Yahoo (YHOO) is one of the most polarizing stocks out there, with some being strong believers and others being very down on the stock. The stock has not moved that much in recent months, although it had continued its gradual decline which is incredible when you consider the fact that its Asian assets are worth almost as much as the entire company. I was very much a Yahoo hater. Not the actual company itself but rather the management, the stock, etc. So time after time, I did go short Yahoo, mostly with great success. I did always caution that the possible firing of CEO Carol Bartz was certainly a big risk to my short positions and that is exactly what happened last week as I closed a trade when Bartz being fired led to a rally in YHOO.
Now that it is done, I think it’s fair to take a fresh look at Yahoo to determine if the stock might now be a good investment.
With Carol Bartz gone, Yahoo has the opportunity to hire incredible talent. Finding the right candidate will certainly be a challenge, as those usually try to stay away from “declining” companies such as Yahoo. What would I consider a good find? Someone who can determine clear priorities, improve and revamp Yahoo’s existing leading products, and treat employees and competitors with respect. One place to look could be those executives that left Yahoo because of Bartz.
Little to lose: So little value is given to Yahoo’s core assets that the company does, as it has in the past few years, have almost no direction to go but up. Of course, it could continue to struggle.
The Brand: The Purple company has an incredible brand and any decent product will get attention both from visitors and advertisers.
Opportunity to redefine itself: Both Google (NASDAQ:GOOG) and Facebook are moving in fairly clear directions, while it’s unclear what Yahoo’s priorities are. A management change will provide a much needed opportunity to change that. Yahoo should be a major player in the mobile space, for example, and it is certainly not too late.
One major concern is the actual Yahoo board. How in the world did it take so long to get rid of Bartz and how could a board with such a bad history be expected to bring in a star to lead Yahoo? I see it as a major problem and there is unfortunately almost no chance that the board will be replaced.
Hearing rumors of Yahoo thinking about merging with AOL is very worrying. Honestly, Yahoo has more than enough problems of its own, making the company bigger will not help. Sure, AOL might be looking more promising than Yahoo these days but that is not enough.
Jerry Yang: Yes, I know, the founder had the original vision for Yahoo and did great things. But bringing him back has been tried and failed, there is no sense in trying it again. Every founder is NOT Steve Jobs.
Yahoo looking at all options: Hearing that Yahoo is looking at options with various bankers in order to sell itself, parts of the company, merging, acquisitions, etc., is all very distracting. Yahoo should have accepted Microsoft’s (MSFT) offer a few years ago but it didn’t. Move on, they should stop trying to solve everything through M&A activity. Products are what it’s all about and Yahoo has plenty of those, that should be the focus.
While I’m not on the Yahoo bandwagon just yet, I will certainly be looking very carefully at who they are able to bring in. An exceptional talent could provide Yahoo shareholders with a very attractive opportunity and little downside. However, bringing in a “good” leader will be the sign for me that Yahoo remains a good short. Fact is that Yahoo has so much negative momentum that unless a strong turnaround sign happens, I will continue to short Yahoo.
Disclosure: No current position on Yahoo.