Yahoo! Rising From the Ashes but Stock Remains Cold

NEW YORK (TheStreet) -- Something happened last week that appears to have flown completely under the radar. Search giant Yahoo! (YHOO) and CNBC, which is owned by Comcast (CMCSA), the largest cable provider in the U.S., formed a content-sharing alliance to distribute business news and original content as a way to not only shore up their respective digital online presence, but also extend their individual web audience.

Yahoo!, which continues to battle credibility issues, has been under a considerable amount of scrutiny of late. The company has absorbed more punishment from Wall Street than any company deserves due to the scandal that surrounded Scott Thompson, its recently ousted CEO. It understands now that what it needs more than anything is a fresh start. While the partnership with CNBC does not wipe the slate clean as would be the case if acquired be a name such as Microsoft ( MSFT), it does remind investors that the company is still a dominant media power and likely will be for many years to come.

Be that as it may, Yahoo! continues to be one of the most misunderstood companies on Wall Street. It seems that investors still want to remember the company as a technological pioneer. But aside from having established the original concept of search, the company has never really been a technology power -- at least not in the true definition of the word.

As much as I still value its brand today, I think Yahoo! has dropped the ball too many times on a long list of possible lucrative businesses, many of which are now being enjoyed by its chief rival Google ( GOOG) as well as social media giants Facebook ( FB) and Twitter. Not to mention it once had a popular online music service long before Pandora ( P) came on the scene.

So Yahoo! now understands its current state of affairs and what is at stake in terms of its future. After all, the errors of its ways have contributed to the company's annual revenue falling from its high in 2008 of $7.2 billion to just $5 billion for fiscal 2011, while Google has enjoyed strong revenue increases during that same span, reaching almost $40 billion last year.

What makes it even worse is Yahoo!'s recent string of poor performance continues to bring to the forefront what an egregious mistake it made turning down a buyout offer from Microsoft four years ago at a price of $33 per share, or $47.5 billion. Today, the company has a market cap of just $18 billion while having never traded above $20 during that same span. Adding insult to injury is the fact that as all of this occurred Yahoo! has allowed Microsoft's Bing to leapfrog it in the realm of search.

So the question is, where was Yahoo!'s value going to come from? I think to some extent this was one of the primary reasons for its new partnership with CNBC. The company understands that in order for it to survive it needed to focus more on content as a media service company as opposed to having to compete with real technology powerhouses in areas where it knows it can't win.

Though this deal received some moderate applause, I don't see it as anything more than a flat handshake between two media entities. Investors have to remember that Yahoo! previously forged a similar deal with Walt Disney ( DIS). However, the benefits of that relationship have been hard to quantify, which leads me to think that this CNBC partnership may not be anything more than a way to increase exposure. However, if it doesn't lead to increased revenue, what's really the point? Who has not heard of Yahoo! by now?

The other way to look at this is, is the company finding out it is unable to stand on its own? Absent an acquisition, it is hard for me to see how the company will be anything more than what it currently is today. Will this be enough for its board and its shareholders?

While the company deserves a considerable amount of credit for having survived the tech bubble in ways that once-dominant rivals Netscape and Lycos were unable to do, each time I think of Facebook's 900 million users worldwide, I think of how Yahoo! has missed another opportunity.

Working in its favor is the fact that Yahoo! is (yet) profitable, with a considerable amount of cash and some interesting and somewhat appealing assets. However, from an investment perspective I don't see how owning Yahoo! can be perceived as anything other than dead money until it can demonstrate that it can keep a CEO for longer than one year and can execute successfully within that same fiscal calendar.

Bottom Line

I will concede that perhaps I might be prematurely discounting the company's ability to survive on its own. However, the fact of the matter is, it has lost the search war with Google and its dominance is not coming back, at least not if Facebook has anything to do with it.

But clearly Yahoo! understands that it cannot just sit idly and expect to grow and it realizes its value lies in finding ways to leverage the volume of traffic it still generates. To that end, it has reached out to CNBC. However, I continue to count down to when another power reaches out and scoops it up. My best bets on that remain Facebook and Microsoft.

At the time of publication, the author was long FB and held no positions in any of the other stocks mentioned, although positions may change at any time.

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