Best of Yahoo! Yet to Come

 | Jan 29, 2013 | 7:07 AM EST
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Tuesday's earnings report for Yahoo! (YHOO) was another rock-solid one for the company and new CEO Marissa Mayer.

The company surprised with a beat on both the top and bottom lines. These gains came primarily on the back of a 14% increase in search revenue. Display ads were a disappointment, dropping 5% from a year ago.

Yahoo! also retired nearly 100 million shares in the quarter, spending half of the $3 billion in proceeds from the Alibaba-stake sale from a few months back.  That means it still has $1.5 billion to spend in the coming months.

If you go back and look at Yahoo!'s move to $20 from $16 in the last few months, the biggest move happened in November and December. Coincidentally, Yahoo! wasn't able to do a lot of buying of the stock until a few days after the October conference call and stopped at the end of the quarter. The stock hasn't moved as much in January with, presumably, the company not buying before the earnings.

Nearly halfway through the fourth quarter, as of Nov. 8, Yahoo! said it only bought back $212 million. Yet it spent another $1.3 billion between then and the end of the year.

This raises the question of when the next big slug of stock buybacks arrives. My guess is it's coming in February and March. 

On the surface, it doesn't seem like a lot of shares are being retired. About 80 million shares over seven weeks is something like two million shares a day that Yahoo! is buying back. During that time, Yahoo! tended to be seeing daily volumes of something like 20-25 million shares.

Yet, having the perceived floor of a steady buyer can't be underestimated either. Yahoo's shares rose $4 a share over that time. Investors would love to see it rise another $4 in the coming months.

Other things to watch for in the weeks ahead that could be helpful to the stock:

  • Details of a planned Alibaba IPO for this year.
  • More clarification about the Yahoo! Japan relationship and possible monetization of the stock.
  • A renegotiation of the Microsoft (MSFT) search deal in a way that benefits Yahoo further.
  • Increased cost savings from headcount reductions and drops in G&A.
  • Signs of fixes to display ads.
  • A major partnership with Apple (AAPL), Facebook (FB), Twitter or Google (GOOG).
  • More Yahoo core brands that are refreshed.

The biggest takeaway of the call was Marissa. She's a rock solid CEO with a deep knowledge of the business and very fast on her feet in her responses. If you recall, try to go back in time and remember a Carol Bartz earnings call by comparison. Mayer is truly impressive as a leader.

The best of Yahoo is definitely yet to come.

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