The latest push by an activist investor to boost Yahoo's growth — this time suggesting Yahoo acquire another growth-challenged Web portal, AOL — failed to excite investors, and an analyst said the idea wouldn't address the core growth issue.
Yahoo stock fell a fraction Monday and is within pennies of where it started the year.
"I understand some of the logic behind ... putting the two together, and you could get a lot of synergies," Rosenblatt Securities analyst Martin Pyykkonen told IBD. But "it is not addressing the growth issue."
Yahoo CEO Marissa Mayer, above, at a conference this year, has struggled to spark revenue growth. View Enlarged Image
In a letter late Friday to Yahoo (NASDAQ:YHOO) CEO Marissa Mayer, Jeffrey Smith, a Yahoo investor and head of hedge fund Starboard Value, recommended the company halt the "aggressive acquisition strategy" that is weakening earnings, unlock the "substantial value" from Yahoo's stake in Alibaba (NYSE:BABA) and Yahoo Japan, cut expenses and merge with AOL (NYSE:AOL).
"We believe a merger of AOL and Yahoo's core business may be one of the best ways to both fully seize the cost-reduction opportunity and also to tax-efficiently monetize Yahoo's noncore equity holdings," Smith wrote.
"Clearly, Yahoo is deeply undervalued relative to the sum of its parts" Smith added, who pressed the Yahoo board to "take immediate steps in committing to remedy this valuation discrepancy."
Yahoo got upgraded on Monday to a buy by Needham & Co., but this follows several downgrades last week.
With a substantial stake in China e-commerce leader Alibaba, Yahoo stock had served as a proxy for that company until Alibaba's record-setting IPO on Sept. 19. Yahoo had a 22.4% stake in Alibaba and reaped an estimated $6 billion by selling a portion of its holdings. Yahoo retains a 15% stake in the Chinese Internet company.
The Alibaba IPO was "a negative catalyst for Yahoo stock as investors are now able to directly invest in Alibaba," FBR & Co. analyst William Bird wrote in a research note last week. Yahoo stock fell 2.7% on Sept. 19.
Investors are waiting to see what actions Yahoo takes with its Alibaba IPO windfall.
In a response Friday to Starboard's open letter, Mayer said Yahoo remains "committed ... to acting in the best interests of the company and all of its shareholders." She said the company "will review Starboard's letter carefully and looks forward to discussing it with them."
Starboard didn't respond to requests for comment. Analyst Pyykkonen, however, says Yahoo-AOL doesn't make sense.
Pyykkonen points out that Yahoo's Q2 earnings and sales both missed Wall Street's expectations, with display ad pricing down 24% year-over-year.
No comments:
Post a Comment