Yahoo! Could Go to $100 Under Scott Thompson's Guidance

One analyst has a very interesting prediction for the future of Yahoo! YHOO. Trip Chowdhry, Managing Director of Equity Research at Global Equities Research, believes that the company – which currently trades in the $16 range – could go to $100 under the guidance of its new chief executive, Scott Thompson. Chowdhry told Benzinga that this all depends on why Thompson was hired. If he was “chartered to do what Yahoo! is currently doing,” Chowdhry does not believe that he will be any better than the previous CEOs. But if he is “given the freedom to restructure” the company, Chowdhry thinks that Yahoo! could have a very bright future. More specifically, Chowdhry said that if Thompson was hired to “improve display ads and content,” among other things, Yahoo! will not prosper. But if the new CEO was “chartered to reposition Yahoo! as a mobile payments” company, Chowdhry thinks the company will experience massive growth. How would one new industry help Yahoo! grow? With Thompson's background (he worked for a subsidiary of Visa V and helped build PayPal into an online powerhouse), Chowdhry said that there was only one reason for Yahoo! to hire him: to take advantage of what he does best. Further, Chowdhry believes that the mobile payments business is a $3 trillion industry, and only 1.5% of that industry has been tapped. Thus, if Yahoo! could capture just 1% of the market, Chowdhry said that the company could be looking at 400% gains. That's an enormous step up from the outlook Chowdhry had on the company last September. “Both Carol [Bartz] and Tim [Morse, Yahoo!'s interim CEO] should have been fired together as they both have damaged YHOO's business and repairing it will be extremely difficult,” Chowdhry explained. “We don't have high opinions on the CFO...he just kept cutting costs which is the…easiest thing to do. Both the CEO and CFO are completely clueless of the velocity of innovation that is needed to succeed in the Internet space.” Further, Chowdhry said that it “seems to us that both the CEO and CFO were happy living in their comfort zones, and congratulating themselves on delivering a few new features here and there on different YHOO properties, none of which are revenue drivers.” “We don't think YHOO will be able to attract the Top Talent - and probably YHOO will need to settle with the leftover talent that is available in the market today,” Chowdhry added, saying that Bartz and Morse do not possess the ability to “think big, bold and execute fast.” Thompson might, however. But Chowdhry said that his success depends on how much flexibility he is given, and how much Yahoo! wishes to become a mobile payment powerhouse (if at all). One thing is clear, however: Chowdhry does not believe that Yahoo! can be successful at Web 2.0, or even Web 3.0. It can no longer profit from display ads, which Chowdhry said are going to YouTube and social media companies like Facebook. Thus, Chowdhry does not think that Yahoo! has any choice but to completely turn its business upside down and become a new company. While very few specifics have been announced in regard to Thompson's appointment, TechCrunch quoted the following statement from Yahoo! Chairman Roy Bostock: “Scott brings to Yahoo! a proven record of building on a solid foundation of existing assets and resources to reignite innovation and drive growth, precisely the formula we need at Yahoo! His deep understanding of online businesses combined with his team building and operational capabilities will restore the energy, focus, and momentum necessary to grow the core business and deliver increased value for our shareholders. The search committee and the entire Board concluded that he is the right leader to return the core business to a path of robust growth and industry-leading innovation.” Unfortunately for Mr. Bostock, at least one prominent hedge fund manager believes that he is responsible for destroying Yahoo!'s value. Meanwhile, Chowdhry told Benzinga that he thinks Thompson should commission a new Board.
ACTION ITEMS:

Bullish:
If you believe in the power of Scott Thompson:
  • Go long Yahoo!
  • Consider PayPal, the company Thompson helped build, which is now owned by eBay EBAY.
  • Consider Visa, another company on Thompson's resume.
Bearish:
Traders who believe that Thompson will stay the course and allow Yahoo! to fade away should:
  • Short Yahoo!
  • Go long Google GOOG, whose display ad business is enormous (thanks in part to its acquisition of YouTube).
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
Follow me @LouisBedigian
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