You Shouldn’t Buy These Internet Stocks Despite Market Optimism: Yahoo! Inc. (YHOO) and More

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Going forward, Baidu’s plans on providing third-party tools to help the app developers offer great appeal to users. And, the plans to foster a large mobile community includes lavish content, and information to enhance the user’s dependence on its services. I appreciate Baidu’s strategy of investing in the future, but these investment programs will take a long time to show results and hence, don’t help the volatility of the stock in the near future. Looking at these factors, I suggest a hold on Baidu unless I see any stability in future.

AOL, Inc. (NYSE:AOL)

The 4Q12 results were a bit different for the company as this time it had some added positive sentiments attached to it. For the first time in the last eight years, AOL posted growth in its revenue that stood at ~$600 million, far ahead of the consensus expectation of ~$574 million. This growth was mainly due to the rise in the Search segment and AOL’s Third-Party Network. AOL’s new segment reporting revealed that, a major chunk of the company’s profitability came from its Membership Group, more specifically subscription revenue. AOL further reduced its outstanding shares by ~14.4 million in the quarter, bringing the total shares down by almost 20% over the course of 2012. The management further announced an added ~$100 million share repurchase authorization for 2013.

Going forward, the company’s focus will be on closing the mobile monetization gap. The company has ~40 million unique visitors on mobile and is concentrating new ad formats and improved targeting. Another key area of focus will be the changing industry as it moves into a multi-screen environment. The unique IDs become important to track users as they move between mobile and desktop. It is working on a universal ID registration process to allow users to enjoy a seamless experience across different platforms.

Finally, I also expect a saving of $190 million in corporate expenses over time as it cleans out the legacy issues, which can help it to fuel the continued income growth. I am bullish on AOL and feel this is the right time to buy this stock.

Investor’s Take Away

I think Yahoo and Baidu should be a “hold” for now as the near-term scenario of these two companies are a bit foggy. Yahoo with its depleting display visitors and fall in earnings has seen some volatility, but the news of its deal with Google has helped the stock to stabilize. For Baidu, the fall in this stock with slower growth doesn’t give me confidence in this stock for now. Although, I feel that the company has potential for capturing the continuously increasing Chinese mobile monetization market, I would recommend the investors to wait on this stock till something concrete comes up. On the other hand, AOL with its strong quarter has raised hopes for the future. The stock buyback plan in 2013 and initiatives to close the mobile monetization gap can help the upside for this stock

The article You Shouldn’t Buy These Internet Stocks Despite Market Optimism originally appeared on Fool.com and is written by Shweta Dubey.

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