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What Yahoo! Could Learn From Warren Buffett

NEW YORK ( TheStreet) -- Whoever replaces Scott Thompson in the Yahoo! (YHOO - Get Report) hotseat should take a leaf from Warren Buffett when it comes to reshaping the embattled Internet giant.

The vast majority of Yahoo!'s $18.5 billion in market cap is in its Asian assets: the 40% stake it owns in Alibaba and the 34.9% stake it owns in Yahoo! Japan. The core U.S. operations, which include Yahoo!'s various properties around the web, including News, Sports, Finance and a host of other assets are worth roughly $1 billion.

When Buffett took over Berkshire Hathaway (BRK.A - Get Report) in 1962, it was a struggling New England textile firm, but thanks to purchasing businesses outside of textiles, (namely insurance and savvy investing from Buffett), Berkshire transformed itself. Yahoo! could do something similar, albeit focused on the technology space.

There have been already been attempts to try to maximize the value of Yahoo!'s Asian assets, most notably its Alibaba stake, but so far these have been unsuccessful.

Yahoo! may eventually realize the full value in its Asian assets, but perhaps it's in the Internet giant's best interests to extract some value from its stake in Alibaba now and cut back on share buybacks. The Sunnyvale, Calif.-based firm could use that spare cash to invest in high-growth businesses that it thinks will generate outsized returns over the long-haul, similar to Buffett and Berkshire Hathaway. Streaming video specialist Hulu, for example, has already been touted as a possible target.

Having Third Point's Dan Loeb on the board of directors could help facilitate a new strategy at Yahoo!, given Loeb's propensity for investing in under-valued companies. Yahoo! had $2.65 billion in cash at the end of the first quarter. ICoupled with several billion from a partial sale of its Alibaba stake, as well as a reduction in the company's buyback program, Yahoo! would have more than enough cash to execute this strategy.

There is, however, still the question of what to do with Yahoo!'s core U.S. operations, its 700 million users and all of the data that goes along with them. Does the company turn around and sell these to more traditional media firms, such as News Corp. (NWSA - Get Report), Bloomberg, or Thomson Reuters (TRI - Get Report)? It will be interesting to see what happens.

For now, interim CEO Ross Levinsohn has a lot of decisions to make regarding Yahoo!. Does he keep with Thompson's plan of focusing on technology and data? Does he keep the core focus on media and advertising, which are his strong suit? Or does he try to engineer a turnaround that will turn Yahoo! into the Berkshire Hathaway of tech? Only time will tell.

Interested in more on Yahoo!? See TheStreet Ratings' report card for this stock.

Check out our new tech blog, Tech Trends. Follow TheStreet Tech on your wireless devices.

-- Written by Chris Ciaccia in New York

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BRK.A $217,330.00 -1.30%
NWSA $12.22 -3.10%
TRI $40.58 -1.60%
YHOO $36.02 -1.40%
AAPL $95.18 1.64%


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