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".


Anonymous said...

Wow that break up really took a toll on you. No blogs in a long time. Or is this because your new love has also dropped in value? Or perhaps you are no longer investing in search??

Anders Kargaard Jensen said...

hehe.. I was away on christmas and new years holiday and haven't gotten back into the game.. will be soon!

My sale of Yahoo! at $42,75 makes me happy, when it is currently below $33. Yes, my "new love" has also fallen, but wrongly I believe. So I have been picking up new call options at these lower leves and expect a blowout Q1 which traditionally is the strongest gronth quarter for search engines - which analysts tend to forget. Most analysts expected Google to do even more than their amazing Q4 - but they forget (or don't know) that Q4 is the main banner quarter - not search quarter.

Explanation: in Q4 there is huge advertiser activity up to the holiday season, which means a lot of banners are sold - hence a big banner Q. At the same time people search less, because they are busy planning the holiday season. This decline happens from around mid October. In Q1 January-February-March you have 3 strong months for search. As an advertiser this is what I have seen again this year.

Therefore I have great expectations for the Q1. I think Google has been sold of way to much, and that we will see a strong appreciation in the stock price after the Q1 results are published around end of April.