Shares of Yahoo (YHOO) are incredibly weak as the stock has been caving in over the past six weeks. The stock is currently selling for $14.69 a share which is just 15% off of its 52 week low. Yahoo has plummeted since May 6th when the stock was over $18 a share. Yahoo now has a market cap of $19.1 billion and an enterprise value of just $16.4 billion dollars.
Time To Buy Yahoo?
The stock always seems to look like a value based on its valuation but rarely is. Yahoo trades at 1.5 times book value and 3.3 times sales. The search company still has a quality balance sheet with only a few million in debt and 2 billion in cash. Yahoo’s problem is that the company is losing market share in the display advertising space to Google and Facebook. Yahoo’s share of the display advertising market fell to 12.3% last month.
Google and Microsoft are both serious competition to Yahoo in the online search engine marketplace. Google is the dominant player in the market with 65.6% of the search market Yahoo is still in second place at 15.9% but Bing is closing fast with a 14.1% share. Yahoo’s future growth will have to come from international markets since its best days in the domestic markets are long gone.
According to Yahoo CEO Carol Bartz, the company reaches 66% of online users in Italy and has a large presence in the Middle East. Yahoo has a 40% display advertising market share in the Middle East and the northern part of Africa. The biggest area for potential growth for Yahoo is in China. Yahoo is aggressively investing in research and development with its Alibaba Group. The Alibaba Group is responsible for running Yahoo China.
“Yahoo’s share of search market revenue in China has shrunk to less than 1% from 25% in 2005, when Yahoo handed over its China operation and $1 billion to Alibaba Group in return for the equity stake.”
It is estimated that Yahoo China has just a 0.3% market share. Google has 19% of the search market in China and Baidu is king with 75% of the market.
Yahoo will never see a bid like the one that Microsoft made back in 2008. Microsoft offered $44.6 billion dollars for the company and Yahoo turned it down. Former Yahoo CEO Jerry Yang believed that the offer was too low and undervalued all of Yahoo’s assets. That was a huge mistake that ended up costing Yang his CEO position. Yahoo still has some assets that make the company attractive.
Yahoo has 600 million mobile users. This is a claim that very few sites can make. Only Facebook and Google can claim to have more visitors. Yahoo Search, Yahoo Mail, Yahoo Finance, Yahoo News are still very attractive Internet properties that users all over the world enjoy viewing.
I don’t believe that Yahoo shareholders should overreact the $15 share price. The market has declined over the past few weeks and Yahoo’s share price drop is no worse than the recent price drop for technology companies like Google.