Saturday, December 17, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 4

Therefore I finally sold my Yahoo! shares at $42,72 a piece Friday the 25th of November when the company had a market cap around $60 billion. It made a nice 10 times my money back. The reason that I am no longer just keeping Yahoo! as a defensive investment is because I fear that it might stay below this $42,72 level for quite some time. There might even come opportunities to pick it up at a nice discount compared to this $42 ballpark. There are several reasons that Yahoo!'s shareprice might suffer substantially in 2006-2007:

  • Google could surpass Yahoo! in number of users - making the last Yahoo! optimists (that they could catch up to Google) become realists instead - and realize that Yahoo! Can not just convert their larger portal audience to the world's largest search audience (where the money is). When they no longer have this hope to clinch on to, they might become Google investors and at the same time start selling out in their Yahoo! holdings
  • When Google might be added to the S&P 500 Index, Yahoo! no longer has this blueprint advantage over Google - which is an important factor in the placement of funds from institutional investors
  • Investors might start questioning if it is worth paying an EBITDA P/E of 37,5 on Yahoo! when the growth of the company is slowing fast towards 30-40% yearly, while Google EBITDA P/E at only 45,8 is only 22% above Yahoo! although the company is growing more than twice as much and sees a slower decline in it's growth rate than Yahoo!

The height of my Yahoo! love affair was probably when I got hired by Yahoo! Nordic in 2001 and it was two great years with a lot of learning and insight into global Internet businesses. I left the company two years later afraid, that Yahoo! International would shut down the small and money loosing Nordic entity, which also happened 9 months later. That gave me 1½ years of even more learning and insights at MSN, but that is another story. The point is - my love and belief now lies with Google instead of Yahoo! Right now it seems the most likely candidate to reach world domination and the title as "Most Valuable Company in The World".

Tuesday, December 13, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 3

If only I could have gotten into Google ownership back in January 1999, when they were around 12 people, the meteoric rise that would have been.

Instead of being clever and buy straight into Google when they first went public on August the 19th 2004 I kept my believe in Yahoo! Being able to catch up with the quality and usage of Google. No doubt a mestake since the clear market leader Google still today is gaining market share on search from both MSN and Yahoo! However, I made up for my initial mestake by getting into Google when it was below $200 per share.

Google is now above $400, but still has a long way to go up the stock chart I believe. It is a matter of time before Google will surpass Microsoft's market cap and also a matter of time before Google will be the first company ever to reach the magic market cap of US$1000 billion. I could be wrong, but this is my strong believe. Also I think that passing Microsoft will happen before 2010 (which means a maximum of four years from now). Being the first company at US$1000 billion will happen no later than 2015. Buying Google is on your own risk and I will not be responsible for that. However, the way I see it, Google is where I thought Yahoo! was going to be - Google is the company about to be the most valuable in the world. One of the reasons is that they deliver massive value both to consumers and businesses plus the fact that they can capitalize on this value.

Finally having tracked on the key figures on both Yahoo! and Google since April this year I felt very strong about Google! I always thought that I would keep my Yahoo! investment as a defensive investment to my Google holdings, but the recent more than 30% runup in Yahoo!'s shareprice since September this year to above $42 Friday a few weeks ago, made me think, that Yahoo! has become to expensive compared to Google. I am not talking about their share price, which you can not use for arguing a share price is high or low - since that argument is useless without talking about the amount of outstanding shares, and people often tend to leave this number out of the equation. What I am talking about is Google's EBITDA P/E being only 22% higher than Yahoo!'s and Google is after all growing more than twice as fast as Yahoo! on EBITDA. Plus they more than anything has the momentum on a range of key areas much more than both Yahoo! and MSN.

Sunday, December 04, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 2

I remember that Yahoo! was a company with just a little over $2 billion in market cap. I was certain that world domination was just a decade or two down the road. So from that day in October 1997 I think I was the biggest Yahoo! evangalist in Northern Europe (probably far from true). Luckily for me I got in before the Internet bubble started to gain momentum and therefore still was OK after the serious burst. Still believing in the fundamental changes that the Internet and Yahoo! would bring about I kept my Yahoo! shares. Even though they had come down to about one 36th of their value during the bubble and basically equaled my initial investment in October 1997. One lesson I learned was to actually take a little profit if you own a company that you feel is over valued. I was just afraid of loosing out on further increases and also would have to leave 40% of the profit with the Danish tax system, and in this way reducing my funds for reinvestment.

I kept my focus on and believe in Yahoo! although I did start getting a little anxious about the popular startup Google. Actually this started before the bubble years. Google launched in September 1998 and got a lot of press about the revolution it brought about to the quality of search results. Knowing that search was the most widely performed activity by far by people using the Internet, it was a little disturbing to my Yahoo! investment that someone else was getting so popular on this very most popular activity. This led me to in retrospect my proudest moment: On January the 10th less than five months after Google launched I wrote an email to the approximately 12 person company asking if I could invest in the company or in the owner of the rights to the company. That answer - the oldest email in my Yahoo! Mail inbox was from Sergey Brin:

"Thanks for your interest in investing in Google. Currently we have
funding to last us some time. I will let you know when investment
opportunities arise in future rounds of funding.

As far as the possibility of going public, we are not allowed to
speculate about that.

Also, I recommend you sign up for the google-friends mailing list off
our home page.


Sergey Brin

No doubt my proudest moment, but it did not leave even 10 cents more in my pocket :)

Saturday, December 03, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 1

When someone first showed me this new thing "Internet" in 1995 one of the first pages I saw was My friend showed me this page and told me, that it was the biggest site and like a guide to the rest of the Internet. I was sold..

Seeing the Yahoo! site back then my initial thought was: If these guys just keep executing and delivering - they could become the most valuable company the world has ever seen. I didn't know much about the Internet, but I was very certain, that this new media with all its capabilities once broadband would be more widespread would change the world. Internet has already changed the world a lot, but I still believe that we are still just on step 2 of a long journey.

Yahoo! was not a listed company on the stock exchange, so there was no means of buying into what I thought would become a real powerhouse and extremely valuable company. In the meantime I stopped thinking about Yahoo! (since there was no money for me to be made there). Instead I sort out any opportunity to learn more about the media in general and started to work on different projects, that could give me some valuable insights into Internet. Basically so I could position myself well for a job with Internet, where I saw the future, once my bachelor and masters would be finished.

Just started my masters in the autumn 1997 I read an article in the Danish business paper Børsen about the early success on NASDAQ of the first and largest portals: Yahoo!, Excite, Infoseek and Lycos. Being a believer in economies of scale and firstmover advantages there was no doubt in my mind but to buy into Yahoo! of the four. I was an extremely strong believer in the Internet and a very strong believer that Yahoo! could and should pull of a formidable growth. I sold all other shares I had (not as much as I would have liked) and gathered all the cash I could and put everything into Yahoo! shares.