We view the release memo as a significant point in Yahoo!’s existence and believe the street will agree. This should be seen as a wake up call for the entire company, Yahoo!’s strong assets need to be leveraged properly and efficiently if they are to generate the financial returns that they should. A restructuring such as the one proposed in “The Peanut Butter Manifesto” would actually increase productivity while cutting costs, by enhancing interoperability within key business areas and the corporation as a whole while reducing salary expenses.
Cost cutting measures alone will lead to improved financial results. If the proposed measures occur, there exists an upside potential of at least $0.04 to our previous FY 2007 estimate of $0.72, based on headcount reductions alone. Also, a more focused approach should yield a much improved reinvestment rate, allocating more of their resources to a few core business initiatives rather than a myriad of ventures. Combined, Yahoo! would be greatly positioned to post some impressive results in 2007. We reiterate our Strong Buy rating on shares of Yahoo!.
Disclosure: The Marley Group has a long position in Yahoo!
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