Compared to industry giants such as Google Inc. (GOOG, Financial) and Facebook Inc. (FB, Financial), the once highly lucrative Yahoo! Inc. (YHOO, Financial) has not been too exciting for investors over the past years. Yet Steven Cohen’s stock purchase at the end of September, gave new life to the firm, which saw share prices increase from around $33, to its 52-week high of $40.25 on Dec. 10. Does this stock have the potential to continue performing this well over the coming year, or did the company just experience a short-term boost in value? Let’s take a look at some of the fundamentals behind Yahoo and see whether Steven Cohen made the right move by increasing his stake in the firm to over 7.5 million shares.
On a Growth Trajectory
Yahoo might not be an overachiever, yet the U.S. Internet company has been in business since 1994, long before rival Google for example was even founded. In the highly competitive Internet and search engine industry, surviving this long already speaks volumes, especially for a firm like Yahoo, that is not necessarily known for its innovative nature. Nevertheless, following years of declining share prices, and drops in revenue, the company has bounced back and is now trading at levels it had not reached since 2005.
The recent increment is share price is largely due to the new steadiness of revenue the company has achieved. Since 2012, Yahoo has been able to stabilize its revenue levels, even reaching double-digit increases in EPS in every one of the last six quarters. And, with the number of unique visits now surpassing those of Google, the company is looking more attractive than ever for investors.
In order to catch up to the competition, Yahoo has been steadily expanding its activity in the mobile segment, which is currently dominated by rivals Google and Facebook. Apart from redesigning its search page, the firm backed by Steven Cohen has been investing heavily in the rapidly growing mobile sector. As long as prudent investments continue, Yahoo should be able to further increase its revenue by expanding its user base.
Increasingly Important Asian Assets
One of Yahoo’s most important streams of revenue stems from Asia. The firm’s stake in Yahoo Japan, and its recent sale of around 43% of its holdings in Alibaba, a leading Chinese internet company, are especially worth mentioning. Yahoo Japan has seen a recent surge in share prices, and the U.S. internet corporation has been increasing its stake in the firm accordingly. Additionally, Yahoo’s remaining holdings of the Alibaba Group, which is experiencing accelerated growth and has recently provided Yahoo with $7.1 billion in cash, are expected to double in value over the next two to three years. Hence, with bright prospects in the Asian market, and ample opportunities to generate further revenue, the U.S. Internet giant is looking quite attractive.
What About Valuation?
Yahoo is currently trading at 34.2 times its trailing earnings, meaning the stock is available at a 5% price discount relative to industry peers’ average. Rival Facebook on the other hand is trading at 132 times its trailing earnings, which means potential shareholders must take a whopping 266 percent price premium into account. In terms of returns on invested capital, Yahoo also looks good, with an estimated value of 30.4%.
Additionally, EBITDA growth rates exceed the 70 percent mark, and EPS is projected to grow by 98%, far above industry standards. No matter how you look at it, Steven Cohen’s investment in Yahoo is exemplary. The Internet company, which I feel very bullish about, is not only set to perform well over the coming year, but is trading at value that makes entry feasible.
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
On a Growth Trajectory
Yahoo might not be an overachiever, yet the U.S. Internet company has been in business since 1994, long before rival Google for example was even founded. In the highly competitive Internet and search engine industry, surviving this long already speaks volumes, especially for a firm like Yahoo, that is not necessarily known for its innovative nature. Nevertheless, following years of declining share prices, and drops in revenue, the company has bounced back and is now trading at levels it had not reached since 2005.
The recent increment is share price is largely due to the new steadiness of revenue the company has achieved. Since 2012, Yahoo has been able to stabilize its revenue levels, even reaching double-digit increases in EPS in every one of the last six quarters. And, with the number of unique visits now surpassing those of Google, the company is looking more attractive than ever for investors.
In order to catch up to the competition, Yahoo has been steadily expanding its activity in the mobile segment, which is currently dominated by rivals Google and Facebook. Apart from redesigning its search page, the firm backed by Steven Cohen has been investing heavily in the rapidly growing mobile sector. As long as prudent investments continue, Yahoo should be able to further increase its revenue by expanding its user base.
Increasingly Important Asian Assets
One of Yahoo’s most important streams of revenue stems from Asia. The firm’s stake in Yahoo Japan, and its recent sale of around 43% of its holdings in Alibaba, a leading Chinese internet company, are especially worth mentioning. Yahoo Japan has seen a recent surge in share prices, and the U.S. internet corporation has been increasing its stake in the firm accordingly. Additionally, Yahoo’s remaining holdings of the Alibaba Group, which is experiencing accelerated growth and has recently provided Yahoo with $7.1 billion in cash, are expected to double in value over the next two to three years. Hence, with bright prospects in the Asian market, and ample opportunities to generate further revenue, the U.S. Internet giant is looking quite attractive.
What About Valuation?
Yahoo is currently trading at 34.2 times its trailing earnings, meaning the stock is available at a 5% price discount relative to industry peers’ average. Rival Facebook on the other hand is trading at 132 times its trailing earnings, which means potential shareholders must take a whopping 266 percent price premium into account. In terms of returns on invested capital, Yahoo also looks good, with an estimated value of 30.4%.
Additionally, EBITDA growth rates exceed the 70 percent mark, and EPS is projected to grow by 98%, far above industry standards. No matter how you look at it, Steven Cohen’s investment in Yahoo is exemplary. The Internet company, which I feel very bullish about, is not only set to perform well over the coming year, but is trading at value that makes entry feasible.
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
