Yahoo Stock: Value Play or Value Trap? (YHOO)

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Three years ago, Marissa Mayer departed Google (GOOG, GOOGL) to take the helm at Yahoo (YHOO).

yhoo alibabaMaybe she should have stayed. YHOO stock has remained under pressure as growth has been elusive. But then again, Mayer has had to do lots of cleanup with the organization. She also has re-focused the company on stronger product development — with a big emphasis on mobile and video.

To put in another way, the 22% year-to-date decline in YHOO stock, while painful, could be a nice opportunity for value investors.

The key word there is “could,” though. Let’s dig into the details to find out whether YHOO stock is a value play or just another value trap.

YHOO Stock Trips After Earnings

Yahoo recently released its second-quarter earnings report: After adjusting for traffic costs, revenues were essentially flat, coming to $1.04 billion, and adjusted earnings were 16 cents per share. Revenues squeaked by Street estimates of $1.03 billion, but profits came up short of expectations for 19 cents per share.

Yahoo also offered lukewarm guidance. For Q3, the company forecasts revenues of $1 billion to $1.04 billion, compared to the analysts’ consensus of $1.07 billion. The stock was down roughly 1% by mid-day trading on Wednesday.

Let’s face it, YHOO faces tremendous competition for advertising dollars. The company has to fight juggernauts like Google and Facebook (FB) as well as rapidly-growing startups like Snapchat.

Yet Mayer has a storied career of building great products. And this talent is starting to show signs of success at YHOO.

Consider that revenue for the “Mavens” businesses — which include mobile, video, native advertising and social media — soared by 60% in the quarter to $400 million. It certainly helps that Mayer has been investing in core assets like Yahoo Mail, mobile search, Flurry (a provider of mobile analytics), BrightRoll (a video ad network) and Tumblr (a microblogging service).

Yahoo’s Ace(s) in the Hole

But there is one initiative that could really turn out to be a breakout driver for YHOO stock: the company’s launch of Daily Fantasy, which is an app for legal online sports gambling. No doubt, fantasy sports is a massive market in the U.S., with about 56.8 million playing fantasy sports (according to the Fantasy Sports Trade Association), each of whom spends about $465 per year.

Yahoo’s fantasy sports offering has already garnered more than 1.3 million users in the first two weeks.

In the meantime, the company has some other potential catalysts. Of course, YHOO plans the spinoff of its 15% holding in Alibaba (BABA), valued at roughly $31 billion. The spinoff is expected to be completed in Q4.

And it’s a good bet that YHOO will try to monetize its $9 billion Yahoo Japan Corp. asset as well.

So, adding the value of these two assets to the $5.7 billion in the bank, YHOO has liquid assets of roughly $46.7 billion. However, the company’s market cap is only $37 billion!

Yahoo’s core business should be worth something. Again, Mayer has been getting traction with Mavens, and YHOO stock could see a nice lift from the Daily Fantasy offering. And besides, YHOO does have a user base of more than 1 billion, which includes some 600 million mobile users.

So all in all, YHOO stock does seem like a greatly overlooked value play right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/yahoo-yhoo-stock-value-play-value-trap/.

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