Will Yahoo! Inc. (YHOO) Take a Dive After Taking a Tumblr?

Yahoo! has been relying on the outdated concept of the internet portal as the primary source of its earnings. The huge increase in mobile, where people get the same kind of information through apps, has been leaving Yahoo! Inc. (NASDAQ:YHOO) behind. The company is just starting to implement a mobile strategy and will have a struggle to catch up to its competition. The best Yahoo! can hope for is to keep making cash a profit as a member of the also ran tier of companies while it attempts to come up with a strategy to stay relevant.

Tumblr might be Yahoo!’s savior but Tumblr’s prospects could go either way. It could either hold onto its users base and start producing revenue or be abandoned as users look for the next hot thing. Only time will tell because you just never know with the internet.

Yahoo! Inc. (NASDAQ:YHOO)’s fate will play out over the next couple of years. At the moment, however, it violates one of the main rules of fundamental investing. Never buy at the top when all the good news is already reflected in the stock price. The strategy for believers in Yahoo!’s future would be to look for buying opportunities that come on dips caused by negative news.

While the current business model may be weak, I do believe in the current management. The chance of a dive is small because most of the recent gains are due to the Alibaba investment. A dive would require some extremely negative news. Therefore, this is a stock to watch. If the company shows signs of making the transition to mobile or the Tumblr acquisition starts to payoff, buy.

The article Will Yahoo! Take a Dive After Taking a Tumblr? originally appeared on Fool.com and is written by Eric Whiteside.

Eric Whiteside has no position in any stocks mentioned. The Motley Fool recommends Facebook Inc (NASDAQ:FB) and Google. The Motley Fool owns shares of Facebook and Google Inc (NASDAQ:GOOG). Eric 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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