Yahoo, sometimes you just get lucky

I was delighted to wake up this morning to see Yahoo had once again taken a bashing on the Market. Could have predicted it the second Google purchased DoubleClick (but according to analysts I would have been wrong). I usually make one or two trades per year, usually make a big percentage, and cash out quickly. So that's what I did when I was sitting around mid January and saw the Yahoo stock sitting at just over $26 dollars. I got in and I got out. Infact, I dropped the stock last week when it was sitting at $32 - right before Google announced it's $3.1 billion purchase of the private online advertising firm Double Click.

Sometimes you just get lucky and you have to say thanks. So Thanks.

Well if you go and read any news on any financial site you'd quickly realize that investors are not citing Google's acquisition of Double Click as a reason why Yahoo's stock is down. Most financial analysts actually oppose that acquisition - I don't know if they fail to realize the importance of trend analysis coupled with their ability to enter new market's before the market hits mass. I don't know if they see this as a pure numbers game that Google would have won regardless and hence wasted $3.1 billion. I'd actually laugh at any analyst who tried to tell me otherwise - seeing a new market before anyone and having the $$ to throw into growing that market seems like a great idea (cite Microsoft for creating the PC industry - and thanks IBM). Blah Blah ... by Google purchasing DoubleClick they actually took a revenue stream out of Yahoo - as Yahoo uses Double Click for a lot of it's banner ad's (note wouldn't it make sense for Yahoo to pull out of that deal with Double Click - would that mean that Double Clicks’ market share goes down and hence Google isn't really sitting at the 85% market share mark???).

Back to Yahoo. Yahoo's livelihood depends entirely on the real economy of the real world. This is something I've been saying forever and it's like nobody's listening. When the real economy of any Geographic or Global market crashes - advertising dollars become sparse. Advertising companies see falling or flat revenues and reduced profits Companies will only spend on targeted ads. Hence, as most internet businesses are to a certain extent global - a recession in India - will hurt Yahoo just as much as a recession in China.

The real reason for Yahoo's stock fallout comes as the company reported a first-quarter earnings of $142 million, or 10 cents a share, down from 11 cents a share a year ago, and below the 11 cents that analysts, on average, had been expecting. This is not shocking to me - the company has signed some really big deals recently and have not realized those revenue streams (Vaicomm deal - minus - cost of sales cycle). Operating expenses for the quarter rose to $789.2 million, or 47% of sales, from $707.9 million, or 45%, a year earlier. Again, for anyone who works in the Tech sector - has a project really ever been delivered below cost and ahead of schedule - it happens - but is more likely the opposite. Hence, 2% on cost to sales ratio may actually be a plus - Panama will scale those costs down as it is allowed to grow. Finally, the revenue Yahoo generated for every search using its Internet search engine dipped in the quarter by about 7%. As an investor, this last number is what I'd be worried about. If they don't increase their search share they won't realize those advertising dollars.

So you may ask when I'm going to get back into Yahoo? We'll see, either I get in today or wait until the middle of next week (will probably do the latter cause it seems ultra risky right now). I believe in their new ad platform, think they will attract many big corporate contracts, and want to see what they do to build on their Pipes toolkit.

P.S., If Microsoft wants to hurt Google, the secret lies in its Defender software. Treating all DoubleClick and Google cookies (advertisements) as pernicious spyware would be like setting a phaser from stun to kill.

Over and Out

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