I don’t like to go to the casino, but by virtue of buying stock, I know the feeling.
Yahoo! is on deck in what is arguably the single biggest earnings report in the company’s history (to jump straight to our post-report thoughts, click here for a no-holds barred commentary). It’s funny because while the company’s long term outlook remains bright, what will happen to Yahoo! tomorrow (on the stock market and in boardrooms around the world) will be determined by the Street’s reaction to Yahoo!’s Q4 2007 earnings report. In fact, it’s not even what’s in the report, but what Yahoo! guides to for 2008.
In other words:
- if the company pleases the Street: it lives to see another day.
- if the company disappoints, the stock will fall and the company’s market cap will fall below $25B, which if you subtract its stakes in other companies means Yahoo! - as a stand alone entity - will be trading at about $10B or so… low enough to a myriad of companies - eBay, MSFT, AT&T, CBS, News Corp., - or a private equity firm or two to make a move. The latter, of note, is becoming more and more of a possibility. YHOO has options, no doubt. They include:
- status quo (a $100B market cap by 2010?)
- merger with eBay
- merger with Viacom
- merger with CBS
- acquisition by/merger with Microsoft
- taken private
- sale to AT&T
- can Google buy Yahoo!?
- Spin off ad network unit
But time is running out as a go-it-alone play.
A few additional storylines?
Is Meg Whitman Heading to Yahoo! as CEO?
The timing of Meg Whitman’s resignation from eBay is interesting. Jerry Yang has spent his first 100 days realizing that the value of his holdings have dwindled since April 2003, when Yahoo! reported Q1 2003 figures and returned to its heady days. Chairman and CEO Terry Semel announced a 2-for-1 stock split, YHOO stock was pushed up 16% after-hours. But since then, the company has been caught in a $22-34 range, and in 2008 the stock hit a new 52-week low at $18 and change, valuing the company at $25B.
If the goal is to buy low and sell high, then no wonder that Jerry Yang does not want to sell now. Using that same mindset, maybe then Meg Whitman believes that coming on board now (at a low price and with low expectations) she can repeat history and double the success she had at eBay. Of course, bear in mind that at eBay, Whitman - a former consultant and executive at Hasbro and Walt Disney - was employee #40 at the onset of eBay’s massive growth; at Yahoo!, saying that it’s a different environment is a mild understatement.
Is Yahoo! Going to Lay off 1,200 or more?
The second storyline is how deep will Yang cut. First it was reported to be 10-20%, then 5%, now it’s back up to 10%.
So long as Yang cuts more than 10% of headcount, then the market will welcome this as it affects the company’s decision making prowess and process and improves profitability.
If it’s closer to 20% then the stock might even bounce because it shows that Yang is willing to make the tough calls needed to divest from weak areas and double-up on strong growth opportunities.
If it’s closer to 5%, the stock should go down, because the price assumes a 10% or more cut.
Of course, Yahoo!’s stock price already reflects every imaginable bad news. So technically I do not see how Yahoo! can go lower, but never say never.
But it’s not all doom and gloom: Rob Sanderson, analyst at American Technology Research, has a “buy” rating on the stock along with a $41 target by year’s end. That is literaly a 100% growth rate, and considering that Yahoo! was at $34 last November (2-3 months ago) it’s not unimaginable, but right now, it is unlikely.
Is it?
Hidden Value?
Global advertising is set to increase to $531B in 2011 from $407B in 2006.
By 2011, US online advertising will be a $50.1B market, global online advertising will soar to $81.1B by 2011. Much of that growth will come from Asia, where unlike Google, eBay and company Yahoo! is very well positioned via investments in Yahoo! Japan and Alibaba (in China).
Lastly, broadband households will grow by 300 million to 540 million subscribers and wireless subscribers will increase by 1.1 billion to 3.4 billion. These are all big numbers, and despite Google’s mammoth size and momentum, I reiterate that Yahoo! remains the best positioned media company.
Google is the leader of the one-dimensional, text-based universe. Yahoo! is better attuned to the multi-dimensional, broadband multimedia universe. Maybe it’s for that reason I keep Yahoo! in my portfolio. It’s the closest thing I can imagine to being a lifelong holding. I’ve always added and reduced shares here and there, depending on where the price is, but I think that when the dust settles, Yahoo! - as a company and a stock - will return to being in vogue. Whether or not that period resumes today remains to be seen… sometime at 4:15pm EST or so.
Note: Long YHOO
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