A Look At The Yahoo Comeback And These 5 Companies

When social media stocks piqued the interest of investors between 2011 and mid-2012, established online brands were shunned. Much has changed since the days of euphoria. Since peaking just before Facebook (FB) went public, ignored brands are performing better.

Investors might want to ask why.

Based on recent stock prices, year-to-date, AOL (AOL) is up over 140%. Yahoo (YHOO) is up 17.36%. EBay (EBAY) is up 68.64%. Conversely, Facebook is down 31.6% for the year, Zynga (ZNGA) is down 75%, and Yelp (YELP) is down 17.7%. Not all social media stocks are performing poorly. LinkedIn (LNKD) is up 71% for the year-to-date.

The valuation in AOL and Yahoo are rising because management is giving attention to investor interest. AOL monetized its patent portfolio, and paid a special dividend and a $600 million share buyback in August, 2012. Yahoo hired a Google (GOOG) executive, whose is tasked with approving projects that generate revenue or user growth. This kind of focus is being recognized by investors.

EBay’s PayPal is a cash-cow. While investors overlooked eBay as being “Flea Bay,” eBay’s PayPal unit continued to grow surprisingly well. Every online transaction growth also supports growth at PayPal.

Facebook and other social media stocks are not necessarily bad businesses, but they were expensive companies. Investors paid too much for them. Zynga is a particularly weak state: the company is unwinding its dependency for Facebook while simultaneously trying to grow in the mobile space. Revenue growth for smartphone apps is not a steady endeavor, and is proving to be costly if a company does not produce an instant hit.

LinkedIn shares are holding up well, because the company is upselling premium membership services to users and to corporations.

Business Section: Investing Ideas

Yahoo, AOL, and Ebay are a good starting point for investors. Here is a chart of their performance for the year:

Here are the charts of Yelp, LinkedIn, and Facebook:

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