Is Yahoo Finally out of the Gutter?

Everyone knows that Yahoo (YHOO) has been in, by far, one of the lengthiest technological ruts – a monotonous routine of mediocrity and ‘just okay’ income reports. This Internet heavyweight was of course pushed to the hedges with the onset of aggressive competition from competitors like Google (NASDAQ:GOOG).

All the same, after much waiting, there are hopes that Yahoo may have finally poked its head out of the gutter – at least that is my belief.

Facebook Tag of War

In March, a month or so before the highly anticipated Facebook (NASDAQ:FB) IPO in May, Yahoo shocked the tech world with a harsh patent lawsuit against Facebook. Yahoo claimed that Facebook allegedly infringed 10 of its patents. Facebook later on filed a counter lawsuit, and in the process marked the commencement of a heated legal battle.

Although Yahoo had solid reasons to back its raging accusations, many deemed the move as a deliberate attempt to mar Facebook’s entry. I also believed that there was more to the lawsuit than mere patents.

The tag of war continued and its protraction attracted a lot of commentary, most of which induced a rather negative spirit towards Yahoo. The peak of the negative outlook towards Yahoo probably arose when Fred Wilson, a New York venture capitalist, posted a blog that concluded, "I am writing this in outrage at Yahoo. I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now." At this time, the Internet industry was a melting pot of emotions.

Scott Thompson takes the blame, faces the axe and leaves a seed of hope at his wake

Ultimately everyone pointed fingers at Scott Thompson, the then CEO. After all, Yahoo initiated the Facebook lawsuit on his watch.

His move, which in my honest opinion was out of order, derailed Yahoo from its core objectives and directed the right energy in the wrong direction. All the same, Scott soon faced the axe after it was revealed that his official biography had wrong information. With Scott dismissed over integrity issues, an interim CEO was placed in his position.

The interim CEO, Ross Levinsohn, has since planted a seed of hope in Facebook. Under his watch, Facebook and Yahoo have agreed to settle their disputes minus the lengthy, controversial and extremely expensive litigation process. Instead of taking the high road, the two have agreed to drop the charges they made against each other in pursuit of more profitable ventures.

The more profitable ventures, as I have put it, relate to an advertising alliance that in my opinion will go a long way toward bolstering growth in Yahoo.

All this came to light on Friday through statements issued by Levinsohn and Facebook’s chief operating officer, Sheryl Sandberg. The two praised each other for doing a good job.

In the event that the advertising alliance materializes to the full expectations of both parties, Facebook and Yahoo will probably patch things up and restore the tranquility that once prevailed between them.

Another sign of favorable conditions over at Yahoo is the search for a permanent CEO. It plans to advance the search on Wednesday. All through, the search has been patient and tactful – something that I greatly admire. I presume Yahoo doesn’t want to make the same mistake it made with Scott Thompson.

Jason Kilar, the CEO at Hulu online TV service, was considered to be the man to beat in the contest for top position at Yahoo. On Friday, however, he revealed that he’d had a change of heart with regard to the position. This gives interim CEO Levinsohn an edge.

The macro view

Although Yahoo’s internal operations spell hope, it would be out of order to assume that it operates in an isolated environment. In actual fact, its environment is nowhere near isolated. It wells with competition and activity.

As far as competition is concerned, there is still some real daylight between Yahoo and Google. The latter not only has a healthier financial outlook but also exhibits favorable growth prospects. Google recently rolled out the Nexus 7, sparking a lot of positive vibe.

As a round up, I conclude that Yahoo is doing pretty well by its standards. Despite the fact that the macro environment is weighing down on it, Yahoo is not willing to give up. For me, this says a lot. Notwithstanding, it still has some room for improvement. I recommend a hold.

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