As Yahoo! hits a five-year low, bets about direction increase

Posted Sep 5th 2008 10:00AM by Douglas McIntyre
Filed under: Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

Yahoo! (NASDAQ: YHOO) yesterday posted its lowest price in nearly five years. The stock moved to $17.75, down from a 52-week high of $34.08.

The Wall Street Journal pushed the idea that this was an options play. "Trading in Yahoo options leapt to four times the normal level as investors picked up 168,000 calls that allow them to buy the company's stock." In other words, some traders are willing to gamble that the shares will go up.

But, they won't go up. There is growing evidence that marketers prefer search internet ads to display advertising. Yahoo! sells a great deal of display inventory and is a distant second to Google (NASDAQ: GOOG) in search. Some of that may change as Yahoo! begins to use the Google system to create its search results.That may not offset the fact that Yahoo! probably has as much display advertising availability as any company in the world.

Because Yahoo! has shown it is unwilling to make major cost cuts, a flattening of its revenue growth would be a disaster for its investors. The firm's year-over-year sales improvement is already barely above 10%. What had been a growth stock three or four years ago has now become a buyout gamble. Investors still hang on to some hope that Microsoft (NASDAQ: MSFT) or a large media company will make an offer for the portal company.

That means that Yahoo! still carries a "takeover" premium, which begs the question of where the shares might trade at the end of the year, if there are no offers. Investors are gambling that there is a 30% chance that Yahoo! will be bought, if it is not, the stock heads toward $13.

Douglas A. McIntyre is an editor at 247wallst.com.

Tags: display advertising, DisplayAdvertising, GOOG, interent advertising, InterentAdvertising, inthenews, MSFT, options investing, OptionsInvesting, search, search advertising, SearchAdvertising, stock options, StockOptions, YHOO

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Reader Comments (Page 1 of 1)

9-05-2008 @ 7:23PM

Matt said...

"There is growing evidence that marketers prefer search internet ads to display advertising."

If this is true, then marketers better start doing some research about the value of running display and search ads at the same time. The marketers that are running display and search together are generating more conversions, more traffic, and better brand awareness than the marketers who are only focusing on search.

And I quote...

"When marketers supplement search with display impressions, they get a significant lift in conversions. Unfortunately, most advertisers that run both search and display are unaware of this...” The study demonstrated that "users exposed to both search and display ads convert at a higher rate: an average of 22 percent better than search alone and 400 percent better than display only."

The research can be found here....

http://mattlillig.blogspot.com/2008/08/hi-im-search-hi-im-display.html