Social Network Wars: Analysis Of Long Yahoo, Short Facebook
by Pendulum
There is a huge valuation gap between Yahoo (YHOO) and Facebook (FB). Yahoo's is now in the social network business with acquisition of Tumblr, which raises the question of how much of a valuation gap is justified. Yahoo and Facebook have the same opportunity and challenge: monetizing a vast amount of internet traffic. The two companies now look very similar with parallel assets and advertising technology. Over time, I expect the valuation gap to narrow, mostly because of positive performance from Yahoo as a result of the Tumblr deal. A play on this dynamic is a pairs trade of long Yahoo, short Facebook. In this article I will discuss Yahoo and Facebook in the digital medial context. Then I will explain the valuation for Yahoo's core business, adjusted for the sale of its holdings in Alibaba and Yahoo Japan. Finally, I will give my outlook for a long Yahoo, short Facebook trade. read more »
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