Market Overview

Should Yahoo! Copy AOL's Strategy?


Eric Jackson has the answer.

"I think Yahoo! (NASDAQ: YHOO) and AOL (NYSE: AOL) are very similar companies," Jackson, the founder and managing member of Ironfire Capital, told Benzinga. "Everybody hated AOL up till last Friday. You couldn't find anybody to say anything positive about [that company]."

Jackson said that in the "eyes of everyone," no on uses AOL anymore. "I couldn't point you to one bull about AOL. The same is true today with Yahoo!, and you have all these analysts who, up until Monday, had these $16, $17 targets on AOL. Then, immediately, a bunch of value is created, drops in shareholders' laps, and suddenly the sell side wakes up the next day and ups their price targets by $10 or $12 bucks."

But this isn't like Research in Motion (NASDAQ: RIMM) or Nokia (NYSE: NOK), Jackson explained, "where the market share is just dropping off."

"There was a floor below AOL," he said. "There is a floor below Yahoo!, and there are different ways that value could be created. I think the patent thing is one way. Obviously none of us knows what's gonna happen there. But any day we could wake up -- tomorrow there could be some big settlement with Facebook. Yahoo! could decide to do an AOL and decide that it wants to sell some or all of its patents and be even more valuable than what AOL got."

Jackson said that with regard to the unsold Asian assets, "It's gone on and on."

"People have talked about it and [they] are negative. They think a deal hasn't happened yet so therefore a deal will never happen. But, again, we could wake up tomorrow and something could happen. I would hope that they would sell out of their Yahoo! Japan stake entirely, even if they had to pay taxes on it. It would still be worth it."

However, Jackson said that he hopes Yahoo! retains the majority of its stake in Alibaba Group. "I think the best of all worlds would be" for Yahoo! to sell a quarter of what it owns in Alibaba Group back to Alibaba Group, Jackson said.

"But in return -- and it could even be a low valuation of what Alibaba Group is probably worth -- if they could get out of Alibaba Group a commitment, a timeline, for when they are going to hold an IPO, then U.S. investors could say, 'Oh, okay, now I know. Even if it's the end of 2013, I'm going to see this.' That would be huge for Yahoo! shares."

What about a tax-free swap of some kind? That has been talked about, Jackson said. "One of the things that could happen is, in exchange for swapping back the stake -- back to Alibaba Group -- Alibaba could make a bunch of investments in private companies and pass those stakes back over to Yahoo!" he said.

"What they chose to invest in is anybody's guess. But if they made an investment in Twitter or Square, or some other private company that people think is going to be the next Instagram, suddenly Yahoo! looks cool again. It kind of looks like GSV Capital (NASDAQ: GSVC) on steroids because it's got this stake in Alibaba Group, you've got this stake in some other interesting private companies."

Lastly, Jackson spoke about Yahoo!'s core business. He started by going back to the AOL comparison. "Last November, AOL showed [that] their earnings declines [had] stopped. It didn't actually go up significantly, but it basically leveled off. Suddenly there was this huge bump in the stock. I think it went from $12 to $15 or $16 in a matter of a couple of days. I think the same thing could happen with the core business at Yahoo!"

"Everybody is so pessimistic about it, but they could show some stabilization with announcements of more job cuts," Jackson continued. "Suddenly the EBITDA looks a lot healthier than investors maybe thought it did the day before, and they think that it finally deserves to get reflected in the stock price."

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Posted-In: Eric Jackson Ironfire CapitalSuccess Stories Tech


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