December 02, 2015, Seeking Alpha
Yahoo reached a deflection point that can turn the company around.
Strangely, the company’s core business burdens its valuation.
Selling the core business could signal the beginning of a new era for YHOO.
The last few years have been a wild ride for Yahoo’s (NASDAQ:YHOO) shareholders – many times, it seemed like the stock was finally going to take off following an exciting announcement by Yahoo’s management, but shares plunged a few weeks later. I think it is safe to say that the Yahoo we all knew (and some even loved) will no longer exist as an Internet company aspiring to challenge Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Facebook (NASDAQ:FB) or Baidu (NASDAQ:BIDU).
A few years ago, Yahoo fell into some turbulence and could not find the right tools, people, and execution to turn it around. Investors started to react cynically to the company’s attempts to revive its declining core business, whether by investing more in written content, launching YouTube-like activities, live-streaming an NFL match, or starting an independent video content channel. These are just a few examples of Yahoo’s many ideas that may sound nice, but are actually incredibly naive. Instead of innovating and bringing new, fresh ideas to the market, Yahoo decided to reuse other companies’ ideas – usually in a poorly-executed way that did not really challenge any internet giant. Cantor Fitzgerald’s analyst Youssef Squali summarized it well:
Overall, Yahoo remains challenged to keep up with growth in an industry that’s innovating faster. We’ve seen progress in company culture, wwwuct improvement and user engagement over the last three years, but meaningful pick-up in monetization and revenue growth has been lacking.
Investors’ skepticism was fueled by disappointing financial results in recent years and an increasing dependence on the company’s holdings in Alibaba (NYSE:BABA) and Yahoo Japan. Before the Alibaba IPO, Yahoo was traded as a proxy to the future Alibaba shares – now Yahoo’s shares are traded based on a potential Alibaba stake spin-off and speculation on whether Yahoo Japan could replace Alibaba as the most important asset of Yahoo. All of these examples ignore one aspect of Yahoo that many investors seem to have forgotten about years ago – the company’s core Internet business.