2 Yahoo! Inc. (YHOO) Takeover Targets: Yelp Inc (YELP), Pandora Media Inc (P)

Yelp would be a play on local

Around the time Swisher’s article was published, shares of Yelp saw a minor pop Thursday afternoon. Perhaps investors believed Yahoo would consider purchasing Yelp Inc (NYSE:YELP). The idea isn’t completely far-fetched. Yelp Inc (NYSE:YELP)’s CFO said last month that mobile Internet was a “game changer,” and Yelp’s COO noted that 46% of Yelp’s searches originate from the company’s mobile app.

Yelp Inc (NYSE:YELP) is still somewhat of a controversial company: about one-third of its shares have been sold short, with many investors doubting its longer-term prospects. But if it was absorbed into the broader Yahoo! Inc. (NASDAQ:YHOO) complex, its losses from quarter-to-quarter wouldn’t be nearly as important. Meanwhile, it would give Yahoo access to Yelp’s local business — a growing segment — and a form of personalization for Yahoo’s end users (“here’s a restaurant or nightclub you might like”).

Pandora is one of the most popular mobile apps of all time

With people increasingly using their mobile phones as music players, a number of streaming services have arisen to take advantage of the trend. Pandora Media Inc (NYSE:P) is perhaps the most popular and, as Fortune notes, the second most popular iPhone app of all time.

Yahoo already has a music site, but it’s far removed from being a popular mobile music player. In fact, last summer, the company partnered with Spotify (a kind of competitor to Pandora Media Inc (NYSE:P)). Buying Pandora Media Inc (NYSE:P), then, would allow it to have more direct control over the mobile music space. There’s clearly value to be had, as Microsoft Corporation (NASDAQ:MSFT), Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) have all entered the space or are widely believed to be working on it.

Of course, private companies might make more sense

In her piece, Swisher suggests a number of non-publicly traded, but wildly successful mobile companies like Pinterest, Tumblr, Foursquare, Hulu or Quora. In the end, those may make more sense for Yahoo than Yelp Inc (NYSE:YELP) or Pandora Media Inc (NYSE:P). There’s also the aforementioned Spotify or another Pandora competitor like Slacker Radio.

This represents a change to the Yahoo story

Above all, the key thing for Yahoo shareholders to realize is that a strategy of pursuing major acquisitions would be a shift in the investment story: It would transform Yahoo from a value play to a growth name.

Many traders may have taken stakes in Yahoo simply based on the hopes that they would receive large capital returns from the sale of the company’s Asian assets. But now, if Yahoo plans to use that capital to acquire other companies, it complicates the matter.

Barclays, like Cantor Fitzgerald, upgraded Yahoo earlier this week on the appreciation of its Asian assets. In its note, Barclays argued that Yahoo would return the proceeds of the sale of those assets to shareholders.

If Yahoo decides to take that path, investors who decide to stay in the name must commit themselves to liking Mayer’s turnaround strategy.

The article 2 Yahoo Takeover Targets originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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