In fact, very few analysts seem confident about the stock's ability to mount a recovery. CEO Marissa Mayer is struggling to come up with new and vibrant ideas to make the company relevant again.
Beyond the web of rumors floating around, and talk of splitting the firm (as suggested by some investors), here are three ways Yahoo! could turn it around. On the flip side, these weak and vulnerable stocks are tottering and stand zero chance of recovery.YHOO data by YCharts
1. Reinforced identity
Despite all that's being said, Yahoo!'s CEO-issues aren't really its principal problem.
There's been a great deal of focus on the pressing need to oust current CEO Mayer (who recently gave birth to twins) and bring in a new order, which could apparently set a change in motion.
The Yahoo! board, we feel, is uncertain at this time about the essentials -- what does Yahoo! represent in a shifting global scenario? What lies ahead for this tech pioneer?
Redefining Yahoo!'s core business model is the key towards initiating a turnaround.
At the moment, this is what comprises Yahoo!'s game-changing plan: "Assets and liabilities other than the Alibaba Group Holding Limited stake are scheduled to be transferred to a newly formed company. Its stock would be distributed pro-rata to shareholders resulting in two separate publicly traded companies."
Now, even if this comes to pass, the big question continues to stay unanswered. We still have little clarity on the core of Yahoo!'s invigorated business model. All we know at this point is that the Alibaba stake is deeply valued and will be kept separate from the strategy.
As per Yahoo!'s plan, its assets, including Tumblr (social media, blogging), Flurry (mobile ads/app analytics), and BrightRoll (video ads) as well as a few others will be poured into one company, while the Alibaba stake will go into another.
Yahoo! investors may not think too highly of Yahoo!'s non-Alibaba assets at this time, but there's a lot of speculation about a number of interested players, including Comcast, News Corp., Time Inc., and Verizon -- that could snap up these Internet assets, or at least a part of them.
2. Engineered residual value, without Alibaba
Unfortunately, a number of investors consider Yahoo! only to be a holding company for Alibaba's shares.
Yet, some analysts peg the value of Yahoo!'s search and display ad businesses at nearly $4 billion. The Alibaba stake is worth about $32 billion, and the Yahoo! Japan stake is at almost $9 billion. However, Yahoo!'s current market value is $32 billion -- implying Alibaba investors assign almost no value to Yahoo!'s prized assets.
The stock trades at 63.0 times forward earnings and a majority of the price is linked to the Alibaba stake.
The first step in a recovery would entail a situation where the residual valuations of Yahoo!'s core businesses and its acquisitions are equally significant.
To achieve this, Yahoo! (with or without the current CEO, who happens to be the fourth in eight years) needs to ramp up sales while keeping a lid on costs. As shareholder SpringOwl's Eric Jackson has suggested, downsizing is a good option.
The current annual revenues of about $4 billion-to-$6 billion have remained stagnant over the last five years and Marissa Mayer's MaVeNS strategy (for mobile, video, native and social advertising) has to gain momentum.
3. Repurposed capabilities
There's desperation (for at least some investors) to dump the stock and sell to the highest bidder, but "sell low" is never a great strategy for shareholders. That said, there are certain stocks right now that are so overvalued and fundamentally flawed, you should dump or shun them.
What could really help Yahoo! resuscitate itself would be to keep Yahoo! Japan, Yahoo! Mail, its websites and other services in running condition and allow its several suitors/oscillating players to take chunks of the under-performing businesses.
This would help lighten the burden and free resources for optimized re-allocation to wherever better opportunities lie.
The company could also pay special dividends or return money to shareholders, if non-performing assets are sold individually and not as a portfolio.
If Yahoo! follows these tactics, it stands a great chance of a comeback.
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