Magnetar Financial and Yahoo! Inc.
Magnetar Financial started new positions in Exterran Holdings Inc. (EXH), Rowan Companies Plc. (RDC), SiriusXM (SIRI), and Yahoo! Inc. (YHOO). Top positions sold were EOG Resources (EOG) and EQT Corp. (EQT).
Magnetar initiated a brand new position in Yahoo! Inc. (YHOO) that accounts for 1.67% of the fund’s 1Q portfolio.
Yahoo! Inc. (YHOO), together with its consolidated subsidiaries, is a global technology company that provides a variety of products and services, many of them personalized, including search, content, and communications tools on the web and on mobile devices. The company earns revenue from advertising and provides an opportunity to advertisers to be part of its more than 800 million monthly users’ daily habits across products and platforms. It engages audiences and builds brand loyalty.
Yahoo focuses on growth via acquisitions
As part of its overall growth strategy, the company focuses on acquisitions aimed at enhancing its technical talent base, improving its technology and core products offerings, and expanding audience and engagement. It spent ~$22 million on acquisitions in 1Q14. Recent reports noted that Yahoo is in initial talks to acquire the Israeli startup RayV Inc. which specializes in high-quality video streaming. The company has shown interest in the YouTube video network Fullscreen and online video service News Distribution Network. Yahoo is also reportedly looking to launch a video service similar to YouTube.
Yahoo’s 1Q14 results are boosted by Alibaba
Yahoo announced its 1Q14 results recently, which were slightly above Wall Street expectations. It earned $0.38 per share on $1.087 billion in revenues (ex-traffic acquisition costs or ex-TAC). Generally accepted accounting principles (or GAAP) net earnings for 1Q14 were $312 million or $0.29 per share—a 20% decrease compared to $390 million or $0.35 per share in 1Q13, driven by increasing expenses related to product development and sales and marketing. Yahoo said it made progress on its mobile strategy, with 430 million monthly users for mobile in the latest results—a 30% year-over-year (or YoY) growth. Yahoo’s display advertising revenue (ex-TAC) was up 2% to $409 million and search advertising revenue increased by 9% to $444 million. Yahoo’s advertising business faces intense competition from Google (GOOG), Facebook (FB), Microsoft (MSFT), and Twitter (TWTR).
Yahoo’s stock has more than doubled over the last two years because investors have been mainly attracted to Yahoo’s stakes in Alibaba (ABABA) and Yahoo Japan. Yahoo’s stake in Yahoo Japan is valued at about $9.2 billion. The Chinese e-commerce site Alibaba, which Yahoo owns around a 24% stake in, saw revenue surge 66% to $3.06 billion, while net income jumped 110% to $1.4 billion in 1Q14. Alibaba recently filed for a U.S. initial public offering (or IPO), and Yahoo could raise more than $10 billion from the sale of 208 million shares in the process. Although Alibaba expects to raise $1 billion, according to its filing, analysts estimate Alibaba will raise around $18 billion and its valuation will reach at least $150 billion during the IPO. An unconfirmed CNBC report recently said Alibaba could debut in August.
Analysts believe Yahoo could use the cash from Alibaba’s IPO for buybacks or make acquisitions to strengthen its core business and boost revenue. They added that Alibaba’s forthcoming IPO could put pressure on chief executive officer (or CEO) Marissa Meyer to grow revenue at Yahoo’s core business due to lower dependence on Alibaba.