Yahoo! in Talks to Buy FourSquare

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Apr 15, 2015
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According to a report by Techcrunch, Yahoo! (YHOO, Financial) is in talks to buy local check-in/search platform Foursquare, possibly for ~$900M. Foursquare had its last round of funding in February 2014 from Microsoft (MSFT) when the company was valued at over $600 million. Fourquare could help Yahoo's mobile and local efforts which are the company's main focus areas.

While Yahoo! is taking a number of steps to improve its core (ex- Alibaba) business, a good acquisition can definitely help improve investor sentiments about the company future prospects. Yahoo's CEO Marissa Mayer has so far acquired 46 companies during her tenure, including $1.1 billion acquisition of blogging platform Tumblr. However, things have been quiet over the last couple of months as management perhaps was focussing on tax-effective spin-off of Alibaba (BABA).

Yahoo's current valuation and stock price movements are more reflective of its stake in Alibaba rather than its core business fundamentals. Once the spin-off is complete, I believe the focus will shift to Yahoo's core business. Many investors believe that Yahoo's core business, which is seeing year-over-year declines, is actually a value destroyer and worth close to nothing. I disagree with this argument. If one takes a closer look at the company's recent performance, he/she would see that while the company's traditional display advertising business is witnessing a decline, there are packets of strength. The company's mobile, video, native and social business (which it calls MaVeNS) is growing and becoming meaningful enough to offset the decline in its traditional display advertising business.

Last quarter, the company's mobile revenues were $254 million, up 23% sequentially from Q3. The company's mobile apps continue to win accolades. Google Play recognized Yahoo! News digest, Yahoo! Now and Tumblr on their best apps of 2014 list. Apple iOS store also recognized four Yahoo apps – Yahoo! News digest, Flickr, Yahoo Finance and Yahoo! Weather – on its best apps of 2014 list. The company's MaVeNS business grew 100% year-over-year in Q4 and going forward is likely to more than offset any decline in the company's display advertising business.

I believe Yahoo! is on a verge of turnaround in its core business. If Yahoo! really acquires Foursquare, it will help its local/mobile efforts and benefit its core business meaningfully. The impending spin-off of Alibaba's stake will improve the valuation transparency of the company's core business and its holding in other companies. This will likely serve as a catalyst for the stock.