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brian bolan pic** NOTE: Receive today's Yahoo conference call transcript by email for free by signing up here.

Brian Bolan, research analyst at Jackson Securities, initiated coverage on Yahoo! this past Friday with a 'buy' rating. Here are some highlights from his research note to clients:

Yahoo's fee-paying revenue model:

Yahoo! has also focused on the individual user and has provided fee services that attract and keep users. One the of the biggest successes in this arena has been the Yahoo! Fantasy Football league. Fantasy Football has exploded in popularity over the last few years and we expect this trend to continue. We note that Fantasy Football is a major driver in the third quarter of the year and is a major portion of the number of paying customers in that quarter.

Other areas where users pay for services can found throughout the entire Yahoo! network. In the most recent quarter, Yahoo! had 13.3M fee paying customers, up more than 49% from the same period one year ago. We believe that this is a key metric and is one we will follow closely.

Search and mobile devices:

Its quite obvious that the whole market is engaged in redesigning its search products for a mobile market. Hundreds of millions of dollars worth of R&D budgets are being spent on generating the best mobile search for your PDA or 3G phone. One of the best examples of this is the relationships that Research In Motion (RIMM) has with many of the search and Internet companies. Yahoo! was among the first to recognize the power of the developing mobile platform. The company synchronized its Yahoo Mail and popular Instant Message application to work in a seamless fashion with the BlackBerry platform in an attempt to further solidify its foothold in the mobile market. Similar deals were made with Motorola and Nokia, two of the largest mobile device makers.

Making your product more than just mobile ready, but mobile easy will be a key component of future success. We have seen that Yahoo! is intent on doing this and believe that they will continue to be a leader in the mobile search and application platform. One example of this leadership is evidenced by the launch of Yahoo! Go platform at CES in January of this year. The Go platform gets Yahoo! email, calendar, IM and other tools and applications onto mobile devices at the hardware stage. The platform is also a springboard for relationships with the carriers and to date, Yahoo! has agreements with over 50 carriers world wide. We expect Yahoo! to continue to be a leader in the mobile device category.

Valuation

Bolan Yahoo

We believe the best way the measure the value of shares of Yahoo! is to look at earnings. Earnings are the main factor one should consider when evaluating any stock. The stocks with the higher growth in earnings deserve the higher multiple.

We can see from the above table that Yahoo! has a high forward multiple within this particular set of peers. We note that a direct match for Yahoo! is not really available as they participate in several different businesses. This peer group is focused on the search aspect of the business, but it should be noted that Yahoo! is also very strong in media and media delivery.

In a direct comparison to Google (GOOG), we note that Yahoo! carries a higher forward multiple but lower trailing multiple. A measure of cash flow, Google has nearly twice the amount of EBITDA as Yahoo, but also carries a much higher risk as evidenced in the higher price to sales. An even more conservative measure, the book value, shows that Google is trading at an aggressive 12x its hard asset value while Yahoo! is trading at less than half of that at 5.6x.

YHOO 1-yr chart:

YHOO 1-yr

Source: Yahoo Has Lots of Room to Grow (YHOO)