This Is Big for Yahoo Stock
None other than everyone’s favorite U.S. billionaire Warren Buffett could get ahold of Yahoo! Inc. (NASDAQ:YHOO). They—most investors and analysts—all but left Yahoo for dead by the end of last year. The company almost reached an R.I.P. moment after its latest quarter. Still, Yahoo stock has managed to gain almost 10% since the start of 2016.
Indeed, after bottoming out at approximately $26.00 per share last February, Yahoo stock has slowly but surely bounced back to the $36.00–$37.00 range.
News of Warren Buffett’s interest in Internet pioneer Yahoo has not made any special contributions to the company’s valuation—yet. But that is a good thing, because it means the average investor interested in Yahoo can still get in at a nice price ahead of some potentially profitable developments.
Let’s put it this way: if Yahoo were to have a nickname it would be “The Revenant,” except—spoiler alert—the ending would be considerably happier. After all, unlike in the Oscar-winning The Revenant film, there is no role for a big bear in this script: Warren Buffett is here buttressing Yahoo stock.
Mr. Buffett, the founder and CEO of Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B), has collaborated with Quicken Loans Inc., whose manager, Dan Gilbert, has made an offer to acquire Yahoo. To be clear, Berkshire Hathaway, Buffett’s company, is the one behind the investment rather than Buffett himself, but who’s arguing? (Source: “No, Warren Buffett didn’t buy Apple shares, or bid for Yahoo…,” ZDNet, May 16, 2016.)
Yahoo itself is evaluating strategic options including its outright sale. (Source: “Exclusive: Warren Buffett, Quicken Loans founder in Yahoo bid – sources,” Yahoo Tech, May 14, 2016.) Gilbert is less known for his tech sector expertise than for being the owner of the Cleveland Cavaliers basketball team, whose star player is LeBron James.
But this is where it gets really interesting. Berkshire Hathaway has also just bet $1.1 billion on Apple in what many have interpreted as a much-needed boost at a time of difficulty in Cupertino. (Source: “Berkshire’s $1 Billion Apple Bet Suggests Faith in Product Pipeline,” Bloomberg, May 16, 2016.)
Is there a coincidence? There must be because typically, Buffett has always been skeptical of the tech sector. But for Yahoo, the timing simply adds credibility to the rumors about the involvement of Buffett in acquiring Yahoo. Until now, Buffett made no secret of his opposition to Silicon Valley, saying he liked only International Business Machines Corp.—in which Berkshire has a substantial $12.3-billion stake. But two hedge fund managers, Todd Combs and Ted Weschler, have recently joined Berkshire and they are evidently contributing to changing Buffett’s mind on tech. (Source: ZDNet, op cit.)
If anyone has any doubt that Berkshire is after the tech side of Yahoo’s business, the company’s coveted stakes in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo! Japan are not part of the bargain. The core Internet business, suggest rumors, should be worth some $5.0 billion, with some estimates going as high as $8.0 billion.
Yahoo’s future is not clear yet. CEO Marissa Mayer, embattled as she may be, remains at the helm she took over in 2012. Her efforts to revive the company have not gone far enough according to many board members and investors. The last major such effort came last February as Mayer announced a restructuring entailing a 15% workforce cut and the stoppage of various activities.
The big development since then is the Yahoo fire sale. The process could lead to a dismantling of the company. Until recently, telecom operator Verizon Communications Inc. (NYSE:VZ) was touted as the leading candidate to acquire Yahoo’s core business—including “Yahoo Mail” and “Yahoo News.” If Berkshire and Verizon get into a bidding war for Yahoo’s assets, it could get quite interesting for YHOO shareholders.
Verizon wants Yahoo to complement and boost its AOL business. Berkshire, meanwhile, may finally want a piece of Silicon Valley, but it may simply be interested in financing another buyout. For example, in 2014, Berkshire spent $3.0 billion to contribute to Burger King’s merger with Canadian giant Tim Hortons.
The bottom line on Berkshire and its rumored Yahoo interest is that Buffett has not failed in his ability to pick companies on the brink of extinction and turn them around with profit to spare. Yahoo seems like a challenge for Berkshire, but Yahoo is still a giant and many have noticed its potential with many users still flocking to its services. It just needs better management to bear its fruit to investors. That’s where Buffett and Berkshire come in.