Should You Buy Yahoo! Inc. (YHOO)?

Yahoo! paid $1 billion for a 40% stake in Alibaba in 2005, and is now reaping a huge return of $7.6 billion. Approximately $6.3 billion was received in cash and the remainder as preferential shares.

In 2012 Q4, the total fair value of the Alibaba Group Preference Share was $822 million, whereas in 2013 Q1 the fair value was $831 million. Alibaba Group, a private Chinese company, has blown past companies like Facebook Inc (NASDAQ:FB) in terms of revenue and net income. Its growth in 2012 was incredible and promising. This is grabbing attention of many investors and analysts alike who are counting on the rising value of Alibaba Group.

Tumblr acquisition

Yahoo! is expecting Tumblr to boost revenue by 2014. Yahoo! acquired Tumblr, a popular blogging and social-media network, for $1.1 billion. Tumblr’s 2012 revenue was only $13 million. Yahoo! overpaid for the deal, which might not be favorable from an ROI perspective. However, Yahoo! is expecting Tumblr to add its “cool” effect to the company.

Yahoo! has agreed upon the complete independence of Tumblr. Tumblr’s 26-year old CEO, David Karp, announced on the Tumblr website:  “Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing.”

Assessment

Considering the fundamentals, both quantitative and qualitative, it seems it’s a good time to invest in Yahoo!. Additionally, since Marissa Mayer has taken up the role of CEO, many attempts have been observed going in a positive direction for the growth of the company. There has been linear growth since then, which indicates that Yahoo!’s market share is going to increase.

Yahoo!’s search is still a problem. But Yahoo!’s changes will definitely attract users. If by 2014 Microsoft is not able to live up to the RPS guarantee, then Yahoo! might consider opting for Google instead.

The article Should You Invest in Yahoo!? originally appeared on Fool.com and is written by Riddhi Shah.

Riddhi is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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