Yahoo’s (NASDAQ:YHOO) shares have been on a tear lately, reaching $18.36 — the highest price since May 2011.
Wall Street certainly likes what Yahoo CEO Marissa Mayer has done since she took the helm on July 16. Already, a variety of top hedge funds, like Tiger Global Management and Greenlight Capital Management, have been aggressively buying up shares.
Yet investors should still be cautious. As seen with Yahoo’s latest earnings report, the game plan is far from clear. Mayer mostly talked about her commitment to mobile. And this should be no surprise. The industry is in the early stages of a megatrend, and mobile has also become the priority at other tech giants like Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT).
It’s true that Yahoo has some advantages, such as strong footprints in apps for checking weather, sports scores and stock quotes. But can the company monetize these and create new breakout apps?
To do this, Yahoo needs to recruit top engineers. However, Silicon Valley is in the midst of a talent war, and the company may not necessarily be the most attractive option.
Yahoo may also come under more pressure from Facebook. The social networking giant has become obsessed with monetization and is looking to create its own search engine. This could take away a chunk of Yahoo’s revenues.
Facebook appears to be also creating an ad system, which will leverage its valuable database of emails, phone numbers and physical addresses. This could prove to a major threat to Yahoo’s own ad business.
Finally, when it comes to turning around a tech company, the odds of success are not so good. Consider the struggles at companies like Hewlett-Packard (NYSE:HPQ). It’s never easy to fix problems while an industry continues to innovate and change.
Despite all this, Mayer still has a fighting chance. She was a top performer at Google (NASDAQ:GOOG) and knows how to build great products. But it will take more than a few quarters to turn around Yahoo. Any success will probably take a couple of years. Even Mayer emphasized that on her first earnings call.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.“ Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.