Let’s look at history and present YHOO, a stock that I will never every buy, and let’s try to analyze the future by examining what’s currently happening at Yahoo.

YHOO was a leader in the NASDAQ crash of 2000, the stocked peaked at $108 on December 31, 2009, and it was only a downward journey afterward. The stock never recovered to even half that price. YHOO’s price was slashed to half to almost $10 during the peak of the crisis in 2008 (it could’ve been much worse but Microsoft was trying to buy Yahoo at that time, so the stock was overvalued), but it never really recovered to a decent level, although most stocks did. Reason: Yahoo is a technology company that is no longer about cutting edge technology. Let us examine Yahoo closer in order to understand:

Yahoo’s revenue model is very similar to Google (online advertising), with some differences:

– Yahoo’s ads are not very relevant to the search term, Google’s ads are highly relevant.
– Yahoo serves contextual ads on only select partner websites, and they have a deterring requirement of having a US SSN. Google is open to partner websites in most important markets, and has hundreds of thousands of partner websites serving Google’s ads.
– Yahoo tries to screw the websites serving its ads, by following the model: We get the dollar, you get the penny. Google pay about 80% of the net revenue to partner websites.

Now let us see why Yahoo is no longer about cutting edge technology:

– Although Google’s failure ratio with new products is high, they still try to do things and improve. Yahoo, on the other hand, they do these subtle changes to their websites (things that people really don’t care about), and that’s it. There is no innovation. Nothing.
– Yahoo’s core search algorithm is probably a decade old (if not older). It doesn’t take account of blogs, tweets, social networks and the need to take into consideration emerging trends.

No wonder why Yahoo’s traffic is literally flat year over year (and it’ll be much worse as of this week as I will explain later):

I am seriously amazed that they were able to maintain their traffic as it was a year ago when their search results are probably second worst only to Bing, which takes us to the future of Yahoo.

Apparently Yahoo struck a deal with Microsoft in 2009 to have their searches powered by Bing (the worst large search engine), and they are now rolling over the changes this week to use Bing (Note: I commented on their post, giving my personal opinion that it was a bad decision, but of course, my comment was not published, they chose to publish that of a spammer’s instead). What will that mean? It means that Yahoo’s search will become worse as it will use the Bing engine, developed by Microsoft, a company that never did and never will understand what good search engines are like. Of course, the quality of search results will affect the perception of Yahoo by loyal visitors who still think that Yahoo is great. At one point, these loyal visitors will start flocking to the much better, and the only alternative: Google. This means that Yahoo will have less visitors, and therefore less impressions, and consequently less revenue.

The market reacted slightly positively today to this very bad news with YHOO up 5 cents. I wonder why. Buyers beware, this move is horrible and will make Yahoo obsolete in a couple of years.

I never ever short stocks, but YHOO seems tempting when it’s overpriced at $14. Just take a look at their technical analysis and RSI.