When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it in the market. However, making the best decisions for your investments can be challenging. Fortunately, investors can minimize risk by weighing both the pros and cons of a given stock before deciding how to act. Today, we'll take a closer look at Yahoo! (NASDAQ: YHOO) and evaluate whether investors should buy, sell, or hold this media stock.
For the first time in more than five years, new leadership at Yahoo! is actually a good thing. Last July, longtime Google (NASDAQ:GOOGL) executive Marissa Mayer stepped in as Yahoo!'s newest chief executive officer. At the time, many investors were wary of her arrival. And who could blame them? The company's track record of CEOs is something of a nightmare -- five failed CEOs in five years (including two interim chiefs). But with Mayer now at the helm, the embattled web portal is finally heading in the right direction.
Since her arrival at Yahoo!, the company has upgraded its email platform to be more mobile-friendly, and introduced a newly improved Flickr application for Apple's (NASDAQ:AAPL) iPhone and iPod devices. These moves are part of a larger mobile initiative that management hopes will help Yahoo! win back users from competing services including Google's Gmail and Microsoft's (NASDAQ:MSFT) Hotmail.
As one of the most popular mobile platforms, Apple's devices represent a significant opportunity for Yahoo! in the mobile world. In fact, many of Apple's built-in apps, which come standard on all iPhones and iPads, are powered by Yahoo's content. For example, your iPhone's weather app pulls local forecasts from Yahoo!'s site, and the device's stocks app aggregates data from Yahoo! Finance. Yahoo! may have a shot at becoming relevant again if it can successfully integrate its content and services with more mobile platforms, as it has done with Apple's iOS devices.
In addition to a compelling mobile strategy, Yahoo! finally has top-tier creative and executive teams in place. In fact, at the close of 2012, Yahoo!'s board welcomed Max Levchin, PayPal's former chief technology officer, to the team. With the right people in the picture, Yahoo! is where it needs to be to kick start a comeback.
Given recent catalysts at the company, I believe Mr. Market is underestimating Yahoo!'s future growth potential. That's why I'm giving shares of Yahoo! a long-term outperform rating on Motley Fool CAPS. Of course, Yahoo! still has some risks. Let's dig deeper and uncover why some analysts believe the stock is a sell today.
Internet search remains a sore spot for the company. Yahoo!'s Bing-fueled search now commands just 12.2% of the market, according to research from comScore. That's significantly below rival Google, which controls more than 66% of search inquiries on the web today. This is particularly problematic for Yahoo!, since search accounts for about a third of the company's net revenue.
However, Yahoo! is somewhat limited when it comes to making changes to its search business due to its partnership with Microsoft's Bing platform. And, as it stands, Yahoo! doesn't seem to have any better alternatives for a search provider. Social networks such as Facebook (NASDAQ:FB) are another challenge for Yahoo's search business.
As Facebook gets better at efficiently targeting its massive user base, you can bet companies both big and small will move more ad dollars over to Facebook's site and away from Yahoo!. With the $31 billion dollar Internet ad market hanging in the balance, these are serious risks that Yahoo! needs to address going forward. Now, to round things out, let's look at why investors may want to hold shares of Yahoo! well into 2013.
Yahoo! is in the midst of a transitional period, and with so many moving parts, more conservative investors may want to remain on the sidelines for now. Heading into 2013, Yahoo! is sticking to what it knows best, rather than blindly following the lead of other Internet companies such as Google.
While Google and Apple work on mapping technology, Yahoo! is choosing to focus on mobile content. The company already has all of the content users crave: weather, stock quotes, sports, videos, and news. Going forward, the company plans to secure its place in the mobile market by offering users the best in news, sports, and applications.
This move makes sense, but it will take time to pay off for Yahoo!. While I'm confident in new leadership at Yahoo!, many uncertainties remain. One thing investors can count on is that a turnaround isn't going to happen overnight for Yahoo!.
There's no denying that Yahoo! faces many hurdles in the quarters to come. But with a worthy CEO finally in place and a renewed focus on the fast-growing mobile market, I think this Internet stock offers investors an opportunity to grab a piece of a potential turnaround story. To be clear: The company's future is still far from certain. But if you can stomach the risk, this could prove a worthwhile bet down the road.
On the other hand, if you are interested in what the future holds for Yahoo!'s search partner, then I encourage you to read our latest report on Microsoft.