Is Now A Good Time To Buy Yahoo?

carol bartz yahoo tbi

Yahoo exec Hilary Schneider’s sale of over $600,000 of Yahoo stock this week may make some investors think again before buying shares in the company – after all, if management is selling their stock, why would a layman be buying?  But Collins Stewart analyst Sandeep Aggarwal believes now is a good time to buy.

In a report published this morning, Aggarwal argues that Yahoo shares could increase by as much as 30% in the next year, and cites the following arguments as indications it is a good time to buy:

Display advertising is on the rebound. Display advertising (or branding advertising as some call it) is Yahoo’s bread and butter, especially after it recently decided to outsource its search operations.  Aggarwal argues that Yahoo shares have taken a hit due to 2.5 years of weakness, but he is seeing some signs of a rebound.

Better management team should increase profit margins. Aggarwal likes the operational track record of new CEO Carol Bartz and the team she is putting into place. He expects cost-cutting and a pruning of the company’s “silos” – where different products had entirely different teams and hierarchies – to boost profit margins over time.

Microsoft deal should boost revenue and cut costs. Search revenue should improve by $150 million while costs should decrease by $225 million as a result of the Bing deal.

Finally, Aggarwal sees growth in international markets like India and China. All of this combined with what he sees as an inexpensive stock price causes him to pound the table on Yahoo shares.

Valuation aside, it’s hard to argue with Aggarwal’s thinking.  Display has taken a big hit the past couple years and publishers like Yahoo are starting to improve their offerings beyond just static banner ads to include additional features like rollovers and rich media, which advertisers appear to be warming up to. 

In addition, most would agree that Yahoo’s silos were a tangled mess that were very hard to navigate and likely saddled the company with a lot of unecessary overhead.  If Bartz and her team can quickly and efficiently re-organise the silos into a more managable org chart Yahoo will likely save itself real money while making its operations more efficient.

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