Chart courtesy of Yahoo Finance.
Yahoo came into my investment radar when I was doing research on Google for a (Seeking Alpha) article. Yahoo's stock price at the time was around the $15.90 range. Not a bad run up since then. The December $18 calls were attractive at .02 cents. As an investor and not a gambler I look for catalyst that are strong enough to move a stock one way or another. Let's do some due diligence on Yahoo. We need to figure out what catalysts are causing Yahoo to rise so consistently and more importantly, if these catalysts will continue to keep Yahoo's stock rising.
I always start at (Google finance news) to get a comprehensive global list of articles on a particular stock I'm focused on. This (yahoo article) has the kind of information I look for when researching a particular
stock as an investment. Yahoo CEO Mayer sold half of Yahoo's stake in Alibaba for $4.3 billion and is using $3.6 billion of those proceeds to buy back Yahoo shares. Yahoo has only bought back about $900 million of Yahoo shares with the Alibaba sale. Then this (article) states that York Capital added 11.4 million Yahoo shares in the last quarter. Also on a Yahoo buying binge were (Greenlight Capital) which bought 5.1 million Yahoo shares and (Tiger Global Management LLC) which bought 25 million Yahoo shares. Not to be outdone (Third Point) added another 3.5% bringing its Yahoo stake to 73 million shares. I now understand why Yahoo share price has been steadily rising since September. Yahoo still has about $2.5 Billion of Alibaba sale to continue buyback. Alibaba sale will add to Yahoo's recent rise for the near term. As an investor I need to see if Yahoo's senior management is growing future revenues, because share buy backs can only increase investor value in the short term. Institutional buys will only materialize as fund managers see that Yahoo's senior management is creating future revenue streams.
Let's look at Yahoo's recent quarter to see its current financial health. I go to (Yahoo Finance) to better understand Yahoo's current financial health. Yahoo's total debt is about $38.2 million, Yahoo's total cash is about $8.4 billion, but Yahoo's year over year quarterly revenue growth was -1.20 %. Yahoo's financials are solid, with low debt, lots of cash, but is senior management focused on growing future revenues? Future revenues streams will drive Yahoo's stock price even higher.
Let's start researching Yahoo's senior management plans for future revenue streams. Here is an (article) discussing Yahoo inking an extension to its 6 year relationship with Yellow Pages Group in Canada. Next Yahoo inks partnership deal with [Samsung (SSNLF.PK)] to integrate Yahoo's broadcast technology into Samsung's 2012 smart TV's. Yahoo also bought (Stamped) a small mobile startup that let's consumers share their favorite restaurants and music on their smart phones. Nothing earth shaking, but these senior management moves show that Yahoo is focused on future revenue growth.
Any litigation, especially government litigation, which can hinder Yahoo's future revenues. Well, Yahoo just lost a $2.7 billion lawsuit in (Mexico). Although Mexico is not known for being litigious, this is quite a large sum even for the U.S. legal machine. This legal setback could have long term revenue impacts if judgment holds in appeals. Need to keep an eye on this lawsuit, because it could derail the current rise in Yahoo's stock price.
Lastly let's see how Yahoo is doing on the global search engine front in both desktop and mobile arenas for November.
First is global desktop search engine market share.
Chart courtesy of Netmarketshare.com
Then let's see how Yahoo is doing on the mobile search front in November.
Chart courtesy of Netmarketshare.com
Slight pullbacks in both desktop and mobile search engine numbers for November. Nothing to worry about, but management needs a solid plan to add market share in this critical revenue area.
From this point on any rise in Yahoo's stock price without new large revenue streams is an Artificial rise, caused by Yahoo share buy backs. I see no real revenue catalyst for the coming quarter. Yahoo's share price should stay in and around low to mid $18. If Yahoo dips into $17 range Yahoo becomes an attractive buy, if Yahoo hits $24 without new revenues streams it is a sell. Yahoo is an attractive play based on a future turnaround by CEO Mayer and her new senior management.
Disclosure: I am long YHOO.