The news is buzzing with headlines about new Yahoo! Inc. (YHOO) CEO Marissa Mayer. Mayer's arrival from competitor Google Inc. (GOOG), along with several other factors, might make Yahoo worth a look from speculative investors.
1) Marissa Mayer
I won't go into detail about Mayer, as I am not really sure what I could say that the media hasn't already said. Nonetheless, she has an impressive track record, including the development of Gmail. Her history with product development provides some clues about her plans for Yahoo.
2) Yahoo Isn't Dead
Yahoo lost the search engine war a long time ago. However, that doesn't mean it is dead. Yahoo has 700M unique monthly users globally, and reaches 75% of U.S. Internet users. This enormous userbase rivals the sheer size of the Facebook Inc. (FB) userbase, which stands at 900M monthly users globally.
This userbase has interested other companies (Microsoft wanted to acquire Yahoo at one point) and could be leveraged to great effect if Mayer can just figure out how. Yahoo's TTM net income currently stands at $1.1B, suggesting that Yahoo generates roughly 10 cents of income per year for each user—that's not a lot. If Mayer can significantly improve revenue or margins, Yahoo could be a completely different story.
3) Assets Clouding Valuation
Yahoo has a lot of assets, including $2.4B in cash and a significant stake in Chinese e-commerce group Alibaba. For this reason, analyst Collin Gills says investors should view Yahoo as "a $4.7 billion company with $14.5 billion worth of cash and assets." The Alibaba deal should close this fall and will result in significant cash being returned to shareholders. While Yahoo's P/E isn't particularly cheap at 17.7, a market cap of $5B ex-cash-and-Alibaba would have it priced at less than 5x earnings, which looks pretty cheap.
In my opinion, Yahoo! is down but not out. It still has a very significant userbase, and while it's a bit late for the company to compete with Google in search, it may have a solid future in content and media.
I personally will not be picking up shares in Yahoo in the near future, as my portfolio already has significant tech allocations to the likes of Intel (INTC), Seagate (STX), Microsoft (MSFT), and Dell (DELL). I am happy with these holdings and feel comfortable with the return potential and "safety" of my current allocations.
Nonetheless, going forward, Yahoo is on my "watch list." If Mayer shows significant progress in leveraging the wide userbase, I might look into purchasing Yahoo after the Alibaba deal closes. I think six months from now is enough time for the market to adjust valuations based on the closing of the Alibaba deal, as well as enough time for Mayer to get a start on transforming Yahoo!.