At the moment, it is very difficult to value Yahoo. There is no telling how Yahoo shareholders will reap from Alibaba.com. Perhaps the best time to give a proper valuation is after it has been sold. It will be interesting to see whether the returns are going to be taxed at the suggested 35 percent, even as Ken Goldman heightens his efforts to lobby for tax reductions. But even if Yahoo goes for a tax arrangement that favors shareholders, the United States government could oppose it, leaving the company in doubt.
But it is important not to forget Apple’s case. It took Apple (APPL) quite some time to start making good yields after Steve Jobs returned. Marissa Mayer has made her strategy for Yahoo very clear: user engagement is more important than short term profits.
Yahoo’s share value shot up 80 percent last year alone, although this is mainly attributed to its stake in China’s Alibaba holdings. Yahoo had invested one billion dollars in the company back in 2005, and the investment seems to be paying off. Last year, it sold half of its position for 7.1 billion. In the event of an IPO this year, Yahoo could sell half its shares in Alibaba, and the latter will be the one to decide whether to buy the shares or let Yahoo sell them during the opening. Alibaba’s earnings shot up 189 percent, with a revenue increase of about 75 percent. Alibaba has been a very worthwhile investment for Yahoo, and reading from the progress, it may yet give Yahoo even more yields in the future.
And Yahoo’s aggressiveness does not end with China. The company targets a 77 percent rise in yields over the coming six years, as it diversifies its Smartphone, ecommerce as well as tablet services. According to research, the Japanese mobile market will triple from 2012 to 2017. This means that smartphones and tablets will replace PCs as the gadgets used to access Yahoo services.
So, is there a danger that Yahoo could be a candidate for bear predictions? Well, there is a real danger, especially if an IPO comes up and Alibaba goes public. Interestingly, investors might worry if the company does not start paying off shortly after going public, especially given that the market is somewhat depressed. Yahoo is an intricate company and it might take a while before real yields are realized. Perhaps patience will be an important virtue in this case. YouTube did not seem very lucrative when Google (GOOG) acquired it. But look at what it is now. In fact, Google is guaranteed to make sizeable profits if it was to sell YouTube now.
A big chunk of Yahoo’s estimated value is based on expectation rather than real valuation. Therefore, in case a problem arises with the IPO or with the market in general, things might change.
Alongside Google and Facebook (FB), Yahoo dominates the digital ad market. Together, the three companies make up 39 percent of the total revenue from ads posted online.
As for the search engine market, Google has consistently been pushing into Yahoo’s market share; with new advanced search campaigns that make it a little difficult for Yahoo to catch up.
But perhaps the fastest growing market, and effectively, the most lucrative market right now is the Mobile internet market. Yet even here Yahoo will be facing relentless competition from the usual suspects: Google and Facebook.
Under Mayer’s leadership, Yahoo seems to be laying down a comprehensive strategy to change its dwindling market control. The strategy involves a targeted acquisition spree, with 20 targets in one year alone. These targets are mostly within the mobile category – a clear statement from Yahoo about its intentions to control the mobile internet ad market.
Although it is difficult to ignore the fact that Yahoo’s traditional business has been dwindling over the past few years, this should not scare an investor from the company’s stocks. It is important to note that the company’s stocks have shot up 40 percent under Mayer’s leadership. This means that there must be something Mayer is doing right. Considering the two Yahoo Asia investments which total to about 60 percent of the company’s stock, perhaps it would still be wise to invest in Yahoo. There is still a good chance of reaping from Yahoo, so if you have the shares, you might want to hold on to them for now.