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What Does Yahoo! Want to Be?

Stocks in this article: CBS FB GOOG P TWTR YELP YHOO

NEW YORK (TheStreet) -- Despite some recent hiccups, there's no question that Yahoo! (YHOO) continues to be an incredible turnaround story. The arrival of Marissa Mayer didn't signal an immediate recovery. Nor did it guarantee any level of success. But the company is nonetheless light-years ahead of where it was just twelve months ago. There's no debating this.

Today, with speculation brewing that the company is nearing a search partnership with Yelp (YELP), it is clear is that Mayer understands that she cannot just sit idle and expect to grow. Not while doing the same things the company has always done. It doesn't work.

After having allowed dominant advertising opportunities such as Facebook (FB) and Pandora (P) to escape its grasp, there's an urgency for Yahoo! (I won't say fear) to not let other end-markets slip away. Facebook is an example of a business Yahoo! could have easily dominated had it had someone of Mayer's caliber and intuitiveness to navigate its course.

In the case of Yelp, while it would be a great deal, I don't believe this will materially alter Yahoo's landscape. Let's not get ahead of ourselves. The company still has an extremely steep hill to climb to topple Google (GOOG). But Yahoo! must first decide what it wants to be. I don't believe the company has made this clear.

Will it be strictly a media company that focuses on content delivery, or will it be a technology company with an innovative strategy? That's an important distinction that needs to be made. Nor can it waver and expect to do both very well. It seems that by selecting Mayer, Yahoo! made a statement that it wants to grow. I believe her engineering brilliance will do just that -- build growth.

The question, though, is with the execution.

For instance, although the company showed some signs of progress in the recent fourth quarter, there were several operating flaws in areas like net display (page views) and Yahoo! is not nearly as effective in ads compared to Google and Facebook.

The good news is that the company continues to post increases in paid clicks. And relative to sell-side estimates, profitability has done well.

The other thing Mayer needs to do is demonstrate that she can turn Yahoo's assets into meaningful revenue. So far, she has done a strong job. And I believe Yahoo!'s recent acquisitions and the rumored addition of Yelp will push revenue further.

The thing to remember here, though, is that it's one thing to get people to come and click on your site and generate page views, and it's another task to get these same people to spend money. This is what Facebook has begun to figure out. Since that discovery Facebook's stock has responded impressively.

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