It’s not that Google isn’t great and powerful. It’s just no longer Oz.
Up With Yahoo
So why go with Yahoo! Inc. (NASDAQ:YHOO)?
Mayer does not yet have anything like the track record of Google Inc (NASDAQ:GOOG). She’s seen less than two quarters, and the first hardly counts, since results were skewed by the sale of some of Yahoo’s stake in Alibaba, the Chinese version of Amazon.
But compare the fourth quarter of 2012 to the second quarter. Revenue was up over 10%, and profit was up by nearly one-quarter, over that period. The balance sheet now shows no debt, and $4 billion in cash was on the books at the end of the year.
Still, Mayer seems to have just gotten started, and she is what was once called a “fighting general,” willing to shake things up. Her best-known move was ending telecommuting, which will force out a lot of deadwood that accumulated under her country club “media” predecessors.
Mayer is an engineer, who made her bones pushing Google Inc (NASDAQ:GOOG)’s clean front-page look. And she’s demanding, drawing internal flak for tougher hiring practices, and personally approving each hire.
Charisma will only take you so far, but Yahoo! Inc. (NASDAQ:YHOO) has extensive assets that top engineers can make much better use of. Some of its sections, like Finance, are already better than those at Google, many cloud technologies were actually invented there, and Mayer wisely didn’t sell all her Alibaba stake, meaning that after that company comes public – perhaps later this year – there will be new opportunities to cross-promote, perhaps even bringing Alibaba’s Chinese pricing to American shoppers.
Own Both, Buy Yahoo
I hold stakes in both companies. I bought 100 shares of Yahoo! Inc. (NASDAQ:YHOO) around the time of Mayer’s hiring, but those are worth just one-fourth of my 10 remaining Google Inc (NASDAQ:GOOG) shares. (I sold some at $808 – it’s now at $825.)
The battle between Page and Mayer is a personal one. That’s good. Yahoo is the smaller, feistier competitor. That’s better.
If I were buying more of either company today, I’d be buying Yahoo! Inc. (NASDAQ:YHOO). At its present level, a valuation of almost $25 billion, it may be fully valued despite the reported PE of 6.85. Remember, the extraordinary gain of the Alibaba sale is still sitting in that number. A clearer view of Yahoo’s “real” earnings might be closer to $1.2 billion/year, giving it an implied forward PE of over 20. Still, that’s well short of Google Inc (NASDAQ:GOOG)’s 25.8, and Yahoo still has lots-and-lots of room to grow.
The article Is Yahoo Now a Better Investment Than Google? originally appeared on Fool.com and is written by Dana Blankenhorn.
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