Yahoo! Inc. (NASDAQ:YHOO) apparently is close to finally getting a deal done for its core internet business. In fact, Susquehanna is out with a research note today saying to load up on YHOO stock in anticipation of the sale — regardless of what this week’s earnings bring.
Gimme a break.
Sure, I know that YHOO stock still trades largely on buyout potential. I know all about previous performance of the stock thanks to its Alibaba Group Holding Ltd (NYSE:BABA), and how it popped in 2014 to deliver huge returns despite the Tumblr thing, CEO Marissa Mayer’s caustic management and all the other shenanigans.
I know about the hilarious report that Twitter Inc (NYSE:TWTR) considered acquiring the legacy Internet brand, and how this is proof all you need is one foolish buyer to swoop in and save shareholders — and frankly, who out there is more foolish than Twitter?
But aside from the amusement from YHOO stock news, with an endless rumor mill that rivals a high school lunchroom, why in the world do investors think this stock is a buy?
Do you really think a sale is a foregone conclusion, at a price that would deliver material gains and not reflect sentiment that is already baked in after a double-digit run this year?
Do you really want to be holding YHOO stock if the deal doesn’t happen?
For the life of me, I don’t get why anyone would touch Yahoo given the alternatives out there right now.
YHOO Has Deal Potential … But So Do Many Other Stocks
The YHOO stock price gyrations are no longer interesting, to be honest. Sure, there was a brief dip in January and a rebound in February — as there was for many names across tech, from large-cap behemoths like Intel Corporation (NASDAQ:INTC) to cult plays like Tesla Motors Inc (NASDAQ:TSLA).
So are you going to run out and buy Intel because you think there may be a security spinoff, or Tesla because you think Big Auto will acquire it?
Do those things seem any less likely than a buyer paying a big premium for a dreadful Yahoo business?
Keep in mind that shares of YHOO stock have largely been stuck is a steadily decaying orbit since the late 2014 IPO of Alibaba and the realization that there’s not much of anything this troubled internet name can do to be relevant ever again.
I’m sure some would contend that doesn’t mean Yahoo is meaningless. YHOO stock investors these days have high hopes for Starboard Value’s leadership and influence on the company’s board, and their ability to streamline the business and maximize shareholder value.
And there are those who say YHOO stock doesn’t ever have to return to significant growth to be a good investment. After all, the rumors of Berkshire Hathaway Inc. (NYSE:BRK.B) taking an interest in the company aren’t borne out of a desire to own a “disruptor” but simply to own a theoretically undervalued business that throws off regular cash to justify the buy-in.
But let’s be honest, neither scenario is incredibly sexy. Whether its Starboard selling Yahoo’s core for parts or investors like Warren Buffett looking for income or even some private equity firm simply milking the fading company for cash as long as it can, none of the future investment scenarios for Yahoo imply anything other than a prayer that the buyer isn’t overpaying for a no-growth company at the time of the transaction.
And who do you think really gets paid in a deal like that … common share owners like you and me, or Buffett and Starboard? Let’s not be naive, friends.
If you want to watch the dumpster fire at YHOO stock, I don’t blame you. The scheduled Yahoo earnings report this week could be plenty of fodder for both sides, with the bulls latching on to “less bad” metrics and the bears wagging their fingers at Mayer’s continued missteps.
Any earnings “surprise” or glimmer of hope in ads rate this week will assuredly be short-lived, and won’t change the long-term narrative.
Even if you’re an investor looking for a buyout target that can provide a nice one-time pop, you have much better options out there than a dog like Yahoo. Just ignore YHOO stock, whatever the earnings report says and whatever the rumor mill throws your way.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the stocks mentioned here.
