Posts Tagged ‘YHOO’
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Yahoo’s $1.1 Billion Mistake
Eddy Elfenbein, May 20th, 2013 at 11:12 amYahoo ($YHOO) is buying Tumblr for $1.1 billion which, in my opinion, is a big mistake. I’ve long been a critic of Yahoo, or more specifically, Yahoo’s valuation. It’s a fine company but it’s not an especially fast-growing company.
I think Yahoo is basically similar to a newspaper and it should be valued the same way. For many years, I said that Yahoo should be valued around $15 per share, and I was usually right in that the stock failed to perform.
The advent of Marissa Mayer, however, has changed that and the stock has jumped over the last few months to $27 per share. Yahoo is still over-priced but not as egregiously as before.
The good news for Yahoo is they got a pile of cash from selling off their stake in Alibaba. This brings us to the “Bladder Theory” of corporate finance — oftentimes too much cash is not a good thing. Management feels they have to do SOMETHING BIG. Too much cash over-inflates the role of management, and they feel they have to do something dramatic. As I’ve often said, there’s nothing wrong with a special dividend.
Yahoo clearly feels the need to stay hip and cool so buying Tumblr seems like an easy choice. From the New York Times:
The blogging site has been trying to create new ad efforts like interactive campaigns, rather than using standard clickable ads, with mixed success. It has set a revenue goal of $100 million for this year; the company reported only $13 million for the first quarter and reported $13 million for 2012.
Despite its ranking as the 24th most viewed Web site on the Internet, according to Quantcast, Tumblr has yet to translate that into success on mobile devices, something Yahoo needs.
Tumblr also bears a fair amount of unsavory content that may unsettle advertisers. Pornography represents a fraction of content on the site, but not a trivial amount for a site with 100 million blogs.
The search for profits isn’t unique to Tumblr, as free apps and services struggle to wring money from their users. Instagram famously generated no money when Facebook bought it.
A good indicator of a bad merger is when it’s done out of fear, and that’s what this is. Ideally, a merger should appear to be an obvious extension of both parties’ business. Yahoo is paying more than 10 times revenue for a company that might not hit its revenue target. I don’t see the need for that.
At Fortune, John Saroff has a better idea:
Instead of Tumblr, I propose that Yahoo focus its cash not on bulk of pageviews, but on acquisitions and R&D that erect barriers to entry (Buffett’s famous moat) around its already robust display business. Those likely take the form of deep investments in the product and engineering corps and strategic acquisitions of adtech businesses. Those maneuvers will be less sexy, but they have the potential to reinvigorate Yahoo for the next 20 years. It is hard to see how, with all of the strategic risks inherent in the deal, acquiring Tumblr builds the moat for Yahoo that I believe it needs
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How Much is Facebook Worth?
Eddy Elfenbein, May 21st, 2012 at 8:26 amSo now that Facebook ($FB) is public, is the stock a good buy?
The short answer is no. The longer answer is noooooooo.
First we have to consider the fact that no company has ever gone public because they thought their share price was too low. That shouldn’t dismiss every initial public offering, but it’s an important consideration to keep in mind. As a general rule, IPOs are bad buys.
The other fact is that it’s very difficult to evaluate the prospects of a young company in a new industry. I have a pretty good idea of how quickly Medtronic ($MDT) will grow its earnings over the next few years. I can’t say the same for Facebook. More than 12 years after its peak, Yahoo’s ($YHOO) share price is barely one-eighth its price. Things didn’t turn out as they were planned.
We also know that FB’s underwriters spent enormous amounts of money trying to keep the stock price above $38 on Friday.
Some market participants said that the underwriters had to absorb mountains of stock to defend the $38 level and keep the market from dipping below it.
The firm did this by tapping into a 63 million share over-allotment option, or greenshoe, according to sources familiar with the deal.
As an indication of the cost, had Morgan Stanley bought all of the shares traded around $38 in the final 20 minutes of the day, it would have spent nearly $2 billion. Underwriters are not obligated to prop up a stock on debut, but typically do.
Morgan Stanley declined to comment.
I don’t see why it’s so embarrassing for FB to drop below its offering price. Or at least why that embarrassment is worth more than $2 billion. As a side note, I’m also not bothered by the delay in starting trading in Facebook. That’s slightly embarrassing, but I’d rather that they get it right rather than get it on time. Big deal; traders can wait 20 minutes.
Now let’s look at some of the projections about Facebook and we’ll use our World’s Simplest Stock Valuation Method. Wall Street currently thinks the company will earn 60 cents per share next year. Henry Blodget thinks that’s way too low and that FB can earn $1 per share in 2013. I think that’s a much more reasonable assumption.
I haven’t seen any estimates of Facebook’s five-year growth rate so we’ll have to use some creativity here. We do know that Facebook’s growth rate is falling, but of course that’s from unsustainable levels to more realistic ones. One hint is that last quarter the company grew its revenue by 44%.
To be safe, let’s use a 50% earnings growth rate for the next five year. That’s almost certainly too high, but again, we’re being safe.
The World Simplest Stock Valuation Method is:
Price/Earnings Ratio = Growth Rate/2 + 8
So that works out to:
33 = 50/2 + 8
And with a $1 per share estimate for next year, that works out to a fair value of $33. So by using numbers very favorable to Facebook we can see that the stock is overpriced. On top of that, as a prudent investor, I wouldn’t be interested in Facebook unless it’s going for 30% below Fair Value. That’s about $23 per share.
For now, I’m keeping my distance from Facebook.
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Bartz: Yahoo “f—ed me over”
Eddy Elfenbein, September 8th, 2011 at 11:20 amWow. Yahoo‘s ($YHOO) former CEO Carol Bartz has let loose in an interview with Fortune:
FORTUNE — Here is what Carol Bartz thinks of the Yahoo (YHOO) board that fired her: “These people fucked me over,” she says, in her first interview since her dismissal from the CEO role late Tuesday.
Last evening, barely 24 hours after Yahoo chairman Roy Bostock called Bartz on her cell phone to tell her the news, she called from her Silicon Valley home (“There are reporters at the gate…a lot of them.”) to tell Fortune, exclusively, how the ax came down.
On Tuesday, Bartz was in New York, to speak at Citigroup’s (C) technology conference the next day, when she was supposed to call Bostock at 6 p.m. “I called him at 6:06,” she recalls. When he got on the line, she says, he started reading a lawyer’s prepared statement to dismiss her.
“I said, ‘Roy, I think that’s a script,'” adding, “‘Why don’t you have the balls to tell me yourself?'”
When Bostock finished reading, Bartz didn’t argue—”I got it. I got it,” she told the Yahoo chairman. “I thought you were classier,” she added.
Recruited in January 2009 after successfully building Autodesk (ADSK), Bartz never was the turnaround chief that the Yahoo board had wanted. Though she slashed costs and improved profit margins, she failed to improve revenue growth at a critical time when Yahoo has lost eyeballs and ad dollars to Google (GOOG) and Facebook. “They want revenue growth,” says Bartz about the Yahoo board, “even though they were told that we would not have revenue growth until 2012.”
As Bartz sees it, Yahoo’s search partnership with Microsoft (MSFT)—a deal she negotiated two years ago to offload costs—has Yahoo paying Microsoft 12% of its search revenue and limits current growth but will help the company long-term. She attributes the directors’ impatience to the criticism they faced when they turned down a lucrative deal to sell Yahoo to Microsoft in 2007, before she arrived. “The board was so spooked by being cast as the worst board in the country,” Bartz says. “Now they’re trying to show that they’re not the doofuses that they are.” (Bostock, who is vice chairman of Delta Air Lines (DAL) and on Morgan Stanley’s (MS) board as well as Yahoo’s, declined to comment.)
After Tuesday’s call from Bostock, Bartz says, she had two hours to let Yahoo know whether she would resign or allow the board to fire her. She called her husband, Bill, her three children–a son and two daughters—and her longtime assistant, Judy Flores. Learning that Yahoo’s lawyers had gone to the St. Regis hotel to hand her papers, she ditched that hotel and booked herself into another. “Am I stupid?!” she asks, making clear that she took her career crisis into her own hands.
It was that evening when she pulled out her iPad and wrote an email to Yahoo’s 14,000 employees:
To all,
I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s Chairman of the Board. It has been my pleasure to work with all of you and I wish you only the best going forward.
Carol
What does Bartz think of her successor, Tim Morse? “He’s a great guy,” she says. Morse was chief financial officer under Bartz, and now he is interim chief of a company whose stock has risen 6% since he replaced her. Asked whom she thinks the board might appoint long-term, she replies, “They should bring me in. I knew what to do.”
Sometimes it’s difficult to know when Bartz is being serious. As I prod her to tell me what she might do next, I mention her age, 63—”fuck you, yeah,” she replies. And when I ask her if she’s on any other public company boards besides Cisco (CSCO), where she is lead independent director, she says, “I’m on Yahoo’s board.” She tells me that she plans to remain a Yahoo director—which might be unlikely since she has now called her fellow directors “doofuses.”
“I want to make sure that the employees don’t believe that I’ve abandoned them. I would never abandon them,” Bartz says. Besides, she adds, “I have way too many purple clothes.”
She’s referring to the color of Yahoo’s logo. “I wish the Yahoo people the best,” she adds, “because it’s a fantastic franchise.”
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Bartz Out at Yahoo
Eddy Elfenbein, September 7th, 2011 at 9:32 amThe market looks to open higher this morning. There’s good news for shareholders of Yahoo ($YHOO). The board has fired CEO Carol Bartz. I’ve never understood the appeal of shares of Yahoo. The numbers are pretty clear—the company isn’t that profitable.
More than four years ago, I told investors that Yahoo was vastly overpriced. In May 2007, when the stock was at $31, I said I wouldn’t touch it for half that. Yesterday, the stock closed at $12.91 and I still don’t like it.
I don’t think Yahoo’s main problem is leadership, though that is an issue. The company was in position to own the Internet ten years ago and they blew it. Their major problem is that they don’t know what business they’re in. I don’t see Yahoo as being special in any way. They’re simply a mediocre media company. That may sound harsh, but there are far worse things to be.
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