Until Facebook Inc (FB) Can Explain What It Is, Avoid It

Despite rising nearly 70% in the last year, Yahoo! Inc. (NASDAQ:YHOO) is still worth just half what Facebook is, meaning positive financial results will deliver a bigger hit to shareholders than they will at Facebook. Yahoo!’s revenue numbers are about one-fourth less than those of Facebook, and its profit margin for the last quarter was also half that of Facebook.

So why am I recommending Yahoo!?

For two reasons. First, Yahoo! has assets Facebook can’t dream of having, namely its remaining stake in Alibaba and Yahoo! Japan, which continue to power the stock despite a lack – so far – of organic growth under new CEO Marissa Mayer. Second, Yahoo! remains debt-free, and manages asset values conservatively. Like Facebook, Yahoo! was cash-flow negative in the last quarter, but that was mainly due to investing and financing activities. On an operating basis the direction is positive.

But the most important reason to buy Yahoo!, and not Facebook, is that Yahoo! appears to know what it is, and what it wants to be. It’s a cloud-based data applications company. The company’s acquisition strategy has been coherent, its goals clearly articulated. Its relationship with Apple Inc. (NASDAQ:AAPL) is not antagonistic, and its skills complementary. It’s simply, in my view, a more grown-up company run by grown-up executives.

And here’s the key Facebook metric you need to know. The average age of a Facebook user is now 41, the average age of a Facebook employee is 31. Yahoo! is much closer in these areas. When you’re consonant with your user base, when you understand your strengths and know your strategic direction, you’re likely to be a better investment.

Dana Blankenhorn owns shares of Yahoo!. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook.

The article Until Facebook Can Explain What It Is, Avoid It originally appeared on Fool.com and is written by Dana Blankenhorn.

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

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