Talk about rearranging the chairs on the Titanic. Yahoo! (NASDAQ:YHOO) is in the same ocean as HPQ, right up to and including hiring a new face — this time, ex-Google (NASDAQ:GOOG) superstar Marissa Mayer. The difference is that Yahoo! has so much promise, but to date has squandered it away.
After establishing a brand name in the Internet space, the company let itself fall asleep while trying to figure out what to do next. Co-founder Jerry Yang made a mess of the best, muddling around with ideas that never came to fruition while never defining its role: original content provider or vessel for others’ content. Hence the foray’s with Livestand, CNBC, Alibaba, Axis, etc. But two of the biggest forehead slaps of the decade: turning down a buyout offer from Microsoft because it wasn’t enough money, then not buying Facebook (NASDAQ:FB) because of slowing momentum in earnings — in 2006, before it took off again.
Mayer has to figure out a way to recapture some of the content magic and sell it for a profit. I know, easier said than done. But the baseline is established: Yahoo! offers up an incredible array of content, including strong sports content; it’s still a big player in the email market; and Mayer already is starting to place her own people in management.
Yahoo actually isn’t as battered as you’d think. While YHOO shares aren’t half what they were in their early-aught heyday and are merely a fifth of their value at the 2000 peak, they’ve actually held up well since the financial crisis, trading mostly in a range around $15. That pales in comparison to, say, Google, but it’s hardly horrific.
Its forward P/E of 12 is realistic, and the company has a billion dollars in the bank, as well as plenty of free cash flow. Things need to turn around sooner than later, but the fresh face in the C-suite has me optimistic.
Forget the figures. Forget the “strategy.” Forget about cost-cutting or “white knight” buyers. You’ve got one man who’s interested, so if he has the means, just let him.
Investors have to see that BBY is just like Circuit City and Tower Records: slowly circling the drain of a dead model. Best Buy peaked in 2006 at about $58 per share and never looked back, following a fairly steady (sans crisis dip and rebound) path to just 30% of that value (now $18/share). Heck, even if you bought stock a year ago at $30, you’re probably never getting that back.
So take what the market gives you and run! If Schulze and his investors come back after running the due diligence — and really, what is he going to find that he doesn’t already know about? — with an offer anything north of $24 per share, that’s a nearly 40% premium to what you can get today. There’s nothing to think about.
This isn’t a traditional turnaround strategy for investors, so don’t even look at BBY’s nearly 4% dividend. It’s buyout or bust — you’re either making money on a deal, or watching the stock’s eventual decline outpace the income, as long as it lasts. After all, a Chapter 11 stock has little shareholder value.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long MSFT.