Yahoo! Inc. (YHOO): Possible Downside to This Tech Giant

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Yahoo’s 24% stake in Alibaba is very valuable for the otherwise struggling Yahoo! Inc. (NASDAQ:YHOO). Numerous estimates have pegged the total value of Alibaba to be in the range of $80 Billion-$120 Billion, which is a great positive for the company. However, if Alibaba continues to delay its IPO or any other liquidity event, Yahoo’s intrinsic value from this asset will be less transparent. As a result, the company’s share price will remain within a narrow range, and will have limited upside from current levels especially after a strong run-up.

4. Reduction in Advertising spend

In the first quarter of 2013, Yahoo’s display advertising business saw a whopping 11% decrease. Yahoo! Inc. (NASDAQ:YHOO) is showing lower number of ads, and the price per ads is down as well. Part of Yahoo’s decline on the display advertising was the company’s efforts to cut down on display clutter, which is commendable because it is trying to improve the end-user experience.

However, the number of ads shown on various Yahoo properties should be a big concern for Yahoo investors. Google Inc (NASDAQ:GOOG) along with Facebook Inc (NASDAQ:FB), AOL, Inc. (NYSE:AOL), Yahoo! Inc. (NASDAQ:YHOO), and Microsoft control roughly two-thirds of the online advertising market, according to eMarketer. The online advertising market is extremely competitive with newer entrants wanting a piece of the pie for users, and the time spent by those users. If Yahoo fails to get its momentum back in its display advertising properties, the company’s overall fortunes will be affected substantially.

The Takeaway

Yahoo’s stock has done very well in the last year. Since its core business is not showing signs of growth, it might be a good idea to be a little skeptical of Yahoo stock. The company’s fortunes are heavily tied to the listing of Alibaba, which might not take place in the next few years. There are a number of downsides to the Yahoo! Inc. (NASDAQ:YHOO) story, but the company’s stake in Alibaba might be worth a lot more in the future.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google and Microsoft Corporation (NASDAQ:MSFT).

The article Possible Downside to This Tech Giant originally appeared on Fool.com.

Ishfaque 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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