Yang Leaves Yahoo (YHOO), But Prospects Remain Dim

This week, Jerry Yang resigned from Yahoo's (YHOO: Charts, News) board of directors and cut all ties with the current management of the company he co-founded in 1995. Yang also resigned from the boards of the Alibaba Group and Yahoo Japan, but still owns 46.6 million shares, or 3.8% of outstanding shares.

Yang's exit, along with the dismissal of former CEO Carol Bartz and calls for the resignation of Chairman Roy Bostock, mark the end of the original Yahoo management team's era, which has been lambasted by investors for failing to increase shareholder value over the past decade. Over the past ten years, Yahoo lost its top search position to Google, rejected a generous takeover offer from Microsoft (MSFT: Charts, News), lost its Yahoo Japan portal to Google, and was finally embarrassed by its own Chinese partner, Alibaba, which spun off its profitable Taobao e-commerce business into a separate business to lock its profits away from Yahoo.

Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here

To counter this series of disasters, former CEO Carol Bartz attempted to keep the company afloat by shuttering and auctioning off Yahoo's assets bit by bit, until only its core portal and Asian assets remained. Nowadays, Yahoo shareholders have given up on any hopes for recovery in a world dominated by the likes of Google (GOOG: Charts, News) and its Chinese counterpart Baidu (BIDU: Charts, News). Instead, shareholders are merely hoping for a takeover which would give them an acquisition premium, leading to a more attractive exit price. Members of Yahoo's old guard - Bartz, Yang and Bostock - had been seen as impediments to change who were opposed to a sale of its remaining assets. Large shareholders are hoping that the company would either sell its Asian assets, which are worth more than $10 billion, or find a buyer that would take over the entire company. Bartz's conflicts with Alibaba CEO Jack Ma froze all negotiations of its Asian assets, while Yang, on more favorable terms, was still unable to barter a favorable deal. Large shareholders, such as Yahoo institutional investor Third Point LLC, have criticized Bartz and Yang. Third Point CEO Daniel Loeb stated that "the board's inability, or perhaps unwillingness to properly solicit true strategic alternative bids - let alone to negotiate them," was extremely problematic.

Current CEO Scott Thompson hasn't ruled out selling the company to maximize shareholder value, nor has he thrown down the towel. Analysts believe that Yang's departure will give Thompson freer rein to split or merge the company's assets to his liking. In addition, they also believe that Thompson, the former chief technology officer and president of eBay's (EBAY: Charts, News) PayPal, may be better suited to address the Web 2.0 threats of Facebook, Google and Twitter. In a speech to investors, Thompson stated that Yahoo's massive data assets would be "exploitable for next-generation products and in other spaces in advertising and marketing." PayPal has been massively successful in the mobile arena and one of the main revenue generators for eBay, which bodes well for Yahoo's future in weaving together its regular and mobile Internet platforms.

If Yahoo chooses to stay and fight Google, Facebook and Baidu, it has a long uphill battle ahead. After being founded by Jerry Yang and his Stanford classmate David Filo in 1995, Yahoo became the world's most popular website with a market cap exceeding $100 billion at its peak. After the dot-com crash, however, its fledgling rival Google stepped up and dethroned Yahoo, a blow from which the company never recovered. The shift toward social networking, fueled by Facebook and Twitter, further contributed to the company's downfall.

Shares of Yahoo have vastly underperformed its industry peers and the market. Shares have declined 8.2% over the past twelve months, while Google has remained unchanged. Yahoo stock currently trades at 18 times forward earnings, a respectable multiple for a tech stock, but unless Thompson can mount a convincing offensive or attract a buyer anytime soon, shares may be overvalued.

Other News About YHOO
Why New Yahoo CEO Scott Thompson Has A Fighting Chance
Thompson might have what it takes to revive Yahoo's business plan.
Yahoo CEO Scott Thompson Wants Yahoo to Innovate Again
Can Yahoo catch up to Google? Other Stocks in the News
Citigroup earnings fall short of expectations
Citigroup misses by a wide margin, and shares plunge.
JPMorgan Reports 23% Drop in 4Q Profits; Declines the Most in Nearly a Month
JPMorgan barely tops estimates, but still posts a precipitous drop.

Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Jan 19, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...