Yang To 'Step Down' As Yahoo CEO + 5 Reasons To Buy YAHOO! `Stock !!!

by **J The Kidd** Tue Nov 18, 2008 1:50 pm

With billionaire activist Carl Icahn on Yahoo's board, CEO Jerry Yang's tenure may be cut short.

SAN FRANCISCO (Fortune) -- Here's why you should buy, not bail, on Yahoo.

1. Eventually, management will get tossed.

Starting with the least scientific or analytical reason for owning
Yahoo, there's every reason to believe the days are numbered for CEO
Jerry Yang and President Susan Decker. By all accounts fine people,
they simply haven't led Yahoo well.

The former excelled as Chief Yahoo, dabbling in deals and motivating
the troops. But Yang hasn't been a decisive leader and is "lurching
from crisis to crisis," as The New York Times aptly phrased his tenure.
Decker, in turn, is widely derided in Silicon Valley as too much the
finance chief, not enough the operations guru.

Yahoo's doormat board tolerated Yang's ascension to CEO as a way of
appearing to not have fired his predecessor, Terry Semel. Now that
raider Carl Icahn - who has been quiet of late regarding Yahoo (YHOO,
Fortune 500) - is on the board, though, action is far more likely. Were
the board to dump Yang and Decker it's an easy bet the stock would pop,
even if it didn't immediately name a successor.

2. Microsoft will return.

Microsoft (MSFT, Fortune 500) continues to deny that it's interested in
bidding again for Yahoo. It is forced to make these protestations
because Steve Ballmer can't seem to stop talking about why such a deal
would make sense.

The math is pretty straightforward here. Microsoft offered to buy Yahoo
for $31 per share. Yang thought his company shouldn't fetch a dime less
than $37. Microsoft said it was willing to pay $33. Today, Yahoo has
been nosing below $12. Microsoft, instead, has been talking about
buying back more stock.

Just wait. Microsoft likely is waiting to see what the Justice
Department has to say about Yahoo's search-advertising deal with
Google. When that's all done, a Microsoft-Yahoo tie-up makes as much
sense as ever, especially considering that Microsoft, amazingly, still
can't make money in its online business. It needs Yahoo's scale to get
profitable.

There is another Microsoft option that could benefit Yahoo and its
stock price. "We believe Microsoft is waiting in the wings to replace
Google (GOOG, Fortune 500) as a search outsourcing partner," writes
Marianne Wolk of Susquehanna Financial Group, "which could afford Yahoo
some upside lift to [its] earnings forecasts, assuming there is a
minimum guarantee from Microsoft to exceed Yahoo's internal figures as
incentive to get the deal done."

That's a good thought: If Google can't help Yahoo make money, Microsoft will.

3. Investors are looking for reasons to buy this stock.

In the initial hours after Yahoo reported a generally atrocious third
quarter and a bleak outlook Tuesday, its stock popped. The various
reasons postulated by observers were amusing when taken as a whole. The
San Francisco Chronicle guessed this was due to "relief that Yahoo's
fourth-quarter financial guidance wasn't as bad as feared."

Others chalked it up to the cost reductions associated with announced
layoffs of 10% of Yahoo's workforce - even though the layoffs were
widely expected and therefore shouldn't have affected the stock price.
One analyst, Mark Mahaney of Citigroup, praised Yahoo for having had
the foresight to avoid stock buybacks until now - and then
prognosticated the positive impact of future buybacks. "We note that
the company ended [the third quarter] with about $3.3 billion in cash
and no debt," he wrote, adding that buybacks were likely.

4. Long-term trends favor Yahoo.

Yes, Yahoo is losing share to Google. Yes, Yahoo is barely growing.
Yes, it's a tired argument that Yahoo is one of the strongest brands in
the media world. Yes, this argument for owning its stock hasn't worked
in a long time. Yet the company's argument still holds water. The
company global page views grew 17% in the third quarter. It's part of
an industry, online advertising, that will continue to grow (or at
least take share) no matter the economy. Compared with The New York
Times, a sterling brand in a declining industry, Yahoo is a powerful
brand in a growing industry.

5. It's cheap.

There's always that. Morgan Stanley's Mary Meeker figures that given
the value of Yahoo's cash and its publicly traded Asian assets (even
taking into account the difficulty in selling stakes in other
companies), investors value Yahoo's core business at just $6 per share,
or eight times Wall Street's estimates of 2009 profits. That's an
extraordinarily low multiple for any company with the opportunities in
front of it that Yahoo has. Yahoo's management thought Yahoo was cheap
at $30, of course. Today, investors would do quite nicely for a
fraction of that amount. To top of page