Wall Street Journal editorialist Martin Peers says we’re all being too hard on Yahoo following its search deal with Microsoft.
- Yahoo keeps gaining unique visitors.
- Ad spending hasn’t caught up to how much time people are spending online.
- None of this potential is built into Yahoo’s current share price ~$14.
Martin’s maths on that last point:
So how much of this potential is built into Yahoo’s current share price of $14.46? Not a lot. Consider: Yahoo has roughly $2.75 a share in cash and marketable securities. UBS estimates Yahoo’s stakes in Yahoo Japan and Alibaba Group are valued at another $5.81 a share, discounted 20% for tax and illiquidity. This figure is probably conservative, given the growth of Alibaba’s Taobao Chinese e-commerce site. UBS values Yahoo’s search business at $6.05 a share, assuming 10 times 2010 projected search earnings before interest, taxes, depreciation and amortization of $855 million. And that’s before the impact of the Microsoft deal.
Generally, Martin is right. Yahoo is a very valuable brand with a huge audience. But we have a few concerns about this bullish view:
- Yahoo is still losing brand-equity, talent, and general coolness fast. It has been years since the company did something big that users are really excited about, and this makes it very difficult for Yahoo to attract great engineering talent and generate buzz. Yahoo need to restore the fire–and fast.
- Yahoo is still highly dependent on search advertising–and it is still losing share in that business. Microsoft or no Microsoft, this is not a growth business. And it is very unlikely that Yahoo will be able to replace the growth it is losing in search with growth in display.
- Ad spending moving on line won’t all go to Yahoo. Google will still get most of it.
- Yahoo isn’t the only way big brand advertisers can reach massive scale anymore with networks and exchanges improving their targeting across thousands of publishers.
- Carol Bartz has already suggested that Yahoo needs to REDUCE the number of ad units it is running to make the site less annoying to users. Usually this means also reducing revenue. So it’s hard to see how the display business is suddenly going to reaccelerate meaningfully.
Bottom line, Yahoo still has a huge, unique platform. If it can reinvigorate the display business, it will be in great shape. But the jury is still out on whether Carol can do that.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.