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Yahoo Is A Solid Buy For 2012

The iconic Yahoo, Inc (YHOO) global search market share has consistently declined over the last few years, from around 16% in 2006 to near 6% in 2010, and all indications are Yahoo's share eased even further in 2011, perhaps as low as 5%. This has come as Google (GOOG) has leveraged its Android program to throttle the ever more important smart phone market. Where does that leave Yahoo for 2012?


In fact, Yahoo continues to grow, even as its market share is falling. Users increased from 475 million in 2006 to 620 million in 2010, and the numbers of users should top 700 million within 2012. Yahoo has partnered with smart phone makers Nokia (NOK) and Samsung (SSNLF) and is also developing applications for the iPhone and for Android-based smart phones.

But Yahoo's biggest hope, a search engine partnership with Microsoft's (MSFT) Bing platform, is firing blanks. The combination, which was hoped to provide mutual growth, continued to lose market share in January 2012. The actual Bing side of the activity had a slight rise, but share usage for Yahoo sites fell 9.7% to a 14.1 market share from December 2011-January 2012.


The market has been abuzz in recent weeks, and speculators have run the share price up about $3 since December 2011 on expectations that Yahoo may either be bought out, or may sell some of its profitable Asian properties, like Alibaba. As far as selling assets I just cannot see it from a value perspective. True, those pieces probably would become more valuable separated from Yahoo. The problem is that would chop of the sections of the company with the clearest future growth curves while leaving those areas that are struggling against powerful competition. It would provide a short time pop to Yahoo, but it would simply complicate their problems going forward.


The question is: How confident are Yahoo management and major stakeholders on being able to overcome the market malaise they are now stuck in? Management's series of strategic deals with Microsoft, Nokia and Samsung seem to show they know they need help. My bet is Microsoft will make a strong play to take over Yahoo by the end of the year, but that Yahoo will avoid the grasp and carry on independently.
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