Now that the search alliance with Yahoo! is firmly in place, Microsoft should look elsewhere for search penetration, in particularly China, and look into the “long-term” possibility of acquiring Baidu.
China is the fastest growing market for online search and holds the most promise in terms of incremental monetization potential. If Microsoft has serious intentions of taking global market share from Google, then it needs to seriously consider BIDU, provided that Gates and Ballmer are undaunted by the censorship issue.
Baidu's search business has been performing remarkably well over the past year, with accelerating performance due in part to Google's de facto exit from the Chinese market. In the most recent quarter, revenues and profits were up ~80% and more than 100%, respectively.
Now, we are fully aware that an acquisition of what is essentially a Chinese media business by a foreign company may not be possible. In the near-term, however, a partnership may make sense until ownership restrictions ease.
Baidu's market capitalization stands at nearly $40 billion today, about equivalent to Microsoft's cash and investments balance.
Although Bing's search share has plateaued in the U.S., Microsoft has proven that it can be competitive, as Bing has turned out to be a very well designed approach to search. [Recall years back the Wall Street analyst reports touting 95-100% search share for Google in the U.S.! It ain't gonna happen.] But for now MSFT should leave the acquisition talks with Yahoo! to the private equity companies (see write-up here), AOL, and NewsCorp, and focus on China where the future of search monetization lies. At the very least it will not face stiff competition from Google.
As an aside, the median price target for BIDU shares from 11 brokerages is $115 and the average is $116, about $3-$4 up from the current trading range. Only two things happen from here. Brokerage firms will up price targets or downgrade the stock. Keep an eye out for either. The range of price targets is $66 to $140.
Good luck investing!
Read More!
Wednesday, October 27, 2010
Wednesday, October 13, 2010
AOLHOO or HOOAOL: Two Wrongs Won't Make a Right But Yahoo! Shareholders Win
Will Force MSFT's hand towards a Full Acquisition of Yahoo!.
The Wall Street Journal is reporting that private equity firms together with AOL are looking to merge AOL and Yahoo!. We have argued in the past that Yahoo! needs to take decisive actions to boost its stock price, and failing that, private equity should look into buying Yahoo!. See the write-up here. However, merging AOL and Yahoo!, two fundamentally and secularly challenged companies, is a bad idea. Two wrongs never make a right. Private equity taking either Yahoo! or AOL private does make sense. Nonetheless, any attempt by a private equity firm to buy Yahoo! or merge it with AOL will force Microsoft into making a full offer for Yahoo!. Yahoo! shareholders win.
Buy business phones and other equipment here.
There are several reasons why merging Yahoo! and AOL is not worth the headache:
1. There are no clear scale benefits to merging the two companies in display,
search, or social networking.
2. The two share two different search partners, AOL with Google and Yahoo! with
Microsoft, both in long-term contracts.
3. Getting Yahoo!'s board to agree to this will be tough although given the
disastrous handling of the Microsoft offer, they may be forced to seriously
consider this one.
4. Cost synergies will be not be accretive enough to add material value to the
merged entity
5. Bartz or Armstrong? Bartz has 18 months left on her contract and it will be
costly to rid her of her title. Plus, we get the feeling that she would not bow
out gracefully.
Read More!
The Wall Street Journal is reporting that private equity firms together with AOL are looking to merge AOL and Yahoo!. We have argued in the past that Yahoo! needs to take decisive actions to boost its stock price, and failing that, private equity should look into buying Yahoo!. See the write-up here. However, merging AOL and Yahoo!, two fundamentally and secularly challenged companies, is a bad idea. Two wrongs never make a right. Private equity taking either Yahoo! or AOL private does make sense. Nonetheless, any attempt by a private equity firm to buy Yahoo! or merge it with AOL will force Microsoft into making a full offer for Yahoo!. Yahoo! shareholders win.
Buy business phones and other equipment here.
There are several reasons why merging Yahoo! and AOL is not worth the headache:
1. There are no clear scale benefits to merging the two companies in display,
search, or social networking.
2. The two share two different search partners, AOL with Google and Yahoo! with
Microsoft, both in long-term contracts.
3. Getting Yahoo!'s board to agree to this will be tough although given the
disastrous handling of the Microsoft offer, they may be forced to seriously
consider this one.
4. Cost synergies will be not be accretive enough to add material value to the
merged entity
5. Bartz or Armstrong? Bartz has 18 months left on her contract and it will be
costly to rid her of her title. Plus, we get the feeling that she would not bow
out gracefully.
Read More!
Saturday, October 9, 2010
CPCs are improving
In a positive sign for Google, Yahoo, and Bing, our work shows that industry search pricing is improving sequentially.
Business equipment for purchase. Read More!
Business equipment for purchase. Read More!
Monday, October 4, 2010
Yahoo! Are You Listening?
Yahoo's shares are down 15% year-to-date, massively underperforming the S&P 500, which is up 2.5% since the beginning of the year. To be fair, Yahoo's main competitor, Google, has seen its share price decline 15% over the same time period as well. Also, to be fair, since Carol Bartz was named CEO on January 13, 2009, Yahoo's shares have appreciated 18%. Not bad for almost two years of work. So remind us why everyone is bashing Ms. Bartz! Oh yes, the shares underperformed the S&P 500, which is up 31% since Bartz took over the helms, and even more, the shares are still 50% below Microsoft's offer price. So no matter how you view it, Carol Bartz's performance at Yahoo! has underwhelmed. It is a toss up as to who remains in their respective CEO positions by end of 2012, Bartz or President Obama, who assumed his role around the same time as Carol Bartz. We will let you call it. Google's shares are up nearly 70% over the share time period.
Buy business phones and other equipment here.
About two months ago we posited that Yahoo's management could be taking a page out of John Malone's book and is looking to financial engineer their way to a much better stock price. See write-up here.
In that spirit, we suggested that management should lever the balance sheet and use the cash to aggressively shrink equity. Our analysis suggested that leverage of 2x was appropriate. That on top of the already existing $3 billion share repurchase program would boost the share price by 30%.
We also suggested that management spin off the Asian assets into a separate public company or perhaps a tracking stock, providing investors with additional currency. A transaction of that type could be done tax efficiently, we believe, particularly for the Chinese assets.
After those two were done, we suggested that management put the company back on the block seeking an acquirer, perhaps Microsoft or Disney, or that private equity should take a hard look at Yahoo!.
Since then we have not see any evidence that management is leaning towards any of those suggestions all the while the shares flat-lined.
A recent report did suggest that private equity was looking at the company and specifically looking to merge it with AOL. Bad idea! Why merge two fundamentally and secularly challenged ships. Sure some cost synergies exists but revenue synergies are practically non-existent with zero scale benefits.
So unless Yahoo!'s management has something magical up their sleeves to explain the two month lull, and we don't believe it will be meaningful improved operational results, we implore Yahoo!'s management to own up to reality and take the above steps to boost the share price.
Read More!
Buy business phones and other equipment here.
About two months ago we posited that Yahoo's management could be taking a page out of John Malone's book and is looking to financial engineer their way to a much better stock price. See write-up here.
In that spirit, we suggested that management should lever the balance sheet and use the cash to aggressively shrink equity. Our analysis suggested that leverage of 2x was appropriate. That on top of the already existing $3 billion share repurchase program would boost the share price by 30%.
We also suggested that management spin off the Asian assets into a separate public company or perhaps a tracking stock, providing investors with additional currency. A transaction of that type could be done tax efficiently, we believe, particularly for the Chinese assets.
After those two were done, we suggested that management put the company back on the block seeking an acquirer, perhaps Microsoft or Disney, or that private equity should take a hard look at Yahoo!.
Since then we have not see any evidence that management is leaning towards any of those suggestions all the while the shares flat-lined.
A recent report did suggest that private equity was looking at the company and specifically looking to merge it with AOL. Bad idea! Why merge two fundamentally and secularly challenged ships. Sure some cost synergies exists but revenue synergies are practically non-existent with zero scale benefits.
So unless Yahoo!'s management has something magical up their sleeves to explain the two month lull, and we don't believe it will be meaningful improved operational results, we implore Yahoo!'s management to own up to reality and take the above steps to boost the share price.
Read More!
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