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Sunday, August 25, 2013

the turning point - $yhoo

Like every other sane investor, once Marissa Mayer was named Yahoo's CEO, $yhoo became interesting again.

With the rising stock price, came the obvious praise. But one tech blogger put that praise into its place. Om Malik did not hold back. Rise in stock price be damned, he ripped into the prevailing issues.  I wish more tech/media outlets did this, but as a student of the market and behavior I rarely see such things from the viable-institutional bloggers and influencers.  When a company is in vogue, the blog-o-sphere becomes a circle-jerk amplification of each others' positive take. Wall Street schmucks observe the chatter and with the positive perception continue to elevate (or depress) the stock.

I have seen it way too many times. In fact the circle-jerk has completely turned me off to Pando Daily and make me question The Verge and TechCrunch.  When Google was in the shitter over a year ago, Pando Daily gave it zero respect. Apple in the sitter, no more innovation. Facebook in the shitter, their model doesn't work.

Once key influencers get an idea out there, the others (with great reach) simply run with it. The most recent example is Facebook. Before their massive +30% run, key influencers had the perception that Facebook, as a mobile play, was threatened by "unbundling" and no longer being a "platform".  Both issues were viable threats, but the only problem between the two was that user engagement was growing (squashing the unbundling threat), and their mobile reach was getting huge (adding a new paradigm to what a platform can really mean).  Facebook's stock should never have been below 30 prior to this past quarter, but because these influencers have the ears of the hedge funds, many listen. (I see it, and listen to these guys/gals, but call out when I think they are wrong.)

And now, here too with Yahoo, I think Malik is a bit off base.

Before she became CEO, YHOO was trading around $16, with a market cap of around $19billion.  Alibaba was/is worth about $14billion and Yahoo Japan was/is worth about $10billion. Before Mayer, Yahoo web properties were valued at zero. But a cynic would value them as a liability.

A few months into her reign (and I use that word with purpose), the stock is trading with a market capitalization of $28.5billion. The remaining Alibaba shares are worth about $7b, and Yahoo Japan is still valued around $10.  This leave Yahoo's web properties and recent mobile apps with a value of $11.5B. (But if cash is factored in here, the properties are really worth less.)

Yahoo went from being a liability to being worth $11.5B. This does not seem like an outrageous valuation for a web property that has so much reach.

When a person sees the above charts it may seem outrageous, but that simply is not the case.

The next question, is the $11.5billion justified?

If we were strictly looking at revenue and income-from-operations, maybe not. The two key metric are still in decline. (Although, the last 2 quarters saw an increase in operating income due to a lower TAC cost.) But beyond the lagging indicators, there is definitely a foundation for growth.

Yahoo, from all facets, has been redesigned. Not just for aesthetics, but for social-mobile optimization. Its web properties are not dependent on a mobile app, even though it has them too. And their mobile apps have seen HUGE, I can not stress this enough, HUGE performance improvements.

And here is where I disagree with one of technology's great influencers. The redesigns matter. Yahoo's +700million active users matter. Targeted adverts does not just depend on facebook-type data, much is dependent on user activity, and Yahoo has that in spades. (If anyone gives Google+ credit, they must acknowledge the same for Yahoo.) And from the looks of the redesigns, they are trying to tap into this activity.

Yahoo's biggest challenge is to unify the data from their multiple offerings to better target the user.  Thereby increasing their ad rates, and increasing their revenue and income-from-operations.

Yahoo has laid the foundation, and time has to prove Mayer's right. (And I think it will.)

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