I’m not sure I feel great about the idea of Yahoo!
If past deals are any indication …
While acquisitions make sense for most companies that have a ton of cash and are having a difficult time growing organically, Yahoo! isn’t quite in the class of a company like Oracle when it comes to this type of growth. In fact, Yahoo! is not even close. Yahoo!’s largest acquisition came in 1999, when it paid $5.7 billion for broadcast.com. That same year it also acquired GeoCities for $3.57 billion. Enough said!
Smaller acquisitions haven’t fared much better, as its recent attempted fire sale of other failed purchases like Delicious show. Sure, we have seen managements come and go, but making strong acquisitions has just as much to do with a company’s culture as it does its management team. I do like Carol Bartz much more than most pundits, but even I am a little worried about what the company might do with its cash, especially when executives are using terms like “guns blazing.”
A better investor
On the other side of the coin, Yahoo! has actually made its best business moves when acquiring smaller minority stakes in companies. For evidence, look no further than its 40% position in China e-commerce leader Alibaba. This investment may be worth more than Yahoo!’s own core assets alone, which is why I have recommended the stock.
Recent Chinese Internet IPOs like E-Commerce China Dangdang
So what is Yahoo!’s stake in Alibaba worth? Alibaba operates the highly profitable and rapidly growing e-commerce site Taobao.com in addition to an online payment platform called Alipay that is now larger than Paypal. I would argue the stake is worth a lot more than investors are currently valuing shares if these recent IPOs are an indication.
I don’t necessarily think that means that Yahoo! should just close up shop and act as a holding company, but I also don’t think now is the right time for the company to go “guns blazing” into new acquisition opportunities. Google
Bartz and her team are still working overtime to get the businesses Yahoo! already operates in order, and at this point hitting a bunch of singles may still be a better strategy then swinging for the fences at every pitch. Yahoo! finally seems to be growing some traction in its core businesses and is again innovating, making its Web portal a more relevant source for finding content on the Web as well as its own sites. I believe Bartz needs to maintain the company’s focus on its own organic growth while she continues to work with SoftBank and Jack Ma of Alibaba to get the maximum value out of the company’s most important Asian investments -- particularly Alibaba. Perhaps this might make Yahoo! a more intriguing acquisition target itself.
- Add Yahoo! to My Watchlist.
Andrew Bond owns no shares in the companies listed. Yahoo! is a Motley Fool Global Gains selection. Google and Microsoft are Motley Fool Inside Value picks. Motley Fool Options has recommended a diagonal call position on Microsoft. Google is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Google, Microsoft, Oracle, and Yahoo!. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.