2011 to be Yahoo’s turnaround year: Barclays

With some observers wondering if Yahoo! Inc. will even survive the year, Barclays Capital is convinced the struggling web giant will use 2011 to thrive.

Douglas Anmuth, a financial analyst with the investment bank, named Sunnyvale, California-based Yahoo as his 2011 top pick for the Internet industry. Setting a bullish price target of US$21 per share for the second-most popular U.S. web search engine, Mr. Anmuth becomes one of the rare few watchers to express faith in the company since 2006, when the stock was trading above US$40.

“We believe the Yahoo! story is quietly strengthening,” he said to clients in a note published Tuesday. “We expect solid display growth, stronger-than-expected RPS [revenue per search] benefits due to the search transition to Microsoft, and improved profitability as Yahoo! winds down heavy investment spending during 2011 related to advertising and infrastructure platforms.”

The company failed to meet Wall Street expectations when it last reported quarterly results and attempts to merge or be acquired by Microsoft Corp. and Google Inc. in the past year both failed. In fact, many analysts are convinced a Yahoo takeover by any company (much less a top tier tech firm like Microsoft or Google) is a “pie in the sky dream.”

But Mr. Anmuth feels differently. He points to a 10-year agreement Yahoo signed in the summer of 2009 to use Microsoft’s Bing search engine, arguing that offloading the heavy cost of running a search engine on its own will allow Yahoo to focus on its online advertising business and its attractive assets in Asia. (The mass layoffs and service closures of late will no doubt also prove to be a cost-saver.)

“As brand advertisers continue to shift more ad dollars to the Internet, Yahoo! is well positioned to benefit given its size, scale of inventory, and advertising platforms,” he said, projecting the company’s display advertising revenues to increase by 9% by New Years 2012.

Combined with an aggressive share buyback, Yahoo’s 40% stake in China-based Alibaba Goup along with its 35% ownership of Yahoo! Japan will also help to drive profit for their North American parent, Mr. Anmuth argues.

“Asian assets [will] continue to provide valuation support,” he said while stressing that his bullish thesis on Yahoo is based more on core business assets than Asian asset monetization. “The timing of the monetization of these assets remains unclear, but in Alibaba Group Yahoo! has a major stake in one of China’s leading Internet companies.”

There are a few caveats to his bullish expectations that he does mention towards the end of his note. Not the least of which being that Facebook is where the majority of incremental display ad dollars are being spent as ad budgets are shifting more online. He also cautions that it is still too early to tell how beneficial the Bing search transition really is in terms of cost savings.

At the end of the day, despite all his optimistic rhetoric, he still considers Yahoo to be a “show me” stock. Still, at least now Yahoo knows what he wants to see.

Barclays is the first event in the Fedex Cup competition.Tiger has qualifield to participate in the Fedex Cup competition.Decent team but awful manager and they aren't playing well but I think they'll stay up by the skin of their teath.Houllier sacked in the summer and replaced with Jol.