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The new CEO of Yahoo (NASDAQ:YHOO), Marissa Mayer, has implemented major changes in the firm's upper management. Mayer has the arduous task of turning around Yahoo's soft revenues and declining public interest. As a new CEO, she is starting this process by making extreme changes at the top.

Recently, she said to install Ken Goldman as Yahoo's chief financial officer by late October. Goldman comes to Yahoo with three decades of experience working with technology oriented companies. Most recently, he had been brought in to make serious financial decisions like he did for the security company Fortinet (NASDAQ:FTNT). His success with making companies more efficient and profitable has made him an ideal choice for Yahoo and its shareholders.

Last month, Mayer brought in Kathy Savitt as chief marketing officer, who was previously an executive at American Eagle Outfitters (NYSE:AEO). What these changes will mean for the company are not clear yet, but a spokeswoman for the company said, "We will have more to share about our approach to building Yahoo's future at our next earning's call, which is in mid-October."

Yahoo Peer Comparison

Several large competitors manage web content and direct traffic on the web. Marissa Mayer previously worked for Google (NASDAQ:GOOG), one of Yahoo's two major competitors. The combined force of Google and Facebook (NASDAQ:FB) has served to put Yahoo on a three year downhill slide.

AOL (NYSE:AOL) is one of Yahoo's competitors from the dial-up modem era. Investors can find value in AOL shares at $35.20 per share. AOL shares are trading at a bargain 3.33 price-to-earnings ratio, less than half the 14.1 average price-to-earnings ratio of the S&P 500 index. The price-to-book multiple of this stock is 1.05, cheaper than the 2.05 S&P 500 average. Investors should consider this number to be a lowball estimate, because the price-to-book ratio fails to account for internally-developed intellectual property, including patents, brands, and trademarks, all of which could have as much economic value as tangible assets. The firm's 1.53 price-to-sales ratio does not detract from the value of AOL since it is in line with today's prevailing market multiples.

These attractive valuations are still low even after the 133.3% jump in AOL share price over the past year. Analysts expect that the firm's earnings growth will accelerate with five-year estimates at 19.8% per year.

These valuations are in stark contrast with newcomer Facebook. This stock trades at roughly $22, a price level which is too expensive to justify. Equity in this company is rich on a price-to-sales basis since shares trade at a 10.72 multiple, substantially higher than the 1.29 the S&P 500 average. Facebook shares are trading at an indefensibly high 120.3 price-to-earnings ratio. Analysts have offered annualized five-year earnings growth estimates at 27.7% per year, though there isn't much of a history to justify such estimates.

Bear in mind that there is no limit to how much market participants will bid up a stock. Worse than Facebook, LinkedIn (NYSE:LNKD) stock trades at roughly $120, a price level which seems impossible to justify. The shareholders of this large cap stock have benefited from a 91.1% jump in price over the past year, a price jump which occurred from already ridiculous valuations. Equity in this company is rich on a price-to-sales basis since shares trade at a 17.6 multiple, more than ten times the 1.29 the S&P 500 average. LinkedIn shares are trading at an indefensibly high 1003 price-to-earnings ratio. Analysts expect that the firm's earnings growth will accelerate, with five-year estimates at 63.3% per year, though there isn't much of a track record to go on for such a new company.

Google is a little younger than Yahoo, and may be thought of as its nemesis. Google stock currently trades at prices near $755 per share, which is pricey in terms of valuation. Investors can buy more revenues per dollar from the S&P 500 since this index has a price-to-sales ratio of 1.29, while this stock has a much higher 5.72 ratio. Google shares currently trade at a high 22.37 price-to-earnings ratio, a higher value than the 14.1 average of the S&P 500 index.

Aside from AOL, Yahoo is a better at $16 per share than these other stocks. Yahoo shareholders effectively missed the recent stock market rally and have seen a 1% decrease in price over the past year. Yahoo shares currently trade at a high 17.95 price-to-earnings ratio, a higher value than the 14.1 average of the S&P 500 index. The price-to-book multiple of this stock is 1.53, cheaper than the 2.05 S&P 500 average. Yahoo is also a sum of parts play with non-core assets which can be spun-off or sold to other firms. Investors should consider this value to be especially cheap because it misses internally-developed intellectual property including patents, brands, and trademarks. These are fairly cheap valuation metrics for a firm which has the potential to turn around its operations.

Conclusion

There is a lot riding on Marissa Mayer. It looks like she is whole-heartedly trying to change Yahoo by making big changes at the top. Since today's price multiples are reasonable, this might be a good time for investors to buy into this story. Investors seeking value among Yahoo peers should also consider AOL, but should avoid Facebook and LinkedIn. Google is somewhat more attractively priced than either Facebook or LinkedIn, but it is by no means trading at attractive price multiples.

Source: Yahoo: Buy While Price Multiples Are Attractive