Yahoo! (YHOO) is getting a lot of attention this week, after news hit that the firm was planning on purchasing social networking site Tumblr for $1.1 billion. The acquisition is a high-profile chess move for Yahoo! CEO Marissa Mayer, who's been working to turn the ship around at the flailing tech firm.
Yahoo! has had more cash than sense in recent years, sporting a hugely attractive balance sheet and a much less attractive business. While the benefits of the Tumblr acquisition have yet to be seen (it appears that Yahoo is paying a hefty premium to acquire the platform), there are still some good reasons to like the former search star.For starters, Yahoo! still boasts a stellar balance sheet. While the $1.1 billion Tumblr deal will materially cut into Yahoo!'s cash position, the firm will still have more than a sixth of its market cap covered with net cash. If management can prioritize returning some of that value to shareholders over spending it, I think both parties would be better off. Too many investors underrate Yahoo!'s business. While the firm has lost its crown to the likes of Google (GOOG), it's still one of the most popular destinations on the internet. The millions of eyes that hit Yahoo!'s pages each and every day translate into dollars; until that changes, this firm remains a bargain-priced tech name at current levels.
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