  As Yahoo! is finally going for the “people strategy,” I believe that it might be able to pull off a win in the mobile space.

As Yahoo! is overseeing a whole new sea of opportunities with its mobile and product based offerings, time may be on its side. The company has a considerable economic moat, with net cash holdings of $10 billion. On another note, I believe that there is a huge possibility of share repurchases taking place with the Asian assets monetization, which could return substantial value to investors.  Therefore, I rate Yahoo! a buy.


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