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Friday, March 26, 2010

Media Headlines Can Be Silly - Yahoo! as Example

We sometimes use our Google (GOOG) Reader "subscriptions" to keep tabs on various news sources and company news. We also use My Yahoo! (YHOO) on occasion. Yahoo! headlines on Google Reader caught our attention yesterday, one because it a appeared so ridiculous -- can you guess which headline:

If you said, "10% Downside to Yahoo’s Stock if Ad Rate Declines Continue", you're right! Of course, the headline is designed to attract readers and, in our case, it worked -- we clicked on it.

Many investors try to quantify potential upside/downside under various scenarios -- which is smart -- but the specificity of "10% downside" under this "decline" scenario is what strikes us as silly since there are so many moving parts with Yahoo! (and most other companies). It's simply very hard to know exactly what might/will happen. However, in fairness to the source of the headline, clicking on the link takes us to a brief summary of the author's analysis, including an apparent sum-of-the-parts based target price of $20.58 for YHOO.

Our long thesis on Yahoo (YHOO), as shared previously, is based on common sense:
  • Yahoo owns an Internet franchise/brand that is impossible to replicate and that should only become more valuable with time as prime online real estate appreciates in value.
That is, in the spirit of Philip Carret , we look around us and strive to be aware of what's happening. The Internet is NOT going away and Yahoo is a well established brand/company that generates plenty of cash and is likely going to be bigger, better, stronger over time. We think the company can grow despite search competition from powerful Google, which -- admittedly -- is a major online franchise and a growing cash machine. Further, Yahoo's [relatively new] management team is especially focused on improving margins and returns on capital. Shifting Internet technology and media platforms present some risk, yet we're betting that Yahoo will be around.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long YHOO.

© 2010 Jeffrey Walkenhorst
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