When I invest in companies I invest for the long haul. Ideally, I would like to hold a company indefinitely so one of the first criteria I look at before adding something to my portfolio is the sustainability of the business model, and I just don’t see YLO.UN existing long term using their current model. That being said, I certainly don’t consider them a dead company and they are making steps in the right direction by transitioning online. However, unless they can completely transform themselves into a dominant online advertiser it’s my opinion that they will not exist at some point in the future.
I do like and use some of their online services such as canada411 and autotrader and I am positive on their recent agreement with Google to become the first Canadian based reseller of Google AdWords adverts. However, the bulk of their revenue still comes from print and I don’t think print will be around longer term.
Personally, I’m skeptical that even if they did transform themselves into a completely online company that they’d be able to compete longer term in the online world. To date I haven’t seen any competitors that rival the online services that YLO.UN provides but in my opinion any one of the major internet players could be getting ready to launch Yellow Pages death swoop. All it would take is Google adding a phone book and local category search to their main page, or to Google Earth for that matter. Mapquest is already halfway there as they have a category search that in addition to providing the contact information generates a map and direction to get there from your house. I used it instead of canada411 last week to search for directions to all of the Thai restaurants in my part of town.
So although I don’t think that YLO.UN is on deaths door I just can’t see any reason to buy them based on my long term investing style and their current business model. For a short to medium term hold YLO.UN should keep spitting out cash. If they successfully transform themselves into a dominant online advertiser and secure some kind of competitive advantage than I’d certainly be willing to give them another look.
Just to give you the other side of the coin Fellow Blogger the MoneyGardner is a holder of YLO.UN and will be writing up a post on the buy case later this week.