Can a Cool Yahoo Turn It Around?
Yahoo! Inc (NASDAQ:YHOO) wants to make some changes, and becoming cool is one of them. The company has had some recent operational successes, but there are concerns about its ability to keep up its popularity.
Since Marissa Mayer — formerly a long-time employee of Google (NASDAQ:GOOG) — joined Yahoo as its chief executive officer, things have been looking up for the company. In her time there, the search-giant’s shares have raced up about 70 percent, suggesting that she’s been doing great business for the company.
But, there is a small problem in just what great business Yahoo has been doing, and what other important business it hasn’t been managing to do. Some analysts believe most of the 70-percent-stock-price increase was due to stock buybacks and growth in Yahoo’s assets.
Yahoo currently holds major stakes in Yahoo Japan, with a 35 percent share, and in the Chinese company Alibaba Group, with a 24 percent share. The estimated value of these companies has been increasing, and thus boosting Yahoo’s own value for investors. Its share buyback program has been running smoothly, and Chief Financial Officer Ken Goldman has suggested that the company might continue repurchasing stocks after the current buyback is completed if the stock price was right for it.
There are some problem areas for Yahoo. In 2012, Yahoo sold almost half of its stake in Alibaba, which had been 40 percent. Since Alibaba’s value has increased since then, it appeared a poor move on Yahoo’s part. However, the stake could still be valuable and bring in considerable money if Alibaba makes an initial public offering. It might also take some work to get more value out of Yahoo Japan, but Yahoo could either work closely with the company or sell off its stake.
One of the bigger problems facing Yahoo is the ability to keep its audience large. This has been a problem for Microsoft‘s (NASDAQ:MSFT) Internet Explorer as well — and not an easy one to remedy. The demographics using Yahoo’s website and services are getting older, and the company wants to increase its appeal to and use by younger audiences, particularly those between the ages of 18 and 34.
To get those demographics, Yahoo has to compete with Facebook (NASDAQ:FB), Twitter, and Google (NASDAQ:GOOG). In a conference in Boston on Tuesday, Goldman said, “part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”
Yahoo’s stock growth had belied the decline in revenue and user activity on the website over the past few years. However, a strong advertising campaign could help push things in the right direction. Yahoo has already revamped its email and Flickr services, and might just need an influx of users whom it can then try to preserve. Getting the user base to grow would certainly help, especially as the company’s market share has been declining. At least for now, its shares have received an upgraded price target from $27 to $30, which could help keep the stock up while the company gets busy.
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