Four Reasons I Covered My Yahoo Short; Not One Was Newfound Enthusiasm

On Wednesday, I covered my Yahoo (YHOO) at $26.90 for a 16% gain. There were a few reasons for the move, but none of them was a newfound enthusiasm for what Yahoo is doing. Essentially, there are a lot of catalysts that could move the stock higher from current levels, and most of the bad news is already known. The risk-reward for Yahoo stock is no longer is attractive from the short side, in my view.

Here are my four reasons for covering:

1) Trading at the Low End of a Trading Range

The stock seems to be in a trading range from the mid 20’s to mid 30’s. Business at the company has hardly been stellar, but the shares seem to have a floor around the current level. It appears things would have to get meaningfully worse from here (which is unlikely) for the shares to make meaningful new lows.

2) Terry Semel’s Potential Ouster

The firing of CEO Terry Semel would certainly give the stock a boost. I don’t have odds or a timetable for his exit, but if things don’t improve quickly, I can’t imagine he will be keeping his job for much longer.

3) The Possibility of a Buyout or Merger

Although talks with Microsoft (MSFT) broke down in the early stages, when that rumor hit Yahoo stock jumped 20% overnight. That was scary for shorts like me, obviously. I was fortunate that I didn’t cover then, when others did (a deal with Microsoft didn’t seem likely, as I wrote at the time), and the stock has come back to pre-rumor levels. However, it’s not really an experience I want to have again. While I don’t think the odds of a deal are above 50/50, liquidity and deal flow are so impressive these days, it’s hard to feel good about being short a stock that could find a dance partner if they wanted to.

4) Panama Will Show Results Eventually

Optimism from management was a little premature, but I have little doubt that Panama will show some positive results at some point. The stock rocketed above $30 the last time this was thought to be imminent, so the same thing could happen if it actually comes to fruition as management suggested months ago.

All in all, the risk-reward in the Yahoo short position below $27 per share isn’t compelling enough for me to justify keeping the trade on. As a result, I have booked my profit and will look for other opportunities.

Disclosure: Author has no position above-mentioned companies at time of writing.

YHOO 1-yr chart:

Comments

[Ralph F:]

Valleywag is reporting that the head of Yahoo Finance was just let go:
valleywag.com/tech/yah...

Letter to the team as follows:

<blockquote>From... Scott Moore
Sent: Wednesday, June 13, 2007 6:56 PM
To: finance-peggy @yahoo-inc.com
Subject: Finance organization announcement

Team, I am writing to update you on some changes in the leadership of Finance. Peggy White will be leaving Yahoo. I want to thank Peggy for her time and contributions here.

I have asked Mark Interrante to step in as acting GM of the Finance team. Mark has done a terrific job leading the engineering team over the past two years. As you know, we've shipped several notable releases including Dynamic Charts, Streaming Quotes, Badges and Personal Finance. Over that time Mark has proven himself a solid senior leader and manager. He has also made a number of strong hires both at the individual contributor and managerial levels and expanded the capabilities of the Finance engineering team. Prior to joining Yahoo Mark had a range of experience including managing large teams and driving product innovation at Spoke Software and HP among others.

I've decided to make Mark the acting GM as a temporary step so that he has a chance to come up to speed on ad sales, business development and editorial. Mark has my full support and I expect he'll do an exceptional job leading the team.

Additionally, Judy Hsieh has accepted a new job in Vince's team. I'll let her tell you about it, but it's a plum assignment. We've hired Shravan Goli to take Judy's role leading the Product Management team of Finance. Shravan is a seasoned product manager who has worked on video and brand universe since coming to Yahoo after 11 years at Microsoft where he led product strategy, product management and planning for MSN.com client, MSN Money (for community features), MSN Mail, MSN Groups, Passport, and MSN IM. I'm excited to have Shravan's talent, expertise and experience stepping into this critical leadership role. Please join me in congratulating Mark and Shravan on their new roles and in welcoming Shravan to Finance!</blockquot...

2007 Jun 15 11:36 AM