Seeking Alpha
Profile| Send Message|
( followers)  
Yahoo (NASDAQ:YHOO) is currently sitting right above its 52 week low, and has had a pretty bad quarter. In the last 6 months, Yahoo stock has dropped over 30%. A lot of speculation has been going around that YHOO could be a takeover target of Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Comcast (NASDAQ:CMCSA), AOL Time-Warner (NYSE:TWX), or AT&T (NYSE:T).

There has been a lot of negative sentiment towards YHOO, and the negative growth does bring some concern. However, Yahoo.com is still the #1 most visited site on the internet, catching about 30% of all web traffic.

Google.com is behind YHOO in position number 3 and has seen significant growth in visits over the last 2 years. MSN (MSFT's site) is also high up there - ranked number 2, surprisingly.



Google and MSN are still behind Yahoo in traffic, but Google has been able to capitalize much better on the click advertising market. MSN has not yet been able to capitalize as well as Yahoo or Google.

Since GOOG went public in 2004, they have increased their quarterly revenue over 350%. During that time period, YHOO has had negative quarterly revenue growth amounting to about (15%).

YHOO has a Market Cap of about $32B with a current P/E Ratio of 17.25.

GOOG has a Market Cap of about $131B with a current P/E Ratio of 62.63. The difference in P/E may be justified when analyzing the last 2 years of income for the two companies, however, GOOG seems to be reaching a peak, and has not yet been able to surpass YHOO in traffic over a long period of time. The 2 year chart looks like this:

MSFT, although its primary revenue source is not the internet, has a market cap of over $278B with a current P/E Ratio of 23.58.

The truth is: People have lost their excitement for Yahoo, and not yet for Google. Because of this, YHOO stock has plummeted in the past 2 years.

YHOO has been sold off recently due to unexciting earnings announcements and commentary from Yahoo itself.

An analysis of the YHOO takeover rumor

Right now would be the perfect time for a big a company to acquire YHOO. It is at a low that it hasn't been near during several years. It still owns almost 30% of all internet traffic (and has held it for years). Such a big percentage of the internet would be an amazing acquisition for almost any tech company.

GOOG recently purchased YouTube for $1.6B in a deal entirely based on stock, which didn't even dent their almost $10B in cash and marketable securities. GOOG needs to do something with its cash to avoid being regulated like a mutual fund, and could be saving up the cash for a significant acquisition like YHOO.

Google already owns about 30% of all internet traffic (plus another 8% if you include YouTube), and so adding another 30% to that could definitely be tempting.

MSFT has cash and marketable securities totaling just over $34B, and could puchase YHOO clean with cash if they wanted to.

Microsoft announced this year the intention to spend over $1B in 2007 to get MSN up to par with Google and Yahoo. An acquisition of YHOO could definitely be tempting to get another 30% of the marketshare.

TWX which owns AOL has recently had several rumors circulate revolving around YHOO. Rumors of a merger with AOL and Yahoo have floated around. At the current price of YHOO, and with the recent run of TWX, it would be a prime opportunity. They currently have $1.4B in cash, but an impressive market cap of $78B. AOL is only ranked 34 on the web (YouTube - acquired by Google recently for $1.6B is ranked 10 (which gets about 8% of the internet's traffic)). While Time Warner might have trouble finding capital for a purchase as big as YHOO, it would still be a tempting acquisition as AOL only gets roughly 2% of the internet's traffic. Increasing their marketshare online by 15 times would certainly be a tempting proposition.


CMCSA and T could definitely be interested in getting a portion of the internet, as it has become such a necessity today. While these two companies may not have the cash necessary, they could use the option of a Leveraged Buyout or find some other method of taking over YHOO.

At the current price, YHOO is a steal for any company that can afford it. We could very well see a bid for YHOO in the next few months. If some courageous firm can find a way to better capitalize on the traffic that Yahoo generates, it would be well worth the $30B that it would cost.

Source: Who Could Acquire Yahoo?