My Yahoo! Strategy: Be Google

 | Jan 05, 2012 | 2:00 PM EST  | Comments
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This commentary originally appeared on Jan. 5 at 11:30 a.m. EST on Real Money Pro -- the ultimate resource for actionable trade ideas and in-depth market analysis. Click here to learn more.

Everybody loves a winner, but by definition, in order for one to be a winner, someone else has to lose. At least this is the case in the rough and tumble world of Wall Street.

A case in point would be the contrast between Yahoo! (YHOO) and Google (GOOG). At one time, Yahoo! was the king of search engines, and Google was a feisty upstart. Then they became competitors, fighting each other tooth and nail for market share.

Today, Google boasts an 80% share of the global search-engine market vs. Yahoo!'s 6%, according to Marketshare.com. Google has moved beyond search engines, with products such as the Android operating system.

Google's stock just keeps chugging along -- this week, reaching its highest point in nearly four years. Meanwhile, Yahoo! has been stuck in a sideways range for the past three years.

Yahoo! (YHOO) vs. Google (GOOG) -- Monthly
Source: TradeStation

Since the beginning of 2005, Google's stock has nearly quintupled in price (gold), while Yahoo! has been cut in half (silver).

Google is in a magnificent uptrend, but appears to be overextended at these levels. When the stock gapped higher on the first trading day of the year, Google's relative strength index was pushed into overbought territory (shaded yellow). Ideally, I'd buy Google if and when it fills Tuesday's gap, which would require a pullback to $647. For a secondary entry point, less aggressive buyers can look for additional support in the $630 area, which acted as resistance in December as part of a bullish ascending triangle pattern.

Google (GOOG) -- Daily
Source: TradeStation

Everyone is surmising whether Yahoo!'s new CEO can turn the company around. I don't know the answer, and I suspect that despite all of the opinions that will bombard us today, neither does anyone else. But I do know what I would do if I were in Scott Thompson's shoes.

There's a stark contrast in the way the two entities go about their respective businesses. Here's one small example; when you type a partial URL into Firefox's search field, the browser completes the URL. Thus, I can type "thestreet" into the Firefox search field instead of "www.thestreet.com" and I'm magically taken to my destination via Google.

Unless, of course, you unknowingly download a Yahoo! add-on that redirects you, as many people did. Instead of taking you to your preferred destination, you're rerouted to a page of Yahoo! search results. Through this bit of trickery, Yahoo! is stealing eyeballs from Google.

This seems clever, until we realize that Yahoo! has alienated many Firefox devotees for tricking them into using their service. Similar to many people, I enjoy Google's clean homepage over Yahoo!'s cluttered page.

The folks at Yahoo! seem to think that we love two things: gossip and advertisements. If I were the new CEO of Yahoo!, I'd emulate Google. Get rid of the clutter and noise. Don't greet customers with gossip about LeBron's birthday cake. Instead, be more like Google. Tidy up the fonts. Give users a clean, Snooki-free experience.

Sure, I'm only discussing one aspect of Yahoo!'s business, but there is a serious underlying message here. At this point, Yahoo! should do whatever it takes to shed the company's current image and replace it with something palatable. If I were incoming CEO Scott Thompson, that would be my first order of business.

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