Yahoo Changes Continue: Too Little, Too Late?

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

The effort to re-invigorate -- perhaps more accurately, re-invent -- Yahoo (NASDAQ: YHOO) is far from over. Even with the recent announcement of three new board members, many investors – including the largest shareholder outside the Yahoo ranks Daniel Loeb – are not impressed.

At first glance the appointments of past COO of Discovery Communications (NASDAQ: DISCA) Peter Liguori, Executive VP of American Express John Hayes, and Thomas McInerney, soon-to-be former CFO of competitor IAC (NASDAQ: IACI) – were solid decisions. All have senior level management experience, including digital media and related services in the cases of Mr. Liguori and Mr. McInerney. So that’s all good, right?

Not according to Daniel Loeb, who has promised a proxy fight, or investors as Yahoo is trading fairly flat today. The looming fight for control of the once high-flying internet search firm is far from over. It’s that uncertainty that’s left many investors – and rightfully so – on the sidelines to see how  all this is going to play out.

One in a Long Line

As excited as Yahoo management must have been to get 2011 behind them, 2012 is shaping up to look like more of the same. First former CEO Carol Bartz was unceremoniously shown the door in September of last year. Co-founder and board member Jerry Yang followed shortly thereafter – in fact the door may have still been swinging. Both moves were necessary, but recognized by analysts and investors as still not enough.

And now the recent board appointments – and the realization that’s a lot of change in a short period of time – has many investors waiting on the sidelines. What’s interesting is in spite of everything, there’s the sense that diehards remain – a quick peek at Yahoo’s current valuation is evidence of that.

At nearly 19 times earnings Yahoo is hardly expensive relative to others in the sector, but is even that warranted? Google – even as they continue breaking new ground as with the recently patented technology to customize smartphone advertising – is trading at just over 21 times earnings. Now regardless of where your investment and/or personal loyalties lie, there’s no justification for these two companies to even be in the same ball park valuation-wise.

While not a direct competitor in the sense that Microsoft as their fingers in a lot more pies, Yahoo remains considerably more expensive on a relative basis than the industry stalwart.

In a very real sense Mr. Loeb is holding Yahoo management hostage. The threatened proxy fight – unless he personally is elected to the board – is a large, dark cloud over a company that can ill-afford many more setbacks.

So where does all this leave us? For current shareholders – whether grounded in fundamentals or sentiment – Yahoo remains a hold, if for no other reason than it’s unlikely there are oodles of capital gains to be had and the downside appears minimal based on recent trading ranges. Not a current shareholder? You’d be wise to keep it that way until the Loeb vs. Yahoo Management Team confrontation is settled.

The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.

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