Is Marissa Mayer a Winner?

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With shares of Yahoo! Inc. (NASDAQ:YHOO) trading at around $26.89, is YHOO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Yahoo has made a bold move by planning to acquire Tumblr for $1.1 billion. That’s a hefty price tag, but was it a necessary risk?

Tumblr reaches 700 million people globally, and it has a much younger demographic than Yahoo. For example, more than half of Tumblr’s audience is 35 or younger whereas more than half of Yahoo’s audience is 35 or older. As far as revenue goes, Tumblr only had $13 million in revenue last year, but that’s from $0 in 2007, and this year’s revenue is projected to be around $100 million. That’s some serious growth. Tumblr has also rapidly increased its number of unique users. It now has 117 million unique users, which is a big improvement over the 58 million unique users it had one year ago.

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According to Alexa.com, Tumblr.com ranks #32 globally and #19 in the United States. That’s a ton of exposure. On the other hand, the past three months haven’t been great. Pageviews-per-user is down 11 percent, time-on-site is down 11 percent, and the bounce rate is up 6 percent. Some people might think that Yahoo will come to the rescue, but Yahoo CEO Marissa Mayer has already stated that she’s not going to mess this up. In other words, Tumblr will continue to be run by CEO David Karp, who is bright and innovative. If the site is heading in the wrong direction, there’s a good chance that he will come up with a solution to turn things back around. After all, this is a kid who chose to watch Steve Jobs documentaries over superhero movies when he was a kid. To him, Steve Jobs was the superhero. It’s possible this is only the beginning of what we will see from David Karp.

The big question on everyone’s mind is whether the Tumblr acquisition will be a Bebo/MySpace or an Instagram/YouTube. Opinions have been strong on both sides, but what many people are missing is that even if it’s a colossal failure, Yahoo can handle it. While the acquisition is a risk, it’s a calculated risk. It’s also a risk worth taking in order for Yahoo to broaden its demographic base.

Marissa Mayer showed she had some guts. That’s a plus, but what do employees think of her? Marissa Mayer seems to be a winner. According to Glassdoor.com, 85 percent of employees approve of the job she’s doing. That’s an excellent sign.

Below is a chart comparing fundamentals for Yahoo, Google Inc. (NASDAQ:GOOG), and AOL Inc. (NYSE:AOL).

YHOO GOOG AOL
Trailing P/E 7.79 27.20 3.22
Forward P/E 17.55 17.10 20.60
Profit Margin 82.55% 20.92% 47.86%
ROE 29.98% 16.36% 48.17%
Operating Cash Flow -360.33M 16.56B 386.30M
Dividend Yield N/A N/A N/A
Short Position 2.80% 1.50% 11.10%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

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