Why is Dan Loeb Cutting His Yahoo! Inc. (YHOO) Stake?

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THIRD POINTLegendary hedge fund manager Dan Loeb, founder of Third Point, cut his stake in Yahoo! Inc. (NASDAQ:YHOO) by about 15% late last week, selling shares on Thursday and Friday. Should investors be concerned?

According to Third Point, the sale was “motivated…by a desire to maintain a roughly consistent percentage holding of Yahoo’s outstanding shares as the company pursues its $5 billion buy-back authorization.”

Loeb still holds 62 million shares of Yahoo, or about 5.3% of the company. Does he believe that Yahoo can be turned around, or are these sales the beginning of his cashing out and moving on?

Loeb’s investment has worked out great for Yahoo’s shareholders

Fellow hedge fund manager Kyle Bass told CNBC’s Gary Kaminsky on Friday that Loeb was one of the smartest investors he knew, and that he “would never bet against Dan Loeb.”

Since Loeb got involved with Yahoo, he’s seen about a 50 percent return. Loeb began acquiring his Yahoo stake in August of 2011, when shares were trading around $13 — shares closed Friday at $19.76.

It’s important to note that most of Loeb’s gains came in the fourth quarter of 2012. Not so coincidently, this period was one in which Yahoo began returning the $4.3 billion it received from selling half of its stake in China’s Alibaba Group to shareholders (an agreement which allows Yahoo to sell the rest of the stake after an Alibaba IPO).

But Yahoo has no definitive plan for future growth

Despite Yahoo’s recent rally, the company has few sources of long-term growth. Yahoo abandoned its search engine years ago, instead relying on Microsoft’s Bing. It has no social network like Google+ or Facebook. It has no operating system, mobile or otherwise. And it has no browser — something that appears increasingly important in a cross-platform world.

In short, Yahoo is a collection of valuable Internet properties. A collection of Yelps and Groupons united under the familiar Yahoo umbrella: Yahoo finance, Yahoo mail, Yahoo sports, and Flickr, to name a few.

On the earnings call last week, CEO Marissa Mayer was mum on the company’s plans for the future. She spoke of a continued focus on attracting quality employees and a shift to an increased personalization of the web for users (whatever that means).

But when it comes to specifics, there was nothing: No revolutionary device; nothing to shake up the mobile Internet or change the way people use the web. Perhaps that is why investors sold shares of Yahoo the day after it posted earnings that exceeded Wall Street’s expectations.

Is Loeb in Yahoo simply for a cash grab?

From the time he got involved in Yahoo, Loeb went after the company’s management. Rightfully so, he identified an inept board as a key reason as to why Yahoo had changed little since the turn of the millennium.

After he forced out Yahoo’s management, he got himself and two of his allies appointed to the board. He then brought in ex-Google exec Mayer, a CEO he was reportedly instrumental in attracting.

Then, Yahoo suddenly opted to sell half its stake in Alibaba and return the capital to shareholders. In July, Mayer suggested that the capital might be kept to finance a number of takeovers. But that didn’t happen. Instead, Yahoo has been embarking on a massive share repurchase program, likely the key reason as to why shares rallied so significantly in the fourth quarter.

By Third Point’s own admission, the hedge fund is reducing its stake in the company as the share repurchase winds down. Will Loeb completely sever ties once the Alibaba-fueled buyback ends?

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