The Fearful Investor

Ratings For Yahoo! Are Up

Our thesis for Yahoo! is predicated on two things (from the highest level):

1) Staying relevant/growing market share online

2) Growing margins, cash flow, etc.

It seems that Comscore and Experian data seems to be confirming that (1) is quite attainable. See the link below from E-Week - very positive for Yahoo!

E-Week Yahoo/Bing Post

Yahoo For Yahoo!

Here's a quick write-up I wrote for my quarterly newsletter that was sent out yesterday...

Yahoo! is perceived by many to be in the same bucket as AOL -- yesterday's internet companies, quickly leaving the scene to the 'real innovators' like Google, Facebook and Twitter. While AOL is, in fact, a declining business thanks to it's legacy as a dial-up portal, Yahoo! is a media aggregator with #1 sites in:

• homepages (ahead of Google and Facebook),
• e-mail (bigger than Gmail and Hotmail combined),
• finance,
• news (ahead of NY Times and CNN.com), and,
• sports (ahead of ESPN).  

We think new management is right to re-position company as an online media company focused on providing advertising solutions for Global 2000 companies. When the market realizes that the competition is other advertising outlets in all channels beyond Google and the internet (billboard, radio, TV, etc.), and that online media companies are gaining share and can be quite profitable, Yahoo's valuation should benefit. In order for the re-positioning plan to work, Yahoo! must:

• Have compelling content and link to compelling content, which will enable stable to growing market share,
• Provide targeted and successful advertising options - the pinpoint demographics for Sony to advertise their 3D HDTVs before football season or for Pfizer to advertise Lipitor, and,
• Keep up with innovation by providing mobile solutions that maintain and build usage of Yahoo! sites and services

Yahoo! currently trades at a trailing free cash flow yield of about 9%, when adjusting for the cash and publicly traded assets. With the current recovery in advertising spending and the ongoing migration of ad spending from offline to online, we think that the investment should do OK in a bad economy and quite well in a good one.

In a longer write-up, I'd add:

1. Yahoo's Chinese assets, through their ownership in Alibaba have potential for growth should fast-growing Taobao or Alipay go public. Yahoo! spiked when Alibaba.com went public, and I'd expect the same out of another Alibaba group IPO.
2. Yahoo! management is holding their 2nd analyst day in 7 months in May. I'd expect the path to higher margins and cash flow should be clearer to all then.
3. Most media companies are leveraged (see News Corp., CBS, all the Liberty companies, et. al.). Yahoo, with $3/share in cash, is anything but leveraged. Over time, I think you'll see leverage here...
   

Inflation & Deflation

Gold, copper, stock prices are up -- USA average hourly wages are down

The rich get richer, as investors make $ to keep up with inflation, and the poor get poorer, as incomes stagnate and the value of pay diminishes...

Regardless of your politics, this can't be good for a long-term investing environment...

Stay tuned for more volatility (good & bad).