Yahoo! Inc. (NASDAQ: YHOO) has definitely been experiencing a transition year this year as many executives are leaving and being replaced. The biggest position change came at the CEO position for the company, when Marissa Mayer took the reigns earlier this year. Additionally, Daniel Loeb, hedge fund manager of Third Point LLC, was added to the board of directors and certainly as been a positive influence for the reemerging tech company. Today, Yahoo made an announcement that yet another executive has joined the board, PayPal co-founder, Max Levchin.
In addition to PayPal, Levchin developed a company called Slide. Slide was essentially a web apps maker for a variety of sites including Facebook (NASDAQ: FB). Google Inc (NASDAQ: GOOG) bought Slide for $180 million, two years ago. Levchin was nominated by Loeb and praised by CEO Mayer, obviously he has some great business sense and could really be an asset to Yahoo.
For the past several years, I continued to believe that the only way Yahoo can get back in the game is if they shake up the board and change the stale mentality. Now, it appears Yahoo is not only shaking up the board but they are also forming a very powerful “Dream Team”. CEO Mayer is a former Google executive with plenty of knowledge of the industry, Loeb is a top-tier hedge fund manager with a great investment sense, Max Levchin is a startup genius, Director Michael J. Wolf is a media consultant and Harry J. Wilson worked for the Obama Administration. Right there you have a wide spectrum of skills that will lead Yahoo back to competitiveness once again.
Looking at valuation, Yahoo appears to be in good health. The company has a market cap of $4 billion and a “hold” recommendation from analysts. The stock currently has a price to earnings of 5.86 and a forward price to earnings of 17. As far as valuation ratios go, Yahoo has a PEG of 0.5, price to sales of 5, price to free cash flow of 15, current ratio of 2.76 and no debt. Earnings growth for next year is expected to come in at 0% and 11.7% over the next five years. On a brighter note, the company has nice profit margins of 67% and return on equity of 28.33%.
Yahoo has some great fundamentals. Unfortunately, I really am concerned about the lack on earnings growth forecasted for next year. That being said, the company is in a transition and it has no debt. Ultimately, I think Yahoo is a fantastic long-term hold as the new board of directors begins to implement measures to turn the tech giant around. Yahoo’s turnaround is happening right before our eyes but it could take some time before the turnaround is complete and the company is a serious threat to competitors. In the end, it will be wise to stick with this board of directors, as they will surely guide Yahoo back from the depths.
Disclosure: None