November 14, 2005 Yahoo About Yahoo!
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v TABLE OF CONTENTS Yahoo About Yahoo! 1 Q Model Portfolio 7 Yahoo About Yahoo! By James Altucher I’m adding five picks to the portfolio today, including growth stocks Yahoo! (YHOO:Nasdaq) and Marchex (MCHX:Nasdaq), value stock Liberty Media (L:NYSE), and China stocks Netease (NTES:Nasdaq) and Tom Online (TOMO:Nasdaq). The picks should be bought as a basket, because I’m not saying Yahoo! is going to double from here. Rather, I believe that selectively picking a group of growth stocks and riding them as they continue their high double-digit -- and in some cases triple-digit -- growth, will serve an investor well. First in the Basket: Yahoo! I have to say I’m extremely jealous of Jerry Yang and David Filo. I just can’t help it. All they did was collect bookmarks in 1994 and now they have billions of dollars personally. That said, they earned every penny of it. I’m a heavy user of several of Yahoo!’s services, most particularly Yahoo! Finance and their newest acquisition, Flickr. Today I’m recommending a Speculative Buy of their company’s stock. Yahoo! has matured as a company. In 1999 its ad sales team was so cocky they wouldn’t even return calls on a million dollar sales deal. The company changed management, bringing in seasoned media executive Terry Semel, and has been gradually repositioning the company by buying and introducing profitable services such as hotjobs.com. More recently, the company has made a concerted push in three areas: international, VOIP and the so-called Web 2.0, which introduces collaborative services such as the flickr network. Yahoo! is almost as much a balance sheet story as it is a growth story. The acquisitions of pieces of Alibaba and the growth story of Yahoo! Japan add significantly to Yahoo!’s potential balance sheet. Yahoo! is carrying Yahoo! Japan on its books at about $250 million, when in reality the holding is worth (since Yahoo! Japan is public and Yahoo! owns 34% of it) about $10.3 billion. Similarly, it’s unclear what Alibaba will end up being worth. Furthermore, Yahoo! has a number of initiatives intended to dominate the VOIP space. This area could supercede all of its other areas in terms of earnings growth. On the next page, I present a list, followed by a breakdown of all of Yahoo!’s recent deals and acquisitions. November 14, 2005 TheStreet.com Internet Review November 14, 2005 Breakdown of Recent Yahoo! Deals and Acquisitions · Video: Tivo · Local: International local portals and Upcoming.org · BroadBand: SBC and Verizon · Instant Messaging: MSN/Yahoo! collaboration · China: 3721 and Alibaba · Pictures: Flickr · VOIP: Dialpad · Music: MusicMatch · Travel: Farechase · Email: Oddpost and Stata · Other: Konfabulator and Verdisoft Tivo On Nov. 7, TiVo and Yahoo! announced a service that allows TiVo users to program their digital video recorders remotely using Yahoo!'s television information Web sites. The two plan to offer services, such as photos, traffic and weather, that will be added later on. The deal may lead to more online video collaboration. International Local Portals On Nov. 7, Yahoo! said plans to buy large stakes in its local portals in three European countries (U.K., Germany and France) and South Korea. The upcoming.org deal is valued at $500 million and will be between Yahoo! and Softbank Holdings Ltd. The deal "demonstrates the confidence we have in our international businesses and our commitment to deliver long-term shareholder value," said Yahoo! Chairman and Chief Executive Terry Semel. Upcoming.org! Upcoming.org is a social event calendar, completely driven by people like you. Manage your events, share events with friends and family, and syndicate your calendar to your own site. This Oct. 5 deal will help boost Yahoo!’s local content market and adds more users to Yahoo!’s base. SBC SBC and Yahoo! have had a partnership since 2001. Yahoo! will soon introduce a cell phone that aims to merge music, photos and email into one account. The phone will be manufactured by Nokia and will be available as soon as early 2006. They also offer SBC Yahoo! DSL. This deal opens up many new synergistic opportunities for Yahoo!. Verizon The two companies announced Jan. 17 that they would offer Verizon’s FIOS as a cobranded Broadband service. The multiyear alliance offers subscribers DSL and the new FIOS services, which is capable of the super fast speed of 30Mbps. This is a great opportunity for Yahoo!, as Verizon is a good company -- it 40 million subscribers -- and FIOS will surely be a hit. Finally, Yahoo! will receive monthly per-sub fees as well as revenues form premium subs, searches and ads. Yahoo! and MSN Yahoo! + MSN = 275 combined users. The Oct. 12 deal will allow interoperability between the two messaging programs. This adds value via the VOIP opportunity to unfragment the market. The companies will be using the SIMPLE protocol, which is not used by AOL. According to The Radicati Group, AOL has 56 2 TheStreet.com Internet Review November 14, 2005 percent of the IM market as opposed to the combined 40 percent that MSN and Yahoo! command. The key chip in the IM equation is AIM. The deal is somewhat of a defensive tactic against Google’s IM. In August, Google said, “We plan to partner with other willing service providers to enable federation of our services." 3721.com This deal was struck in November 2003 with 3721.com, a leading Chinese software development company that represents another step by Yahoo! to capitalize on the Chinese market. One product is Beijing 3721, a search and email provider in China Alibaba On Aug. 11, Yahoo! and Alibaba formed a strategic alliance in China. “Under the terms of the agreement, Yahoo! will contribute its Yahoo! China business to Alibaba.com and the two companies will work together in an exclusive partnership to grow the Yahoo! brand in China. Additionally, Yahoo! is investing $1 billion in cash to purchase Alibaba.com shares from the company and other shareholders. The agreement gives Yahoo! an approximately 40 percent economic interest with 35 percent voting rights, making it the largest strategic investor in Alibaba.com. Yahoo!'s investment underscores our long-term commitment to the Chinese market. We believe the combination of Yahoo! and Alibaba is the best approach for Yahoo! to win in this region," said Terry Semel, chairman and chief executive officer of Yahoo! With the Internet in China growing, this is a great opportunity, and it’s best to team up with a local, offering cross-selling opportunities and halo effects. Flickr In March, Yahoo! said it had a deal with Flickr, an online photo management and sharing application. This certainly plays into the media empire Yahoo! is trying to create, and I believe they are attacking Google here with alternative media, pictures, blogcasts, etc. Dialpad On June 14, the company struck a deal with Dialpad, a VOIP provider dating back to 1999 that has more than 14 million users registered for its services. This deal solidified Yahoo!’s presence in the VOIP sphere, and its software will be used with Yahoo!’s messenger program. MusicMatch In September 2004, Yahoo! signed with this music player and service, which adds a music platform to Yahoo!. The best comparison product is iTunes. FareChase On July 2, 2004, Farechase, a small online travel company that sells B2B software that lets travel agents and corporate booking offices search for flight times, car reservation and hotel vacancies in real time, signed a deal with Yahoo!/ From the FareChase Help page: “Yahoo! FareChase is a web-based travel search engine designed to help you locate the best airfares, hotel rates, and car rental rates on the Internet. Yahoo! FareChase is not a travel agency, it is a search engine designed to save you both time and money by providing you with comparison shopping options from travel providers and other popular travel websites. When you're ready to book, Yahoo! FareChase displays the provider's website so you can make your purchase directly.” This is another effort to compete in its arms race with Google. 3 TheStreet.com Internet Review November 14, 2005 Oddpost Oddpost is a Web-based email application with a news aggregator built in. The news aggregator delivers news like a blogline would, except it comes via mail. The two companies struck the deal in July 2004. Stata Stata sells an e-mail application called Bloomba that lets people search message text and attachments. Under the October 2004 deal, Yahoo! does not intend to sell the software, they just bought the technology, and this deal came after Google unveiled a search tool for email, word docs and web pages. VerdiSoft In February 2005, Yahoo! signed a deal with the maker of server software that allows a person's settings and preferences to follow them from office to cell phone, from device-to-device. As Yahoo! begins to push its many services out to a myriad devices, it will want users to have a seamless experience. This helps with the whole media experience, all-in-one idea. Konfabulator Tony Schneider, vice president of the Yahoo! Developer Network, told MacCentral: “Konfabulator is a JavaScript runtime engine for Windows and Mac OS X that lets you run little files called Widgets that can do pretty much whatever you want them to. Widgets can be alarm clocks, calculators, can tell you your WiFi signal strength, will fetch the latest stock quotes for your preferred symbols, and even give your current local weather. What sets Konfabulator apart from other scripting applications is that it takes full advantage of today's advanced graphics.