Feb

10

Yahoo: Take Your Money And Run? - I Did

February 10, 2008 |

Bag of MoneyJust before the announcement I had an interest in Yahoo (YHOO). I had purchased a significant amount of options on Yahoo back when it started dropping. I bought my options when the stock had fallen from $26 to $24 on the same day. I cried all the way while I saw the stock price come down to $19.

Then Microsoft (MSFT) decided to announce that they where buying at around the $31 level.  Stock jumped straight to above $29 and I sold my options, with some earnings to show.

Some people may ask, why did I sold the options when the stock was at $29 if Microsoft (MSFT) is going to buy them at $31?   Several reasons:

  • Opportunity: I already won.  Don’t push my luck!  If the sale goes through, the most I will make is $2 more (per share).  I would prefer to invest the money on a stock that may go up by a lot more than that.  I haven’t seen other offers yet.
  • Risk:  Yahoo may not accept the offer.  I sure do hope they accept it, for their own good.  But the board may make it difficult.  Government regulators may make it difficult.  Yahoo may want more money than what they are getting.  Microsoft may or may not increase their price.  What happens if the sale does not goes through?  Stock goes back to $19.
  • Don’t Want It:  Even when Yahoo has proven it is worth something, at least to Microsoft, I do not think it is worth too much.  It is a company that is too fat, and it is growing too slow.  The layoffs they had where not deep enough.  The innovation is not there yet. When I bought it I made a mistake.  I thought I was buying value — but then started looking deeper into what Yahoo had and didn’t saw too much.  I would do a lot better by putting that same amount of money in Google (GOOG) or Bidu (BIDU).  I am not  putting my money there, however.
  • Take Your Money And Run - I have this as a policy.  Call it superstition or call it experience.  More often than not I do better by cashing in on a windfall of good luck than waiting for it to get even better.

Good luck to Microsoft with the Yahoo purchase.  I do own Microsoft options that got impacted due to the bid for Yahoo (the effect was better than break-even, however).   I do believe the Microsoft - Yahoo merger benefits both consumers and the stockholders.  For a long time I wanted to see a credible competitor to both Microsoft and Yahoo.  Microsoft now may have a search engine and internet platform that could start to compete with Google, and Google may need to steep up their efforts at producing hosted office applications that can compete with the traditional Microsoft Office.


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