Yahoo S Shares example essay topic

February 25, 2001 Yahoo! Inc. is a global Internet communications, commerce, and media company that offers a comprehensive branded network of services to more than 120 million users each month worldwide. As the first online navigational guide to the World Wide Web, web is the leading guide in terms of traffic, advertising, household, and business user reach, and is one of the most recognized brands associated with the Internet. The company also provides online business services designed to enhance Yahoo!'s clients' Web services, including audio and video streaming, store hosting and management, and Web site tools and services. The company's global Web network includes 21 World properties.

Yahoo! has offices in Europe, the Asia Pacific, Latin America, Canada and the United States, and is headquartered in Santa Clara, California. Yahoo! was developed and first made available in 1994 by the Company's founders, David Filo and Jerry Yang, while they were graduate students at Stanford University. The Company was incorporated in California on March 5, 1995, and commenced operations on that date. On May 18, 1999 the Company reincorporated in Delaware. In August 1995, the company commenced selling advertisements on its Web pages and recognized its initial revenues. The company experienced dramatic growth providing broadcast media, communications, and commerce services.

Yahoo! completed several major acquisitions including Geo Cities, an Internet company specializing in publishing tools and online communities, and Broadcast. com inc., an Internet company specializing in audio and video broadcasts over the Web. These acquisitions as well as many other ones have helped Yahoo! diversify the properties and services it offers to its clients, helping to establish it as a one-of-a-kind, all encompassing web portal. Yahoo! is the number-one destination of users of the Internet the world over. With over 110 million unique users and 485 million average daily page views during December 1999, Yahoo! has clearly proven its ability to attract Web users like moths to light. With Yahoo!'s services available in the U.S. and in 21 countries in 12 languages, Yahoo! users worldwide can pay their bills, track their stock portfolios, purchase virtually any product imaginable, and find a host of other services including email and chat rooms, all within the virtual borders of the prime Internet real estate that is Yahoo. com, which can rightfully lay claim to the top spot among Internet portals. Yahoo! continues to add services and features, all of which should result in keeping those users coming back for repeat visits and extending the time they spend online in Yahoo!

Web properties. Yahoo!'s acquisition of Geo Cities extended its reach into personal Web pages, and its purchase of broadcast. com ushered it into Web-based audio and video. Yahoo! has also entered the free ISP arena by participating in Kmart's Blue Light. com. By entering into so many different online arenas, Yahoo! has insured itself of being a serious competitor to the many other internet companies today, effectively rolling all of these other services into one large company.

The company makes its properties available without charge to users, and generates revenue primarily through the sale of advertisements, promotions, sponsorships, merchandising and direct marketing. During 1999, approximately 5,200 customers advertised on Yahoo! properties. Internet users view an average of approximately 465 million web pages per day on Yahoo! -branded online properties. The question is - can Yahoo! convert this amazing web traffic into revenues? As Tim K oogle, CEO of Yahoo! succinctly puts it: 'Dollars always follow eyeballs!' This, however, is up for debate, as many people doubt Yahoo!'s ability to capitalize on its dominance over the internet portal marketplace and turn its brand name recognition into dollars. 12 month chart for YAHOO and the Nasdaq Composite Index During the last 12 months, the stock market has seen a huge downfall in the share prices of almost every computer and internet related company, as investors have begun to realize that sky-high valuations were not justified by the companies' prospects.

This has forced many previously high flying companies down to the ground, if not under. As the "dot-com shakeout" has taken place, Yahoo! has found that its advertising business has come under fire, as many companies are not spending nearly as much on advertising and are beginning to focus on corporate earnings. (Currently, advertising accounts for 90 percent of the portal's income.) In turn, Yahoo!'s profits have been hurt, and it is also seeking for ways to improve its bottom line. Yahoo! reported fourth quarter earnings that met Wall Street's expectations, but the company offered a dismal outlook for 2001 as it struggles to diversify its business beyond the dot-com advertising that has dried up in recent months. The company has therefore taken steps to make itself less dependent on dot-com ad spending.

It is bringing in more traditional, offline advertisers, starting to charge consumers for premium services on its site, and building up corporate services. Yet even these attempts are being met with some problems. For example, Yahoo! has experienced a large fall in listings on its auction service since it began charging users in January, as reported in the Financial Times on Monday, February 19th. Analyst Lowell Singer at Robertson Stephens believes the company faces a number of 'challenges' over the next 6 months that could put pressure on the shares.

Among concerns he mentions are the declining auction listings after fees were implemented and continued weakness in the online advertising market. Jeff Mallett, Yahoo's president and chief operating officer, says the company is making progress in building up its newer revenue streams. He cautions, however, that one result of this shift will be increased seasonality in advertising spending, which could mean a slowdown in the first quarter. Looking ahead, S.G. Cowen analyst Scott Reamer cautioned that Yahoo may still have trouble meeting its 2001 estimates, or as Lehman Brothers in a research note recently said, 'the outlook remains challenging' for the Internet media company. Yahoo! is at an important crossroads, as it is faced by projections for its earnings per share for 2001 that will be below last year's levels, marking the first year-over-year drop in its history.

Yahoo! may be a good company to buy and hold as a long term investment, but as for the short-term it still faces possible downside. As good as Yahoo!'s prospects are for the future, with all of its new sources of revenue as well as with the new pay services it is implementing, Yahoo! still faces near term uncertainty for shareholders. With all of the market turmoil over the possibility of recession and economic downturn, Yahoo!'s current instability leaves it with room for a greater decrease in share price. I do however believe that over the long term Yahoo! has a strong outlook and will perform well for its shareholders. Although compelling at these levels, I would not buy shares in Yahoo! for the short term, as in the next 6 months I don't see any improvement in Yahoo!'s finances. I would therefore buy a July-01 Put on Yahoo (Symbol: YHQSF), with the exercise price of $30, based on Friday February 23rd's closing price of $25.43.

This Put is $4.57 "in the money" and its last trade went through at 9 and 7/8. This is less than the value computed by Black-Scholes of 11 and 1/64. I believe that over the next few months, Yahoo!'s shares will be trading below the current market price of $25.43, therefore making the Put a profitable investment with minimal risk.