Yahoo! Inc. (NASDAQ:YHOO) is taking a major step towards reshaping the company for the future. The Internet firm has come a long way in the previous five months, with shares of the company easily outperforming S&P 500, by gaining 8.9% against 1.23% of S&P. Through restructuring efforts, Yahoo seeks to grow and respond quickly to customer needs. The capital reallocation by Yahoo is driving the stocks of the company for the revaluation. Yahoo, who has been beaten down over the years by Wall Street and institutional investors, appears to be back on track. It is true that Yahoo! Inc. (NASDAQ:YHOO) missed many of the trends over the past decade: social, mobile, local, etc, but currently, company’s high profile management team is working hard to make up for the loss.
Mixed Earnings
Yahoo reported mixed results for the third quarter. The profit of $3.16 billion, $2.8 billion of which came from the sale of its stake in Alibaba.com Ltd.(HKG:1688) (PINK:ALBIY), beat analysts’ estimates. Excluding the stake sale operating income has actually increased by just 1%. However, quarterly revenues increased by 2% over last year, a third consecutive increase.
During the latest quarter, the Yahoo search revenue shot up by 11%, which is the best in the past several years. Management saw improvement in RPS (revenue per search) as one of the reason for the out-performance of the company. The company plans to continue to reform search by making distribution deals and making investments to grow market share. This is predominantly important keeping in view the Revenue per search guarantee, which the company gets from Microsoft Corporation (NASDAQ:MSFT). The guarantee is worth probably $120 million annually.
Key Developments
Yahoo! Inc. (NASDAQ:YHOO) strengthened its executive team by appointing Henrique de Castro as chief operating officer, Ken Goldman as Chief financial officer, Ron Bell as general council, and Kathy Savitt as chief marketing officer. In October, Yahoo entered into a 364 day, $750 million unsecured revolving credit facility. The facility is currently undrawn and expected to be used for general corporate purposes.
In June of this year, Clear Channel Media and Entertainment, a media company in America, and Yahoo declared a contract that will augment the way music, as well as entertainment news and information is delivered across digital platforms in the U.S. Early in July, Yahoo and Facebook Inc (NASDAQ:FB) entered into strategic alliance to initiate a new advertising partnership, broaden and develop distribution arrangements, and to settle all awaiting patent claims between the two companies. Yahoo also announced a strategic pact with CNBC that will expand CNBC online reach and will provide a broadcast dais for Yahoo. Together, CNBC and Yahoo brought depth and breadth of content to the combined online audience of more than 400 million people in the U.S. each month, and share Yahoo Finance content with approximately 100 million households that CNBC reaches in the U.S.
Transition to Mobile/TV Platform
Yahoo launched IntoNow 3.0, an innovative way to connect with friends and get better from the T.V. experience. The search engine major continues to innovate on mobile and connected devices. The number of TV shows tagged on IntoNow has increased by approximately 80 percent year over year.
Yahoo! launched altogether a new, interactive and interesting experience for users across PCs, tablets and connected TVs. For the 2012 London Olympic Games, Yahoo had over 3 billion page reviews – more than its page views for the Beijing and Vancouver games together. Yahoo had 45 percent more page views and 35 percent more time spent on its election related experience, when compared to 2008 during the first two weeks of Political conventions.
Yahoo expanded its connected TV experience by launching the Yahoo connected TV experience in Brazil, with AOC and Philco brand devices. Yahoo launched a new multi screen Football experience, including a new iOS App for iPad, iPhone, or iPod touch. Yahoo acquired OnTheAir, a video chat company, in December. The deal marked a second small step towards mobile facility expansion this year. The former Google Inc (NASDAQ:GOOG) Executive and now CEO of the company has aimed at developing an articulate mobile strategy for Yahoo.
In November, Yahoo and smartphone giant, Samsung Electronics Co., Ltd. (LON:BC94), announced a multi-year partnership to incorporate Yahoo Broadcast Interactivity platform into Samsung 2012 Smart TV. Yahoo bought a small, mobile start-up company, Stamped, which makes a product that lets consumers share favorite restaurants and music over their smartphones. This was the first step taken by the newly appointed CEO to refurbish the struggling web giant by acquiring outside products and technology.
Alibaba Stake Sale
The continued strong growth in Alibaba, in which Yahoo Inc. holds a 23% stake, is a positive trend for Yahoo. In September 2011, Silver Lake Partners initiated a tender offer for Alibaba shares that valued company at over $32 billion. Alibaba announced that the latest round of funding it raised to finance the Yahoo stakes buyback valued it at around $40 billion. There is a possibility for the stocks to shoot up further if the value of the Alibaba.com Ltd.(HKG:1688) (PINK:ALBIY) stake increases.
Yahoo announced its intentions to repay $3.65 billion in after tax proceeds to shareholders, or 85 percent of the net cash proceeds. The amount includes the $646 million Yahoo has already returned to shareholders through share repurchases since the announcement of the agreement through the third quarter of 2012, of which, 190 million was repurchased during the third quarter of 2012.
Yahoo! Inc. (NASDAQ:YHOO)’s financials are solid, with low debt and lots of cash. The company’s senior management focused on growing future revenues, which will drive Yahoo’s stock price even higher. The company lacks in offering the Mobile applications, which is growing to be a major setback for the company. On the other hand, rivals, particularly Google Inc (NASDAQ:GOOG), are investing billions in aggressively diversifying their portfolios. The company’s executives have acknowledged this lately, and can see that there is a need of rapid investment in the Mobile applications. Mobile strategy could be the key factor in the turnaround strategy of the company, as the company can develop advanced applications for various features like messaging, mails, sports, and photos, which people use in their Smartphones. The Internet company has around 167 million monthly unique visitors, but it has come up with a strategy to transfer its existing user base to the mobile Internet quickly. And more importantly, Yahoo’s, investor expectations are modest, so Mayer is not expected to work miracles, but only has to put Yahoo! Inc. (NASDAQ:YHOO) back on the path to growth.
