Yahoo! – Time to Buy?

by JDH on December 1, 2012

This website, buy-high-sell-higher.com, was started by me back in 2006 as a way for me to record my thoughts on investing, so that later I could re-read my thoughts and learn from my mistakes. The fact that many of you read these ramblings each week, and post your comments on the Buy High Sell Higher Forum, is an added bonus. As I look back on the last three weeks I see that my ramblings have not had much to do with investment. Instead, I’ve written a series of rants:

They were perfectly good rants, but I suppose I should make some comments on the market, and today I will, by discussing a well known stock that I have never mentioned before.

(For those who would instead like to read a really good rant, MetalMeister has a good one on personal responsibility on the Forum that is worth the read). Now, to the stocks.

Yahoo

Yup, YHOO – Yahoo! Inc., the only listed stock with an exclamation mark in it’s name.

As the long term historical chart shows (taken from the Yahoo website), Yahoo was a darling of the dotcom bubble, briefly trading over $100 per share at the end of 1999.

Then came the year 2000, the tech crash, and by September 2001 Yahoo was trading at around $4.40, for a massive 96% drop from the peak. A gradual recovery followed with a peak up to $40 in late 2005, but by the 2008 crash it was once again a $12 stock.

Since the 2008 bottom the stock has gradually increased, albeit with a bumpy ride, bouncing above and below the $15 mark for the last 5 years.

So why are we talking about Yahoo for the first time in the history of this website?

Two reasons: technical, and fundamental.

It would appear that technically Yahoo has broken out. On May 9, 2011 Yahoo hit a peak of $18.55, never to be achieved again, until this week, when on Monday, Tuesday and Thursday of this week Yahoo traded, intra day, above $19. Trading above $19 doesn’t make Yahoo a guaranteed winner, but if you want to follow the “Buy high sell higher” philosophy which says to buy stocks as they make a new high for the first time, now would be the time.

There are some positive signs fundamentally as well.

I won’t bore you with the management mis-steps over the last few years. I will fast forward instead to July 16, 2012 when former Google programmer and executive Marissa Mayer was named CEO and President. She’s the youngest CEO of a Fortune 500 company (she’s 37 years old), and she has both a technical and a management background. The big question, of course, is can she turn Yahoo around.

Yahoo is very strong in the data business. In fact, for the last 15 years my home page on my browser is my list of stocks on Yahoo Finance. If you want stock quotes, or stock charts, Yahoo is a great source (as proven by all of the charts I’ve used in this post). If you want news and weather, Yahoo is also good. They’ve also got e-mail, although on that front they trail behind Google’s Gmail.

Ms. Mayer’s strategy is conceptually quite simple: leverage Yahoo’s strengths in data on put it on mobile devices.

For me, Yahoo is the go-to place on my desktop computer for stock quotes. Ms. Mayer wants to make Yahoo the go-to place for information on my iPhone, Android or Windows device.

That strategy makes sense to me, since the world is mobile. Everyone has a smart phone, so the more data you can put in the palm of our hands, the better.

However, the key question will be whether or not Yahoo can monetize that mobile data. I get my stock quotes from Yahoo for free. I pay nothing. Yahoo displays ads on the quotes page, but they are “below the fold” so I never notice them, and I never click on them. That’s not a great business model.

Ads are even more problematic on a smartphone, because the screen is so much smaller. There’s even less real estate to display ads, so it may be very difficult to monetize their data on mobile devices.

Perhaps they will move to a user pay model, but it’s difficult to get people to pay for data they have always received for free, and that they can obtain for free from other sources.

So, in summary, I like what Yahoo is doing, but they still have a long road ahead. I don’t plan to purchase any shares today, but I will keep my eyes open over the next few weeks and months. A stink bid in the $16 range may make sense.

All thoughts welcome; more ramblings next week……

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