What Will Drive Yahoo! Inc. (YHOO)’s Share Price Moving Forward?

Factors no longer driving share price

Dan Loeb initiating a stake in Yahoo!, along with recent share buyback programs, have been the two other driving forces for Yahoo!’s share price in the past two years.

When Dan Loeb first acquired his stake in Yahoo! Inc. (NASDAQ:YHOO) he wrote a letter regarding his valuation of Yahoo!. In it he reaches a valuation of Yahoo! at $19 using a pre-tax estimate of $25 billion for Alibaba. He references an analyst, Makio Inui, who placed a $63 billion dollar valuation on Alibaba, after which he states that future growth by Alibaba could drive Yahoo!’s share price into the mid-20’s.

Earlier this year, he trimmed his Yahoo! Inc. (NASDAQ:YHOO) stake by 15% when it was trading at $19.70. It was recently announced that Third Point sell most of its remaining stake and Dan Loeb will quit the board. This is announced as Yahoo! exceeds Loeb’s mid-20’s price estimate.

In the recent earnings call, CFO Ken Goldman talks about the successful completion of returning $3.65 billion in share buybacks at an average price of $25.76. He also mentions that there is $1.9 billion still to be returned. After that there are no more planned buybacks. Without buybacks, future gains will depend entirely on Yahoo!’s performance.

Making the bet

I believe that when making an investment you need to know exactly what you are betting on. For those looking to go long on Yahoo!; you are making a bet that Alibaba will come out on the higher end of its IPO estimates and that Yahoo! Inc. (NASDAQ:YHOO) will be able to successfully monetize this. You are also betting that the core business will make significant improvements and begin driving share price up.

I do not believe that Yahoo!’s core business is strong enough to compete with Google Inc (NASDAQ:GOOG). I see Google handling industry trends better than Yahoo! Inc. (NASDAQ:YHOO), and believe it may be a better investment choice. Yahoo!’s risks and limited upside make it a less than ideal long candidate.

Xuebing Wang has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article What Will Drive Yahoo!’s Share Price Moving Forward? originally appeared on Fool.com.

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