Yahoo and the Attempt to Regain its Reputation as the Search Engine Leader

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Feb 22, 2014

Yahoo! has recently announced that it has absolutely no intention of disappearing from the scene. There are some exciting plans in store for 2014 to help rally the company and speed up its recent upward trend in the stock market as well as in its earnings reports.

The Yelp Deal

Yahoo! and Yelp (YELP, Financial) have recently confirmed plans to form a partnership. The latter has already established itself as a rising star in the stock market and the announcement of this deal bolstered its stock price even further.

As part of this new partnership, Yahoo will now include Yelp’s local listings at the top of its search results. This could potentially help drive a lot of traffic to the company’s search engine as Yelp is many internet browsers regularly use Yelp listings to find local businesses.

However, this deal alone is not likely to be a big enough move for Yahoo, Inc to secure a renewed dominant position as a search engine. It is also not yet clear whether or not this deal includes the exclusive rights to post Yelp’s listings in its search results. If not, the partnership will certainly not be enough and Yahoo will need to do more.

Investments and Payoffs

Yahoo also has significant holdings in some valuable companies. It owns about 24% of Alibaba Group Holdings (operator of the Alipay payment system in China) which has been all over financial news lately as it is expected to boom in 2014 after it gets an initial public offering (IPO). The most recent estimates of Alibaba Group Holdings’s worth put it at $150 billion, $36 billion of which is owned by Yahoo, Inc. The latter company has announced intentions to sell approximately 40% of its current holdings in Alibaba as soon as the initial public offering happens.

It also owns 35% of its namesake, Yahoo! Japan. This holding nets Yahoo, Inc approximately $9 billion. These investments, together with about $2 billion in cash make Yahoo, Inc about a $47 billion company with a lot of room for growth.

Good News from 2013

In its fourth quarter results last year, Yahoo reported profits of 33 cents per share or about $351 million. This is up a full 10 cents per share from one year ago, when they reported 23 cents a share or about $274 million for the last quarter. In light of this growth and news of the company’s plans for 2014, Yahoo, Inc’s stock had risen 2.1% on Monday and traded nearly 85,000 sharers in pre-market hours.

This rise comes on the heels of a more than 82% growth over the past year, meaning Yahoo, Inc has outperformed the S&P 500 for the year of 2013. This growth comes in spite of a declining market and tougher competition from other industry giants.

The company also boasts a low debt to equity ratio of 0.08 which shows that it is not taking on a significant amount of debt in order to stay afloat. It also tells investors that Yahoo, Inc will continue to be able to meet its debt obligations.

Conclusions

Yahoo stock is selling at a remarkably low price at the moment and shows many signs of being extremely undervalued. Because of this, investors would do well to buy into the company now while the price is so cheap because it is likely to rise dramatically over the coming years as the market corrects itself and Yahoo continues to surpass analysts’ earnings estimates.