Yahoo! Investor Day to Focus on International Assets, Stake in Alibaba Group

on May 24 2011 10:12 AM

Yahoo! Inc. (NASDAQ: YHOO) will be hosting its 2011 investor day on May 25. Caris & Co. said this time the focus of most attendees will be on international assets and especially the company's stake in Alibaba Group.

The brokerage reiterated its buy rating on shares of Yahoo! with a price target of $22, ahead of Yahoo's analyst day.

In addition, we expect the company to talk about opportunities and challenges with Bing search integration, trends in its core display advertising, and some color on opportunities to unleash more operating-expense savings. We expect to hear extensively from chief executive officer Carol Bartz, chief financial officer Timothy Morse, head of products Blake Irving, and chief marketing officer Elisa Steele during the analyst day, said Sandeep Aggarwal, an analyst at Caris.

Top questions/topics Caris would like to focus on:

-- How is management handling the situation with Alipay's stealthy transfer of ownership? Aggarwal will be looking for a management update on the progress and possible resolution in the negotiations with Alibaba Group. In his view, the casual 10-Q disclosure of the fact of Alipay's ownership transfer to a third party and the claims that management learned almost 6 months post factum are troubling signs that Yahoo! does not have full control of the situation. He expects some assurances from management as they face a larger group of investors first time post shocking ownership change.

-- Opportunities and timeline for international portfolio optimization, especially in Japan. In Aggarwal's view, pressure on Yahoo! is mounting to come up with a sound strategy to optimize its portfolio of international assets. He does not expect to hear a detailed plan of action for Yahoo!'s stake in Alibaba but perhaps some possible details for Y! Japan. He does also expect indication that the company has a clear plan of how to optimize the value of these assets and to transfer some of the economic benefits from its investments to its shareholders.

-- Update on the progress of search integration with Microsoft. Since the search integration with Bing has not transpired as we (and most others on Street) had expected, Aggarwal will be looking for more details on how the two companies are progressing with their efforts to bring RPS up to the level expected at the signing of the deal. As management disclosed on Yahoo!'s first quarter earnings call, the bid density for keywords in the combined marketplace has not reached to the level hoped and the two companies are currently tweaking adCenter to achieve the desired results.

-- Is there further upside to operating-expense (Op-Ex) savings from Microsoft Corp. (MSFT) search? Aggarwal believes that Yahoo! can actually realize higher gross Op-Ex savings than it previously committed. However, the RPS upside is not shaping up as planned. Can he still expects more savings from Bing deal (especially given the international roll-out of adCenter has been delayed) or those savings are capping out?

-- Are there additional cost cutting opportunities at Yahoo! beyond Microsoft search deal? In Aggarwal's view, Yahoo! continues moving away from its old highly silo driven culture to a lean, agile and higher operationally efficient culture. He would like to hear from management if there are more untapped opportunities to remove redundancies and improve the cost structure at Yahoo!.

-- By when can the investors expect any market share gain from the joint Bing/Yahoo! platform? Since Yahoo! and Microsoft announced their search partnership, the focus has been largely on RPS improvement and Op-Ex savings but Aggarwal believes that gaining market share from Google Inc. (GOOG) remains another key reason for this partnership. The combined U.S. market share of the two companies reached its peak in August 2010 (the month organic search migration was completed in North America) and has gradually declined 200 basis points over the past 8 months. He expects management to talk about the likelihood and timeline for any possible market share gains in search.

-- How display advertising trends are shaping up at Yahoo! Yahoo! remains the largest recipient of display advertising dollars online globally (though Facebook may be bridging the gap). In Aggarwal's view, display adverting remains a big catalyst for Yahoo! and very healthy since Q1-2009. He believes display ad trends will remain very healthy until the end of 2012. He would like to hear from Yahoo! about the current trends in display for both premium and non-premium advertising, CPM trends, what verticals are strong/weak, how's the demand for display internationally, how long Yahoo! can sustain healthy display demand.

-- Competitive threats from Google, especially online ad exchange and higher focus on display advertising? For the past two years, Google has been aggressively moving into display advertising with the integration of DoubleClick and the creation of its online ad exchange. Aggarwal would like to hear from CEO Bartz, how does she view Google's increasing competitive threats to Yahoo!.

-- How does Yahoo! view opportunities in mobile Internet and online video? Mobile Internet and online video are two big growth areas for the Internet. Aggarwal would like to know how Yahoo! plans to make itself more relevant with these newer trends.

-- Yahoo!’s strategy to become more meaningful in social media. Yahoo! has been adding social media functionality within Yahoo!'s owned and operated websites environment by partnering with Facebook, Twitter, etc. Aggarwal would like to hear an update on these and other efforts as well as more recent engagement metrics such as those reported during Yahoo!'s last earnings call.

-- What are the trends in Yahoo!’s affiliate and ad network business? Aggarwal would like to hear from management how their affiliate strategy is shaping up, especially with Microsoft search deal. Also, Yahoo! owns Right Media and BlueLithium. Both of these businesses are ad networks in addition to providing online ad exchange and behavioral targeting capabilities to Yahoo!. He would like to hear from Yahoo! how are these two businesses trending?

-- How is Yahoo!’s new M&A playbook shaping up? Over the past year, Yahoo! has announced three acquisitions i.e. IntoNow, Dapper, and Koprol. In Aggarwal's view, under the leadership of CFO Tim Morse, Yahoo! has been reshaping its M&A playbook. He would like Tim to provide with an overview of the current M&A playbook at Yahoo! and how should Aggarwal view its future M&A direction.

-- How does Yahoo! participate in the booming local commerce market? Clearly, with the rise of Groupon and LivingSocial, the local commerce market is booming. Aggarwal would like to hear if/how Yahoo! plans to become a more meaningful company in the local commerce market.

-- Will Yahoo! update its targets for long-term operating model last updated during May 2010 analyst day? During the last analyst day, Yahoo! provided an update to its long-term target operating model with revenue growth and GAAP operating margin, etc. Aggarwal would be curious to know if Yahoo! is revising them during this analyst day.

Yahoo! shares rose 1.68 percent to $16.33 on the NASDAQ Stock Market at 9:53 am EDT.