It seems that everybody has been googling either on the Internet or in the stock market. But maybe it's time to Yahoo! (Nasdaq: YHOO). Famed money manager Bill Miller of Legg Mason certainly has Yahooed. His fund holds 19.2 million shares. Mr. Miller is well known for beating the S&P index for the last 15 years.
Most investors like to buy the number one company in a category. I used to agree with this philosophy until I read Yahoo! senior vice president Brad Garlinghouse’s so called peanut butter manifesto. In the memo, Mr. Garlinghouse compared Yahoo! to peanut butter. He claimed that Yahoo! is spread too thinly and called for a radical restructuring and job cuts. Garlinghouse wrote, “I hate peanut butter. We all should.”
When a highly regarded senior executive agitates for change within a company, I have hope that Yahoo! is going to turn itself around.
Yahoo! stock is now $26.91. Before the dotcom crash, Yahoo! traded north of $100. After announcing disappointing earnings for the quarter, the stock is down 31% for the year. It has bounced off its low of $23.
Google is certainly leading in the revenue race. Google posted $2.7 billion revenue for the third quarter vs $1.6 billion for Yahoo!. Google’s market capitalization, $152.7, billion, is five times as much as Yahoo!’s $36.6 billion dollars. Investors are paying a steep 63.3 trailing price earnings ratio for Google while Yahoo! is selling at 34.1.
Yahoo!’s stock has gotten so cheap that value investors are looking at it. There is even talk of a takeover by private equity types. The traffic to the Yahoo! sites attracts the takeover attention. Yahoo! can still claim that one out of every two people on the internet use their sites every month. The problem seems to be that the company presently is not monetizing their traffic as well as Google. I do not want to be misleading. Monetizing traffic is not easy.
Nevertheless, Yahoo! deserves a second look.
Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv.
Published by Globes [online], Israel business news - www.globes.co.il - on November 20, 2006
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