As strange as this may seem, Yahoo!
Recent quarterly results certainly speak to Yahoo!'s intent to return to its roots, but I'll readily admit that the changes have yet to bear fruit. This makes sense, because former CEO Terry Semel only stepped down in June after failing to reinvent Yahoo! as an online destination site. What instead occurred was Google's
No wonder founder Jerry Yang returned as CEO, and his engineering background may prove just the right medicine to catch up with Google and stay ahead of Microsoft's
Profitability has yet to improve much, but the company still generates strong cash flow. Plus, it was able to maintain more than $2 billion in cash and short-term investments on the balance sheet as of the most recent quarter. And to improve its margins, Yahoo! has been axing suboptimal parts of its business model while making small acquisitions.
The fact that almighty Microsoft may be preparing a buyout of Yahoo! tells me that there is definite appeal in the company for investors and strategic buyers. Sure, the valuation may be lofty to some, but growth companies rarely trade down to bargain-basement levels. Yahoo! remains one of a select few leaders in a fast-growing industry, and its recommitment to online advertising is comforting. At best, investors will see big stock gains as sales continue to grow in the double digits and profitability moves back to historic levels. At worst, a competitor swoops in to acquire Yahoo! on the cheap, which could also work out for holders of common shares.
Besides the uncertainty that comes with turning around a business, my only other real concern is that the current market malaise has marked down other online giants in their respective fields to appealing prices -- Monster Worldwide
When Yahoo! gets all its parts moving and making money efficiently, I find it hard to muster a scenario where Yahoo! stock doesn't trade up around 20% from current levels over the next couple of years. A company that commands the most page views globally, a second runner-up for domestic search, and an acquisition plan that leaps overseas seems like a winner.
Yahoo! and eBay are Motley Fool Stock Advisor newsletter selections. Microsoft is an Inside Value recommendation. Both newsletters are beating the market, and you can find out why with free 30-day trials.
Fool contributor Ryan Fuhrmann is long shares of Microsoft but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.