Is Yahoo (YHOO) The Next Japan Trade?

By: ispeculatornew
Date posted: 05.23.2013 (3:00 am) | Write a Comment  (0 Comments)

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mayerI’ve been very impressed by how quickly things have moved in Japan. I read about the fact that markets rarely move smoothly because as soon as they anticipate something happening, they’ll move as quickly as possible. I guess the same will happen in the US when the market ends up believing that interest rates will rise. They’ll immediately anticipate (or try to) where rates will go up to and adjust in consequence. It’s rarely as smooth as you’d think.

Yes, you might think this Japan rise has been smooth, but if you think about the fact that it is one of the biggest markets in the world and is up 80% or so in a few months, I’d say that the move is very rapid.

Back to today’s post. Things are moving very fast at Yahoo! These days ever since Dan Loeb brilliantly got Marissa Mayer in as CEO.. the stock has been doing incredibly well:


It’s not just confidence, there’s a lot happening on the ground as well:

flickr_jan07New HR policies regarding remoteworking, maternity leave, free food, new smartphones, etc.
New focus on specific areas such as mobile (where new beautiful apps were launched), search, etc.
Complete Revamp of the Yahoo homepage, major changes in Yahoo mail and Flickr, one of Yahoos more social and successful products (arguably Yahoos only true web 2.0 property).
Small acquisitions (mostly in order to gain top notch experts but also some technology).
The more important Tumblr acquisition which I’ve Tweeted about.. Great move in my opinion, which Facebook should have done.

Things are Moving at the Speed of Light

As you can imagine these moves are generating a lot of excitement and interest in Yahoo but there’s also been a lot of criticism from employees, the press, employees, competitors, etc. It’s been a very rocky ride but as is the case with Abe in Japan, Marissa Mayer is moving things, taking big risks, etc.

What Should Happen Next?

Now that Yahoo has started to focus on many critical areas, it has started to move into properties that are still highly relevant. An overhaul of Flickr was a necessary and logical first step. What should be next? I think there are a few candidates:

Yahoo! Finance
Yahoo! Sports
Yahoo! News
Yahoo! Answers

yahoo-finance-logo-150x115Why these specifically? Because its useless to have 1000 good products. What Yahoo needs is to have 10 incredible properties. Each area would require different elements but let me give the example of Yahoo finance because it’s one I know very well. Despite competition from dozens of high profile names that include Google Finance, Yahoo continues to be a leader. It has a product that is easy to use and understand. What could Yahoo do?

A couple of key acquisitions: Yahoo already integrates content from SeekingAlpha and StockTwits, two very solid upcoming finance players. I’m not sure they are for sale but if I were Marissa Mayer I’d certainly consider those. It would make a ton of sense to have them remain independent (as is the case with Tumblr) but have an even bigger incentive for deeper integration of their data and content into Yahoo finance. In many ways they represent the future of finance on the web.

SeekingAlpha has a unique platform where 2 million members gain access to high quality information about stocks, economics, etc.

StockTwits was initially built on top of Twitter but is clearly independent now and has been growing extremely well by integrating those 2 products, Yahoo could remove some of the least attractive parts of Yahoo finance and have a much stronger community (or 2 in fact).

Then Yahoo could work on improving the general design, making it more modern with a responsive design, a new mobile app, etc.

Finally, I think there is also potential to launch very solid desktop & mobile apps that would be powered by the new Yahoo finance data. It would not compete with Bloomberg for many stock professionals but would be a major improvement for most other traders that can’t afford the Bloomberg offering. After all, Yahoo would arguably be the best placed company to provide such data.

These are just a few examples for Yahoo! Finance but I think you could argue that the same could be applied to at least 45 of Yahoos major properties.

How Much Upside Exists?

You might be wondering how much upside exists at Yahoo. I don’t think anyone expects the stock to increase by 80-100% in a few months, especially considering the rise that we’ve already witnessed. One thing to note is that Yahoo’s core company was basically valued at $0 up until Marissa Mayer joined. The value of Yahoo’s stock was almost equal to:

Yahoo stock = Cash + Value of Yahoo Japan stake + value of Asian properties stakes (mainly Alibaba)

The expectation was for everything else to eventually die off. I think it’s fair to say that the new Yahoo is working on preventing that. It’s difficult to say how much upside there remains but I would say its still significant. In terms of downside, I just don’t see that much at this point which makes going long Yahoo exactly the type of trade I like to put on.

Disclaimer: No position on Yahoo (YHOO)

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