5 Reasons Why I’m Not Crazy for Buying Yahoo

by Marc Bastow | January 10, 2013 6:15 am

5 Reasons Why I’m Not Crazy for Buying Yahoo

“Practice what you preach.” It’s a simple phrase that basically encourages you to put your money where your mouth is, as far as advice goes.

Well, heading into the New Year, I talked about a number of investing resolutions, and I’m right on top of one of them right now. That is, I’m taking a flyer on a stock[1] that might raise a few eyebrows.

I’ve gone and bought shares of Yahoo (NASDAQ:YHOO[2]).

You should’ve seen the look from InvestorPlace‘s Jeff Reeves when I dropped the news on him in the hallway. Jeff is not what I would consider a fan[3] of the stock or the company.

But I am, and it’s my money. Still, it’s a fair question. Why would I buy Yahoo? Well, here are five reasons:

  1. Yahoo Properties: From Yahoo Sports to Yahoo Finance, the company has properties that users find entertaining and newsworthy. Yahoo is looking to expand those offerings, recently inking a deal with CBS (NYSE:CBS[4]) Television Distribution to syndicate CTD’s entertainment news magazine The Insider. Yahoo also is joining up with Comcast‘s (NASDAQ:CMCSA[5]) NBC Sports[6] to supplement each others’ sports content and to “collaborate on premium sports news and events coverage both online and on the air.” Expect CEO Marissa Mayer & Co. to keep targeting more cross-promotional opportunities. Speaking of which …
  2. Marissa Mayer: Go ahead and tell me she doesn’t have the chops or the background for this kind of gig after spending most of her successful career growing at Google (NASDAQ:GOOG[7]). Mayer is a rock star in the social media and technology world, and she’s putting her stamp on the company in lots of ways, including things like personnel decisions[8] and … well, defining what the company is and how it will get there[9]. And I think she’s the kind of CEO that can execute.
  3. Ad Development: While Yahoo has fallen to bronze-medal status in American Internet search behind Google and Microsoft‘s (NASDAQ:MSFT[10]) Bing, there’s promise on the ad technology front. In December, Yahoo! announced a new cost-per-lead tool[11] in which “brands will only pay for advertising when forms are filled out on their sites, generating potential leads,” according to marketing service agency Brafton. Yahoo says the tool has yielded a 6% increase in clickthrough rate.
  4. Cash and Cash Flow: Yahoo’s revenue and earnings growth hasn’t been anything to crow about in the past three years. The good news is that YHOO still is flush with cash — to the tune of nearly $8 billion as of September 2012. Combine that with $900 million in free cash flow, and you’ve got a liquid company that can weather plenty of storms. The $7 billion-plus sale[12] of its Alibaba stake gives Yahoo room to browse possible business-driving acquisitions[13] while absorbing new acquisitions OnTheAir and Stamped, two mobile-based tech plays.
  5. The Price Is Right: Yahoo is trading at a dirt-cheap 6 times trailing 12-month earnings, and while its forward P/E of 17 (based on FY13 earnings) is a little frothier, it’s not unwarranted. There’s a potential growth story here, as analyst expectations are for 10% earnings growth over the next few years — that sounds surprisingly good for a supposedly dying online portal.

I expect these factors to help prove out my pick … and make incidental eye contact with Reeves less painful.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long YHOO and MSFT.

Endnotes:
  1. I’m taking a flyer on a stock: http://investorplace.com/2012/12/5-retirement-new-years-resolutions-intc-ge-dis-hd-nflx-dtv/6/
  2. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  3. not what I would consider a fan: http://investorplace.com/2012/05/social-media-screwups-illustrate-why-yahoo-is-doomed/
  4. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS
  5. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  6. NBC Sports: http://investorplace.com/2012/12/nbc-and-yahoo-team-up-in-sports-deal/
  7. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  8. personnel decisions: http://investorplace.com/2012/08/marissa-mayer-sets-her-own-course-for-yahoo/
  9. what the company is and how it will get there: http://investorplace.com/2012/10/yahoo-is-drinking-the-mobile-kool-aid/
  10. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  11. new cost-per-lead tool: http://www.brafton.com/about-brafton
  12. The $7 billion-plus sale: http://investorplace.com/2012/09/yahoo-will-return-3b-to-shareholders-after-alibaba-deal/
  13. browse possible business-driving acquisitions: http://investorplace.com/2012/09/3-targets-for-a-yahoo-shopping-spree/

Source URL: http://investorplace.com/2013/01/5-reasons-why-i-just-bought-yahoo-yhoo-msft-aol-amzn-goog/
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