Yahoo Stock Predictions: Yahoo’s Valuation Is Crazy Low When Compared To AOL (YHOO)

Yahoo Stock Predictions: Summary

  • Yahoo’s core business continues to be undervalued, with the stakes in Alibaba and other assets making up almost all of the company’s market value.Yahoo Stock Predictions
  • The core business of the company does have value, as growth areas including mobile and Tumblr have made progress in recent quarters.
  • Yahoo’s mobile ad-placement business is comparable, if not better than AOL’s, meaning that it’s core business should be more valuable than the $4.4 billion was purchased for.
  • I Know First is bullish in the long-term for Yahoo.

Yahoo! Inc. (NASDAQ: YHOO) stocks jumped 7.49% since last week when Alibaba Group Holding Co. (NYSE: BABA) announced a positive earnings report. The increase in the stock price emphasizes how much Yahoo’s value is related to its stake in Alibaba, which it is spinning off this summer, as well as its other assets. This kind of trading has undervalued Yahoo’s core business, which is admittedly still going through a transition and struggling. However, the stock should be trading higher than it is now, especially following the purchase of AOL, Inc. (NYSE: AOL) last week.

Basic Estimation Of Yahoo’s Worth

After Alibaba announced its earnings report last week, the stock price jumped. Yahoo investors were giddy, as its stock price jumped as a result. This makes sense, as the value of Yahoo’s stake in Alibaba rose from $23.28 billion to $25.61 billion as a result. Along with the roughly $9 billion stake that the company has in Yahoo Japan Corp (OTC: YAHOY), that represents over $34 billion of Yahoo’s market cap, which is currently $41.66 billion.

When the company’s $6.9 billion in cash are added into the occasion, it quickly becomes clear that the company’s core business is being valued as basically worthless. This makes it clear that people are not trading this stock based off of the progress or lack there of in the core business, but using the stock as a way to hold a position in Alibaba.

This is illustrated by the fact that the increase of Yahoo’s stock price as a result of the Alibaba earnings report actually increased the value of Yahoo’s core business without any catalyst to do so. The resulting increase of the stock price raised the company’s value outside of its stake in Alibaba by almost $400 million, and the stock price has traded at roughly the same price since then.

Why This Current Valuation Is Too Low

Such a low valuation might make sense if the company was losing money and not displaying any progress. But this isn’t the case, as I have previously written about. The main takeaways are that Yahoo under CEO Marissa Mayer is seeing substantial progress in mobile advertising, which had revenue growth of 61% over the past year, and its search advertising business will continue to improve due to its restructured partnership with Microsoft (NASDAQ: MSFT).

Add in growth of revenues from Tumblr, the social blogging site that started bringing in material revenues last year, and there is enough promise for revenue growth that the company is clearly undervalued. What makes the current valuation boggling, however, is the fact that Verizon (NYSE: VZ) just bought AOL for $4.4 billion, mostly for its ad technology and mobile video.

The acquisition of AOL leaves Yahoo as the only company offering these services that is still an independent company. One of the company’s products, Gemini, saw substantial progress last year. Brightroll has also been successful, helping advertisers get their ads to target the right people at the right time.

This helps illustrate the value that the company possesses for mobile advertising solutions, which will only become more important in the future as more companies focus on mobile advertising. A report from the Interactive Advertising Bureau showed that mobile advertising grew 76% last year, illustrating this fact.

Having already discussed the sum of its parts value, as well as the value of Yahoo’s legacy businesses and the progress of Tumblr, it should be clear that the value of the company’s core is greater than that of AOL. Even assigning a floor price of what AOL got from Verizon, it becomes painstakingly obvious that Yahoo’s price is far too low currently.

Algorithmic Analysis

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.

The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

I Know First was correctly able to predict the rise of Yahoo’s stock price in the past. In the forecast included below, Yahoo was included as one of the ten best tech stocks to buy. The stock had a signal strength of 16.56 and a predictability indicator of 0.34. During the predicted time horizon, the stock price increased 28.87%.

yahoo stock predictions

Figure 2. 1-Year Algorithmic Performance.

Having explained how I Know First’s algorithm works and demonstrated its success in predicting the stock’s behavior in the past, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company.

yahoo stock predictions


Figure 3. Long-Term Algorithmic Forecast For Yahoo.

The above forecast is for the long-term time horizons of three months and one year. These forecasts are very bullish with exceptionally strong signals. The stock price will increase over the coming months as the low valuation of the company becomes exceedingly clear. Yahoo’s impressive ad-placement tools, along with steadily improving core business, make this stock very bullish in the long term.