(This article first appeared on Real Money Pro on Sept. 29.)
"[Yahoo will seek to] maximize long-term value for shareholders [in any deal involving the remaining stake in Alibaba]. . . . Please do not mistake our silence as a lack of awareness or effort on this issue."
--Ken Goldman, Yahoo chief financial officer, on the July 2014 conference call
About two weeks ago I suggested that the selloff in Yahoo! (YHOO) provided a buying opportunity, and I had planned to deliver my analysis last Monday before I was preempted by downgrades. At that time, I purchased shares at $39.30.
The following was at the core of the investment thesis that I was preparing. First, Yahoo has engaged in unsuccessful business strategy in the past, as manifested in the erosion of its core search and display businesses and in its inability to expand that core business. My thesis said that this, together with the more transparent value of the balance sheet -- which itself as abetted by the recent Alibaba (BABA) initial public offering -- would lead to substantial interest on the part of multiple activists to effectively break up the company.
I was unable to complete my post on Yahoo a week ago, and the chaotic market that followed over the course of the next five trading days prevented me from publishing my analysis.
During the past week, four major brokerages lowered their rating of Yahoo's shares and the stock, despite a roller coaster ride in the markets, was essentially unchanged relative to my cost-basis.