History may not shine kindly on her tenure, but she was able to beef up margins to the point where Yahoo!’s profitability was growing last year despite the top-line malaise. Unfortunately, Bartz never unlocked the value of Yahoo!’s Asian investments. She also inked a stature-diminishing deal to outsource its search business to Microsoft (MSFT), and missed out on a few needle-moving acquisitions.
By the end of her time at the top, even the display advertising business that was supposed to save the day pulled up lame.
The market didn’t send shares of Yahoo! higher because she’s gone; the stock is being bid higher because of what may come next.
Yahoo!’s Next Act
The market awaits Yahoo!’s next move with bated breath. Is a buyout in the cards? Will the next CEO be more receptive to initiatives that will increase shareholder value? Can a change at the top patch up Yahoo!’s rocky relationship with its Alibaba Group partner in China or do a better job of closing on the acquisitions of the ones that got away?
Investors can finally begin to see the ceiling at Yahoo!. It may not exactly be the Sistine Chapel, but it can be glorious.
For comparison, investors can take a gander at ValueClick (VCLK). It’s another online company that has put most of its eggs in the display advertising basket.
ValueClick may appear to be the anti-Yahoo! at this point. It hasn’t had a problem with handshakes at the negotiating table. It just closed out a deal last week for Dotomi, a provider of display media for major retailers.
ValueClick is also holding up better than Yahoo! on the earnings growth front. The two companies almost seem to be switching places in what has been a problematic 2011 for Bartz. Analysts see ValueClick earning $0.92 a share this year, after earning $0.71 a share in 2010. Yahoo! is going the other way on the bottom line, with Wall Street targeting a profit of $0.75 a share in 2011 after drumming up net income of $0.90 a share last year.
Surprise!: The Better Bet is Yahoo!
ValueClick and Yahoo! are both fetching earnings multiples in the teens, so why would I lean toward Yahoo! when it’s ValueClick that is growing its profitability this year?
Well, for starters, Yahoo!’s valuation isn’t accurate. A good chunk of that price is spoken for by the company’s chunky cash balance, but mostly by its valuable stakes in Yahoo! Japan and China’s Alibaba. In other words, Yahoo! is cheaper than the multiples suggest.
There is also the excitement about what will happen in the coming weeks and months. Even if Yahoo! decides to stay independent, the new CEO will realize that playing it safe didn’t work out too well for Bartz.
I believe moves will be made to unlock shareholder value in this poorly exploited vault.
I’ll stick with Yahoo!.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Yahoo! and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft and Yahoo!, as well as creating a bull call spread position in Microsoft.