We feel significant opportunity is currently present in Yahoo (NASDAQ:YHOO), especially after the recent selloff following their 4th Quarter conference call.
It is our belief that Yahoo! is currently the best place to invest in the internet sector. While Google may feature more robust growth, that will start to slow. Google is also almost completely reliant upon their advertising services Adsense and Adwords, which are responsible for 99% of their revenue. Yahoo! is much more diversified, with its hands in almost all facets of the internet. By contrast, their version of Adsense, Yahoo! Publishers Network, only accounts for approximately 30% of revenues. This is important to note given the potential effects of click fraud on Pay-Per-Click advertising.
As mentioned, Yahoo! is broadly diversified. They are the leading web portal, most popular provider of email, second most popular search engine, and have a strong footing in the concept simply referred to as Web 2.0 with the purchases of Flickr and del.icio.us. They are by far the most trafficked website, both in terms of unique visitors and total page loads. Most Yahoo! visitors do not only visit one page, but rather they sift through the almost endless content available on the Yahoo! Network. This is extremely important, the more pages each visitor loads, the more ads they are subjected to, the more Yahoo! earns in ad revenue. As companies continue to spend more and more on online marketing, Yahoo! only becomes more and more attractive, given their position as the world's dominant web presence.
The strong footing Yahoo! has in the social media revolution, or Web 2.0, is something that we feel many investors are overlooking. The number of published blogs on the web has grown exponentially the past few years, with more and more starting every day. The number of web sites being tagged, or the sharing of bookmarks, has also been growing rapidly. We feel that this shift is media from static content, towards dynamic content, is a trend is sustainable. From a personal standpoint, I love the sense of community and open forum for intelligent interaction that is experienced through this revolution. Yahoo! has done a great job of jumping on the bandwagon early, and I believe they have solidified themselves as the major player in this category. Through the strategic purchases of Flickr and del.icio.us, they have acquired arguably two of the leading sites in this field. They have also launched My Yahoo! and Yahoo! 360, both possessing a great amount of potential.
The most common argument against Yahoo! states that they are losing ground in the search industry. We will not argue this fact, because statistics have shown this, but will state they are a solid number two in the field. Obviously, it would be nice if they regained some market share, but this is not necessary. Going back to their diversification, they have so many more avenues for generating advertising revenue, that they can afford to be the runner up in search. If they can capitalize on their Web 2.0 initiatives, their search revenue will be trivial.
So lets sum up our profile by stating our top 10 reasons we feel Yahoo! is so attractive...
1. Position as the dominant web portal.
2. Leading Web 2.0 presence.
3. High user retention rate, users view more than one page when they visit.
4. Ongoing shift of advertising revenue to the internet.
5. Buying opportunity present following recent drop.
6. Leading provider of email services
7. Diversificaton makes them the safest internet play.
8. Robust top line growth.
9. Cheaper than Google.
10. Safer than Google.
When combining all ten of these points, we view Yahoo! as the best play in the internet sector, a sector that we definitely think is deserving of an investment. We feel they are available at a discount following the recent sell off, and are definitely worth consideration at these levels. We see shares trading as high as $50.00 within the year, and $125.00 within the next 3-5 years. Do your own research and come back to us with your findings.
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