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Yahoo (YHOO)This is an EDITABLE stock research wiki. You can contribute by clicking on the EDIT PAGE link above or on the page icons that appear when you roll over one of the category subtitles below. From 1Table of contents
Company Information:Company Address: 701 First Avenue Sunnyvale, CA 94089 Company’s Web Address: http://www.yahoo.com Industry Sector: Fiscal Year: Dividend: Note: this section is not editable.
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Company Overview:Yahoo is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. It is focused on powering its community of users, advertisers and publishers by creating indispensable experiences built on trust. To its users, it provides their owned and operated online properties and services (“Yahoo! Properties” or “Owned and Operated sites”), as well as access to third-party content and services. To their advertisers and publishers, they provide a range of marketing solutions and tools that enable businesses to reach users who visit Yahoo! Properties and to reach the users of their distribution network of third-party entities (referred to as “affiliates”) who have integrated its advertising offerings into their websites (referred to as “Affiliate sites”) or their other offerings.
They offer a broad range of innovative and high-quality Internet products and services that are designed to provide their users with the power to connect, communicate, create, access, and share information online. Yahoo seeks to provide efficient and effective marketing services for advertisers to reach their global audience of users. Their focus is on engaging more deeply with users and increasing the user base on Yahoo! Properties, thereby enhancing value for their advertisers. Yahoo believes that they can increase their existing and potential user base and their users’ engagement on Yahoo! Properties not only by offering compelling Internet services, but also by effectively integrating search, community, personalization and content to create a more powerful user experience.
Many of Yahoo's services are free to users. It generates revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and on the websites of its affiliates and by charging their users for premium services. Yahoo classifies these revenues as either marketing services or fees. The majority of their offerings are available globally in more than 20 languages.They manages and measure their business geographically. Their principal geographies are the United States and International. Strategy:Yahoo readily admits that they have dropped the ball with respect to generating advertising revenue. While Google had a clean, quick, automated process for buying keywords Yahoo subjected all keyword buys to human review. The process was slow and it was common for your keyword requests to be rejected. Even if you succeeded in getting your keywords you would find that you just didn't get that many impressions compared to Google - even after adjusting for the difference in search traffic. Yahoo's response to this shortcoming was the Panama project which was supposed to better match ads to the underlying searches in order to increase the value of those ads [need discussion of Panama here]. Yahoo was also criticized in October 2006 in an internal memo, known as "The Peanut Butter Manifesto", by Brad Garlinghouse, a Yahoo senior vice president, who called for an overhaul of the company, saying that they had spread their resources too thinly, like peanut butter on a slice of bread. In an October 16, 2007 conference call Jerry Yang outlined 3 strategic objectives:
Competitors:Most notably, Google. Also, Windows Live Search (Microsoft) and Ask.com. The table below shows the trends in market share over the last year using data obtained from Hitwise:
While Google has achieved a considerable increase in share over the last year, and some of this has come at Yahoo's expense, the majority of this has come at the expense of the smaller players. Google and Microsoft are clearly placing more emphasis on display ads, which are Yahoo's strong suit, with Google buying DoubleClick in April for $3.1B and Microsoft buying aQuantive for $6B. According to Online Media Daily a study conducted by Searchignite and RBC Capital Markets indicated that in Q3 '07 Yahoo's percentage of incremental media spend increased by 7.8% [15]. Industry Trends and News:It's only a matter of time before the big media buyers wake up to the fact that the Internet provides better bang for the advertising buck than traditional media. According to a November 13, 2007 story in Online Media Daily "big name brand marketers are fed up with traditional media channels and are threatening to shift the lion's share of their budgets online...[because of] a general climate of discontent due to increasing viewer fragmentation, disruptive technologies, and the resulting decrease in ROI. [Clients] are just waiting to increase their online spend to 50% or 60% [of their total budgets]. According to eMarketer projections, Web advertising as a share of total ad spend will reach 7.4% this year, more than 10% by 2009, and at least 13.3% by the end of 2011." [16] Acquisitions, Divestitures, Major Transactions, Spin-offs :Yahoo has acquired Right Media ad exchange and the Blue Lithium ad network in an effort to create a "one stop shop" for advertisers. They have also acquired social news service BuzzTracker in an effort to make their user experience more relevant and current. [17] According to a June 25, 2007 Barron's article there are rumors that Yahoo might be bought by Microsoft or News Corp. "Microsoft and Yahoo! have held informal discussions in the past and News Corp. has been said to be contemplating a swap of its MySpace social networking unit for a 25% stake in Yahoo!" [20] The article goes on to say that Yahoo! Japan is worth $7 B and quotes Larry Haverty of Gabelli Global Multimedia as suggesting that a sale of the entire company could get a price in the upper 30s per share. Management – Pros & Cons, Changes:On June 18. 2007 Yahoo announced that Terry Semel resigned as CEO and was being replaced by Yahoo co-founder Jerry Yang. With Terry remaining Chairman and Jerry having been a director of the company during Terry's tenure, and having followed all of Terry's decisions, the obvious question is whether or not anything has really changed. According to a July 2, 2007 BusinessWeek story the employees are looking for a leader with a tech background who can dismantle the management layers put in place by Semel. It is hoped that this change will reduce employee turnover. [30] Financial Analysis:EPS trend is unimpressive Cash flow trend is also unimpressive. These guys clearly need to get their headcount under control. They are adding bodies faster than they are adding revenue. Valuation:The June 25, 2007 Barron's article points out that Yahoo! trades at only a slight premium to newspaper companies, which doesn't make sense. [20] As of June 19, 2007 Yahoo's market cap is less than $38 B compared to Google's market cap of over $160 B. Of course, Yahoo's trailing 12 month net income is only $734 MM while Google's is $3.5 B. However, one has to evaluate Yahoo's long term potential. Consider the share of eyeballs that the two companies get: As the Alexa chart below demonstrates, Yahoo (brown line) has roughly the same share of of Internet users that Google (blue line) does: In addition, Yahoo actually has more page views per user than Google does, though this number is clearly in decline over the last year: The following chart from BusinessWeek [30] provides further perspective on the difference between Yahoo! and Google. Clearly, Google has done a much better job of monetizing their eyeballs than Yahoo has. But how hard can this be? On the Internet everyone's strategy is open for inspection so you would think that it would be relatively easy to replicate what Google is doing - unless you have a bunch of Yahoos running the company. A possible explanation has been posted by Dunac Riley in TechCrunch on February 16, 2008. It seems that the average user on Google is much more affluent than the user on Yahoo as measured by how many of them have purchased over $500 online. The data is from Hitwise and is shown graphically below:
Users were placed into different socio-economic groups, the magnitude of which is represented by the size of the circles. The usage of Google by each group is plotted along the X-axis and the usage of the Yahoo along the Y-axis. The author's point is that Google is in a much better position to monetize their traffic because their users are more valuable to advertisers.[40]
Investment Rationale:Buy Rationale:The primary argument for owning Yahoo is that it has an incredible franchise as demonstrated by the graphs above. That franchise clearly has at least as much value as Google but the question is whether or not they can realize that value. If you believe that they can then you should own this stock. Projected Financials:Income Statement: (Paste Here) Balance Sheet: (Paste Here) Cash Flow Statement: (Paste Here) Financial Ratios: (Paste Here) Other: (Paste Here) Discussion:After the Q3 '07 release the market responded extremely positively but I just don't see it. The numbers are just not very impressive and Yahoo's focus on ex-TAC revenue seems misguided. TAC means Traffic Acquisition Costs and according to the Yahoo 10-K "consists of payments made to affiliates who have integrated our search and/or display advertising offerings into their websites and payments made to companies that direct consumer and business traffic to the Yahoo! Properties." Yahoo adds this back to gross profit to calculate ex-TAC revenue. However, that's like adding back COGS to gross profit. An Internet company can drive themselves down a rat hole spending a lot of money acquiring traffic to drive revenue so you can't ignore the acquisition costs. Footnotes:[15] "Yahoo Gaining In Search Dollar Share: RBC", Online Media Daily, October 16, 2007 [16] "Marketers Threaten To Put Majority Of Budget Online", Online Media Daily, November 13, 2007 [17] "Yahoo's 100-Day Plan Laid Out With Promising Q3 Results", Tameka Kee, MediaPost Publications, October 17, 2007 [20] Barron's, "Follow-Up", June 25, 2007, p. 20 [30] BusinessWeek, "Back To The Future At Yahoo!", July 2, 2007, p. 35 [40] TechCrunch, "Poor People More Likely Use Yahoo, Those Better Off Use Google", February 16, 2008 News:
See Also (links to blogs, forums, external sources, etc...):A company's CEO may be the single most important factor affecting the outcome and success of a company's operations. Given the immeasurable importance of a CEO to a company's success, I believe that knowing the mind and personality of a company's CEO to be a paramont intangible in the assessment of a company's worth as an investment. Rarely do individual investors get an opportunity to observe a company CEO upfront and close. On Tuesday, November 6, 2007, Yahoo CEO Jerry Yang appeared before the House Foreign Affairs Committee. Below is a link to the video from the C-SPAN taping of Committee meeting. The testimony of Yang and General Counsil Michael Calahan starts about 59 minutes into the video. House Foreign Affairs Cmte. Hearing on Yahoo Disclosure of Information to China
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