How to play this stock
Now that we have revisited what Yahoo! is and what Yahoo! isn’t, let us discuss briefly some investment strategies. We know that Yahoo! Inc. (NASDAQ:YHOO)’s core business isn’t growing but we also know this could be a good stock, at least for a medium-term investment horizon, as there are abundant earnings coming from share repurchases and appreciation of equity. Even better, being long Yahoo! is somewhat equivalent to being long Alibaba before its IPO, which is said to be huge.
Adding Yahoo! to our portfolio could be interesting specially if we balance the Yahoo! Inc. (NASDAQ:YHOO) effect with some stocks that have opposite features, who are growing their revenue quite fast, but are not profitable, at least not yet.
One example is Renren Inc (NYSE:RENN). This Chinese social network stock is not profitable–in the latest earnings call it posted losses of $0.01 per share. However, it is about to break even and, even better, some of its businesses are experiencing massive revenue growth. Online gaming jumped 51%, as well as other non-advertising ventures. Its Groupon-like site, Nuomi.com, is an early star – sales increased over 100% year-over-year and user metrics continue to be solid.
Another interesting strategy consists of being long Yahoo! and at the same time being long its main competitor, Google Inc (NASDAQ:GOOG). Unlike Yahoo!, Google’s revenue in advertisement is growing and is quite healthy. With more than 80% of its net revenue generated by internet search, Google is the king and Yahoo!’s direct competitor in the search engine arena. The more Google grows its search engine and advertisement components, the less Yahoo! does.
So, by also adding Google Inc (NASDAQ:GOOG) to your portfolio, you could be hedging against a possible “come back to reality” Yahoo! Inc. (NASDAQ:YHOO) correction in the next two quarters. And if such a correction does not materialize, even better! You will enjoy the benefits of a Yahoo! real turnaround, and also the benefits of owning Google Inc (NASDAQ:GOOG), the biggest search engine in the world by far.
The bottom line
Yahoo! isn’t your normal IT stock with fast growth an no profits. We can understand Yahoo! Inc. (NASDAQ:YHOO) better by seeing it as a portfolio of IT businesses with attractive assets in Asia (the stakes in Alibaba and Yahoo! Japan). It’s an IT ETF! That’s not a bad thing, but if you are looking for growth stocks or value investments, you better consider other alternatives. If you are looking for interesting earnings and exposure to Asian markets, Yahoo! might do good to your portfolio. Keep in mind, though, that Yahoo! Inc. (NASDAQ:YHOO) is struggling to change its ETF nature and bring some revenue growth to the table by doing aggressive acquisitions. So far, it has acquired 17 companies this year! The downside is that these efforts have not been able to boost revenue, and believing in a turnaround story is becoming increasingly harder.
Adrian Campos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Why Yahoo!’s Revenue Isn’t Growing originally appeared on Fool.com.
Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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