Assessing Viking Global Investors' positions in the fourth quarter

Part 6
Assessing Viking Global Investors' positions in the fourth quarter (Part 6 of 8)

Why did Viking Global Investors liquidate its position in Yahoo?

Viking Global and Yahoo

Viking Global Investors’ new positions in the fourth quarter include Walgreen Co. (WAG), Canadian Pacific Railway (CP), and Cemex SAB de CV (CX). The firm increased its positions in Facebook (FB) and Valero Energy Corp. (VLO). It also liquidated its positions in Yahoo (YHOO) and Comcast Corp (CMCSA).

Viking eliminated a 1.66% position in Yahoo (YHOO) last quarter. The stake was initiated in 3Q 2013.

YHOOEnlarge GraphYahoo’s turnaround under CEO Marissa Mayer seems to be progressing slowly, and the company has yet to monetize its increasing user traffic. In 3Q 2013, Mayer said Yahoo’s monthly active users were up 20% to 800 million globally, but revenue declined in each of the first three quarters of 2013.

Shares fell on the back of lower earnings and revenue in its recent 4Q results, even though Mayer reiterated that the company’s business will not turn around overnight. Full-year revenue ex-TAC was down 1% in 2013, to $4.4 billion from $4.5 billion in 2012, and GAAP net earnings were down 62%, to $1.26 per share, compared to $3.28 in 2012. Yahoo’s core advertising business continues to struggle, as display ad revenues declined by 6% year on year in 4Q 2013, to $553 million. Search revenue is also on the decline with GAAP Search revenue down 4% to $464 million for 4Q 2013. Yahoo is losing market share to Google (GOOG) and Microsoft’s (MSFT) Bing in the search engine space. A recent WSJ report said Yahoo revealed a partnership with Yelp (YELP) to incorporate Yelp’s listings and reviews of local businesses into results on Yahoo’s search engine.

Yahoo hopes its recently launched unified advertising approach will bolster its ad revenues in the coming quarters. The new advertising approach aims at cutting complexity and giving advertisers more return on their ad spending. Mayer said on the company’s 4Q earnings call that Yahoo expects to capitalize on the platform shift to mobile and core product areas remain search, communications, digital magazines, and video.

YHOO hedgeEnlarge GraphAlso, most of the stock price increases over the last year can be attributed to Yahoo’s 24% stake in privately held Chinese e-commerce company Alibaba and its 35% stake in Yahoo Japan. Yahoo’s stakes in both Alibaba (ABABA) and Yahoo Japan added about $222 million to the Internet company’s bottom line in 4Q, up 49% year-over -year. The company also saw investor concerns about the slowing growth at Alibaba. The e-commerce company is slated to launch an IPO this year. Analysts have valued Alibaba at more than $100 billion and expect the e-commerce platform to raise up to $15 billion via its IPO. Alibaba recently denied a report on Chinese portal Sohu that claimed the e-commerce company will launch its IPO in the U.S. instead of Hong Kong.

Yahoo’s biggest acquisition of blogging service Tumblr is yet to generate robust revenue, and it’s slowly ramping up its advertising efforts by launching Sponsored Trending Blog ads in December last year.

Despite the lackluster results, future growth catalysts for Yahoo include its stakes in Alibaba and Yahoo Japan, revenue from advertising especially mobile and video, and monetization of Tumblr.

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