What The Future Holds For Yahoo

| About: Yahoo! Inc. (YHOO)

Being a web portal company has been a tough proposition in recent years. Yahoo (NASDAQ:YHOO) has certainly had its share of troubles, but the company's prospects have taken a decided turn for the better in large part due to the leadership of CEO Marissa Mayer, who left Google (NASDAQ:GOOG) to take the helm of the ailing company in July 2012.

Stability in Leadership - What a Concept!

Under her leadership, the company's stock has risen steadily from $15.64 when she took over to its current price in excess of $26 per share, an increase that has many wondering how far her turnaround efforts might go to reinvigorate the sleeping giant. Investors would be wise to not underestimate the positive impact that could come if Mayer turns out to have staying power as the CEO. This is especially the case for a company that has seen five CEOs come and go in the space of six years - a record in the world of sizable tech companies. Mayer's years as Google's first female engineer that helped launch such apps as Gmail and Google Maps should come in handy as she continues to look at what needs to change at Yahoo for the company to make headway on the many considerable challenges it faces.

Making Hay with Mobile Search

One key to potential success is a renewed effort on the mobile search front. Google still dominates this sector, with Microsoft's (NASDAQ:MSFT) Bing search engine continuing to make progress. The plain fact of the matter is that consumers need search to be both robust and available on their mobile devices of choice, which turns out to be a surprisingly tall order given the small screen size and limited capabilities of many devices. Now consumers expect search results to tie into other functions. No longer are they satisfied with just seeing the search engine results for movie show times, they want to be able to seamlessly see reviews and watch trailers as well as buy tickets in the moment.

Bing offers easy-to-use options to focus a search on video, image, map or shopping deal results, and is on the forefront of voice recognition in search functionality. Google, on the other hand, utilizes its rich search history functionality to get consumers the results they're looking for with as few keystrokes as possible, a critical component in the world of mobile search. Of course Google's search also interfaces smoothly with its other critical apps like Docs, Blogger and Google Earth. Faced with these innovative approaches, Yahoo has long seemed woefully inadequate by comparison.

A Few Things Yahoo Should Fix

Mayer has some big hurdles to overcome to keep the turnaround momentum going, especially in its search functions. The trending topics feature on the home page is utterly useless compared to its competitors, as is the fact that users must go through a competitor's mapping app to get directions. Those are no-brainers that Mayer should fix immediately, if not sooner. Then there's the matter of aesthetics. Bing has nailed this one, and Google does fine on that account as well. Mayer needs to make progress on both the functionality and aesthetic aspects of mobile search if it hopes to regain even a shadow of its former glory.

Streamlining and Moving Forward

Mayer is making moves to axe programs and products that simply aren't performing well, and would do well to pour all of those repurposed resources into the areas where it can make significant headway, such as mobile search. Although many are grumbling about her recent stance against telecommuting, it's a very smart move that comes directly from her experiences at Google - there's nothing like actually being physically together to spark innovative thinking and ideas. Instant messaging is a poor substitute for the dynamic interactions that occur when people communicate face-to-face. Mayer also has been walking an interesting fine line with her former employer, filling many important Yahoo positions from her contacts at Google, but at the same time being open to partnering with the giant on some ventures, although so far nothing concrete has emerged.

The Bottom Line

Many people and analysts have considered Yahoo to be a dead company for years, but even throughout its times of trouble, it has remained one of the most popular websites in the entire world, attracting more than 160 million unique US visitors and 500 million global unique visitors every month in more than 30 different languages. That is a very solid base from which to build a renewal effort. Indeed, it is not that Mayer inherited a failing company. It is more like a stalled-out company. Yahoo generates billions in cash and profits each year. The problem is that its growth has stagnated while its image has been eclipsed by rivals. As she continues to make major progress at turning her company around, this would be the right time to add some shares to your portfolio, protected with some shares of both Google and Microsoft to boot.

Disclosure: I am long YHOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.