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Wednesday May 14, 2008
Yahoo! (YHOO): Still in play?
In their top-notch, Invest with an Edge, they note, "The proposed Microsoft deal may be over, but don’t expect it to be the last." Here, he speculates on what may lay ahead for the company. "In February, Microsoft made an unsolicited offer to buy Yahoo for $44.6 billion in cash and stock. The market expected the deal to go through and the stock shot up 47.9%. What was a beat-down tech company suddenly sprang to life again. "Evidently, MSFT’s offer gave renewed hope to Yahoo management. They soon decided $31/share was not a good price. Yahoo wanted closer to $37. In order to make their company more desirable, or perhaps to make Microsoft jealous, they did the unthinkable. 
"Yahoo ran to the arms of Google. Yahoo’s ad revenue has been languishing for several years. A distant 2nd to Google in terms of search, Yahoo has consistently lost market share. Even more important is the fact that Yahoo has not been able to match Google’s results from their cash cow – paid search. "Since Google mastered the black arts of contextual advertising, and Yahoo couldn’t compete with Google in the space, they adopted a can’t beat ’em, join ’em mantra. "This move should infuse Yahoo with increased cash flow. Though it’s an uncomfortable admission of search defeat, it bought valuable time for the company. Pending government action and angry shareholders aside, Yahoo’s independence was preserved. "Next, Microsoft withdrew their offer. Still, with these problems, why entertain a YHOO pick? Though most pundits will imply that Yahoo CEO Jerry Yang is delusional, expecting way more than his company is worth, we should remember some things. "Yahoo is still the #1 internet portal in the world. In an age where consumer attention is scarce and traditional media outlets are struggling, Yahoo has captured the interest of web users and is the most popular site on the planet. "Its history should not be discounted either. Yahoo survived a perilous dot-com crash. Eight years later they’re still around. Yang is a veteran. He’s getting advice from the smartest minds in technology. It’s not over yet, and the market won't give up either. "The stock isn’t moving away from $25 – in January the stock traded at $19. This is a good sign and we believe Yahoo is in a unique position. Though Bill Gates confirmed Microsoft’s rescinded offer this morning, Gates is not the only buyer out there. Hedge funds and activist shareholders are now on the hunt. "MSFT was recently willing to pay a bolstered bid of $33 per share. Now, the market thinks it’s worth $25. The only thing keeping it below $30 is the absence of other visible offers on the table. Deep pocket investors are busy discussing Yahoo buyout prospects. You should consider jumping into the conversation. "Yahoo is a buy at $25 and change. Microsoft did you a favor by showing you what it’s worth. Their deal may be over, but don’t expect it to be the last. It will be a ride suitable only for aggressive investors, but it should turn out well. If it happens, take the bounce and call it a trade." |
News Flash
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"Every once in a while, an opportunity comes along that makes us take a second look -- and one such opportunity is