Yahoo! Inc. (NASDAQ/YHOO), one of the former leading technology stocks, has been plagued with a stock price that just hasn’t moved for quite a long time, as opposed to several other technology stocks that have had significant price appreciation. Not only have corporate profits been evasive for the firm, but there’s also been a scandal recently. Former CEO Scott Thompson had been discovered to have allegedly lied on his resume about having a bachelor’s degree in computer science. This mistake forced him out; Marissa Mayer has just been named as CEO.
A well-known name among technology stocks, Mayer comes from Google Inc. (NASDAQ/GOOG). With an engineering background, she helped build the Google brand and ultimately drive corporate profits. While her success at Google is laudable, the long-term problems at Yahoo! still exist. It will be quite interesting to see if her skills are transferable to more problematic technology stocks such as Yahoo!, which has had issues in generating corporate profits for quite an extended period of time.
This hasn’t been the only change, as the landscape for technology stocks continues to evolve. Yahoo!’s North American division is essentially trading for nothing. Most of the value of Yahoo! USA is built on cash and its stake in Alibaba and Yahoo! Japan. Yahoo! has entered an agreement that will see up to half of its stake in Alibaba sold for $7.1 billion. After taxes, Yahoo! expects to net approximately $4.2 billion and $800 million in preferred Alibaba stock.
Even after this deal and the announcement of a new CEO, the stock has not moved substantially, stuck in a range. This is because investors know that technology stocks are built on innovation. Between the new CEO and this deal, nothing has yet been accomplished in improving the corporate profits of the company. Technology stocks need to be on the cutting edge, the front line of new ideas. I can’t remember the last time I talked to someone who was excited about anything Yahoo!’s U.S. division has done, as opposed to other technology stocks that are constantly innovating and creating new products and experiences.
Chart courtesy of www.StockCharts.com.
While the move up in recent days was nice, as you can see from this chart, the stock is stuck in a tight range. An investor might look at this stock as an option, hoping that more pieces are sold off to other technology stocks and wishing for a break above the upper resistance level. But generally speaking, wishing and hoping are not good friends for investors. We need a clear breakout from this giant wedge; until then, Yahoo! appears to be dead money, with a lack of strategy for increasing corporate profits.
I do welcome the new CEO, as she has proven to have been quite successful in her experience at Google. Running an entirely new organization will prove to be a challenge, as will trying to change the perception of internet users. Technology stocks can get stuck in a rut and have a very difficult time changing their tune. This change of perception is needed to ultimately drive corporate profits. With heavy competition from technology stocks such as Google, I would wait for concrete information about how the new CEO will chart the new course for Yahoo! and drive corporate profits.