Alliance Between Yahoo! and Facebook?

Alliance Between Yahoo! and FacebookWhen it comes to technology stocks, one must develop an investment strategy that has long-term implications. Technology stocks can be quite volatile, so it helps to have a long-term horizon and an understanding of what the companies are trying to do over the next few years.

Of the older technology stocks, Yahoo! Inc. (NASDAQ/YHOO) is still a player in the Internet sector, albeit quite diminished in stature. Yahoo!’s share price has been in a well-defined trading range for an extended period of time. However, the recent appointment of Marissa Mayer as the new CEO has certainly re-energized the firm as well as the share price.

I made my readers aware of Yahoo! as a possible addition to one’s investment strategy when it was trading at $15.98; the recent run-up in stock price is a clear indication that investors believe that the firm can unlock significant value going forward.

Another stock that has had questions raised about whether it can unlock any future value is Facebook, Inc. (NASDAQ/FB). We all know Facebook is one of the leading social media technology stocks; however, questions have been raised about this company’s long-term investment strategy and whether it’s viable.

For both of these firms, the monetization of their user base has always been questionable. An interesting article in The Telegraph reports that sources involved with both Yahoo! and Facebook have been in discussions about forming an alliance. (Source: “Yahoo! plots alliance with Facebook in new search deal,” The Telegraph, November 17, 2012.)

These two large technology stocks would have several interesting ways to develop an investment strategy together. By combining Facebook’s members and Yahoo!’s database, this would certainly enhance the ability to target potential customers for advertisers. Combining these firms would also make a formidable opponent to the giant among Internet technology stocks, Google Inc. (NASDAQ/GOOG).

At this point, this is just speculation, as neither one of these technology stocks has made any official comments regarding a potential alliance. Both firms do need to add several more layers to their businesses in order to expand. The investment strategy for technology stocks has to be that either the firm develops the leading-edge software or the competition will leave it behind.

 yahoo stock market chart

Chart courtesy of www.StockCharts.com

When Yahoo! was trading at $15.98, I made a point of suggesting that the stock was essentially a cheap option, meaning that at that point there was limited downside but significant upside potential, especially if the stock were to break above $16.50. Once it did, there was no turning back. At this point, the Relative Strength Index (RSI) is starting to look slightly overbought and, as an investment strategy, I would look to begin taking some profits.

facebook stock market chart

Chart courtesy of www.StockCharts.com

As one of the younger technology stocks, Facebook’s shares have a limited trading history. However, note the trading range the stock has formed over the last couple of months. Also note that the downward-sloping resistance line is at approximately the same level as the horizontal resistance line. A sustained break above this area should allow for the stock to move upward substantially. However, a failure to do so would mean that this stock would most likely trade to the bottom end of the trading range.

The idea behind forming some sort of alliance between Yahoo! and Facebook does seem to offer quite a few positives with very few negatives. We would need to see the details of any investment strategy between these two technology stocks, but just by looking at several possibilities, I would certainly be leaning toward a positive market view.