Yahoo! Inc. (YHOO) is Finally on the Right Track, But the Stock is Near Fair Value

Page 1 of 2

Yahoo! Inc. (NASDAQ:YHOO)’s fourth-quarter results have given investors a real reason to believe that Marissa Mayer is moving the company in a positive direction. Yahoo! reported Q4 EPS of $0.32, better than the analyst estimates of $0.28. Revenue, excluding traffic acquisition costs, was $1.22 billion, compared with $1.17 billion in the year-ago quarter. That’s a sequential increase from its third-quarter 2012 revenue of $1.2 billion — a higher EPS of $0.35 in 3Q was due to one time gain from the Alibaba sale.

Yahoo! (YHOO)Yahoo! signed several key partnerships during the fourth quarter, including with CBS and NBC Sports, and made several improvements in Yahoo! Mail and Flickr for a better mobile experience. I believe Yahoo! has now initiated its long-awaited return towards recapturing its former status as the king of the web portal.

Marrisa Mayer’s role

Since taking over the helm at Yahoo! Inc. (NASDAQ:YHOO), Marissa Mayer has been active in putting Yahoo! on the right path. She persuaded co-founder of Paypal — Max Levchin — to join the company, as well as hiring famous recruiter Sandy Gould. She also stepped up on M&A through acquisitions of Stamped, Snip.it, and videochat startup OnTheAir. By hiring better employees and acquiring promising new companies, Yahoo! is re-focusing on its talent-building strategy, which will lead to a better quality of people joining Yahoo! in the future.

Mayer, through her former experience at Google Inc (NASDAQ:GOOG), is also aware that Yahoo!’s success in the future lies in implementing incremental improvements in existing users’ experience — through personalization of search, video and mobile. Mobile growth still remains a weak spot for Yahoo!, where it needs to make better quality products in order to sell more ad space to advertisers. Due to the shift from the desktop to mobile, it’s a no-brainer that this is an area where Yahoo! needs to be investing in the near future.

Mobile is the future

Yahoo! already has an advantage in mobile because of its large existing users base — the company already knows users’ habits through products and applications available on its web portal such as finance, news, weather, email, sports, etc. Yahoo! can now capitalize on this and provide mobile contents with users’ daily habits and potentially add more personalization around those habits in the future.

The mobile transition is now a global phenomenon, with smartphone adoption increasing worldwide. This move has shifted consumer behavior, with many people now using their smartphones to listen to music, watch tv, do online shopping, and consume other media. But Yahoo! will have to face immense competition in the mobile space, especially from Facebook Inc (NASDAQ:FB) and Google.

Mobile Competition

Reports suggest that Facebook’s revenue from its mobile platform will exceed those of any other platform next year. Facebook is now expected to reach a market share of almost 20% of the mobile advertising market in the US next year. Its mobile games and apps are showing no signs of slowing down, with popular games experiencing new record monthly active users. Together with its newly acquired Instagram, Facebook is sure to give Yahoo! a tough time as the latter tries to expand into mobile.

Yahoo! actually is in double jeopardy; not only it has to gain mobile market share but also defend its current desktop portal dominance. This compared to Google, whose mobile penetration has shown no signs of slowing down. Google ended 2012 with a mobile market share of 17%. But through its excellent service to advertisers on AdMob network and future expansion of YouTube mobile monetization, Google is all set to further extend its mobile advertising presence.

Revenue diversification

Moreover, while increasing usage Yahoo! needs to put more focus on growing international presence and appealing to a broader demographic of users. At present, Yahoo! derives 75% of its total revenue from the Americas region, something that needs to be worked on in the future. Organic user growth in the emerging markets, as more new members of the middle class start accessing the Internet, has the potential to deliver much needed revenue-diversification for Yahoo! in the future.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!