Ticker Shock: Why Yahoo Could Be a Google-Killer

I was off Monday and Tuesday and had a blast with the kids. We hit Six Flags and a water park. Naturally, the kids are still begging for more, but I need a vacation from my vacation. I landed another bad sunburn, despite lathering on a boatload of supposedly waterproof sunblock. I look like a 195-pound lobster.

Asian stocks were mixed. The Hang Seng was off 2.37%. The Nikkei was up 0.26%. European stocks were in the green earlier this morning. And here in the US, we're currently trading lower.

Here’s what I’m focused on this morning:

Yahoo (YHOO):
 Not too sure if investors will be screaming "Yahoo!" at the top of their lungs this morning, but maybe they should be.

According to a release earlier this morning:

“Yahoo! and Microsoft (MSFT) announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.”

This line further down in the release also caught my eye:

“At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.”

My thoughts:

1. Unfortunately, it looks like a sell-on-the-news situation today. But I’m kind of excited, as this is a positive for shareholders. The fact that the 2 parties were able to come together also shows that Bartz is working hard and is pretty eager to enhance value for the common holder. I’m much happier with her in the corner office than Yang.

2. Not to sound like a broken record, but I’d much rather be in Yahoo (or Microsoft, for that matter) than Google (GOOG) right now. There’s much more upside potential within the next couple of years.

3. I see some opportunity to be had here today.

THQ Inc. (THQI):
 The one-time high-flying video-game company from California was out with its first-quarter numbers.

Excluding items, it put up a dime a share (gain) in the period. And that was much better than the $0.08 loss the Street had been looking for. 

But (and you knew it was coming), for the second quarter, it indicated it's looking for sales of $85 to $90 million, which isn’t too swell given the estimate I’m seeing is for a little more than $123 million.

My thoughts:

1. It’s not “game over” for these guys, but that’s a pretty big disappointment in terms of its outlook.

2. I’m also a bit wary of bottom-fishing right here because it’s expected to earn a meager $0.15 this year. It’s just not enough to inspire me.

3. I’m going to need to see a string of 2 or 3 quarters where it really hits the nail on the head before I start to cozy up to this story. There are just so many other opportunities out there to get excited about instead.

4. Insiders seemed to have the right idea earlier in the year when they bought the stock in the lower single-digits. Maybe I’ll get lucky enough have a similar opportunity later in the year.