By Salvatore “Sam” Mattera –
March 12, 2013

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Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Kara Swisher at AllThingsD reported Thursday that Yahoo (NASDAQ: YHOO) was planning to make two “significant” acquisitions (and a half-dozen small buys). It’s unknown what companies Yahoo might covet, but if recent statements from CEO Marissa Mayer are any indication, both buys will be in the mobile space. Among publicly traded companies, both Yelp (NYSE: YELP) and Pandora could make strategic sense.

How much money does Yahoo have to spend?

Before talking about what companies Yahoo could buy, it’s worth asking the question: What can it afford? On its balance sheet, Yahoo currently has just over $4 billion worth of cash, but this number is deceiving. Some of this is still pledged to repurchasing shares — last year, Yahoo made a $3 billion commitment to buyback much of its own stock.

But Yahoo could raise much, much more. A number of sell-side analysts have, in recent weeks, upgraded the stock on the possibility that it could sell off its Asian assets: its remaining stake in Alibaba, and Yahoo Japan. Combined, these could net the company over $20 billion, according to Cantor Fitzgerald. With that sort of war chest, Yahoo could go after all but the largest tech companies.

Many investors may have assumed that cash from asset sales would be returned directly to shareholders. After all, that seems to be what Dan Loeb (the hedge fund manager who shook up the company last year) wants. But after Yahoo sold the first half of Alibaba in the summer, Mayer hinted that the money might be channeled into acquisitions. Meanwhile, Loeb has been reducing his position. Perhaps the money from the Asian assets could be used for American acquisitions after all.

Mayer has been focused on the mobile space

Since taking over Yahoo, Mayer has shown a dedicated focus to the mobile web. In an interview with Bloomberg, Mayer talked about Yahoo’s strategy:

“When I thought about the strategy for Yahoo, I pulled the list of what people do on their phones in rank-order frequency…the list looks like email, check the weather, check news, get financial quotes, check sports scores, play games, share photos…I’d recite that list…and I would say what am I doing? And my friends and family would say, ‘You’re describing Yahoo’s business.'”

Mayer clearly wants to maintain a focus on providing the best apps and services for the mobile Internet experience. With that in mind, any big acquisitions that Yahoo is likely to make would probably fall within that realm.

Yelp would be a play on local

Around the time Swisher’s article was published, shares of Yelp saw a minor pop Thursday afternoon. Perhaps investors believed Yahoo would consider purchasing Yelp. The idea isn’t completely far-fetched. Yelp’s CFO said last month that mobile Internet was a “game changer,” and Yelp’s COO noted that 46% of Yelp’s searches originate from the company’s mobile app.

Yelp is still somewhat of a controversial company: about one-third of its shares have been sold short, with many investors doubting its longer-term prospects. But if it was absorbed into the broader Yahoo complex, its losses from quarter-to-quarter wouldn’t be nearly as important. Meanwhile, it would give Yahoo access to Yelp’s local business — a growing segment — and a form of personalization for Yahoo’s end users (“here’s a restaurant or nightclub you might like”).

Pandora is one of the most popular mobile apps of all time

With people increasingly using their mobile phones as music players, a number of streaming services have arisen to take advantage of the trend. Pandora is perhaps the most popular and, as Fortune notes, the second most popular iPhone app of all time.

Yahoo already has a music site, but it’s far removed from being a popular mobile music player. In fact, last summer, the company partnered with Spotify (a kind of competitor to Pandora). Buying Pandora, then, would allow it to have more direct control over the mobile music space. There’s clearly value to be had, as Microsoft, Google and Apple have all entered the space or are widely believed to be working on it.

Of course, private companies might make more sense

In her piece, Swisher suggests a number of non-publicly traded, but wildly successful mobile companies like Pinterest, Tumblr, Foursquare, Hulu or Quora. In the end, those may make more sense for Yahoo than Yelp or Pandora. There’s also the aforementioned Spotify or another Pandora competitor like Slacker Radio.

This represents a change to the Yahoo story

Above all, the key thing for Yahoo shareholders to realize is that a strategy of pursuing major acquisitions would be a shift in the investment story: It would transform Yahoo from a value play to a growth name.

Many traders may have taken stakes in Yahoo simply based on the hopes that they would receive large capital returns from the sale of the company’s Asian assets. But now, if Yahoo plans to use that capital to acquire other companies, it complicates the matter.

Barclays, like Cantor Fitzgerald, upgraded Yahoo earlier this week on the appreciation of its Asian assets. In its note, Barclays argued that Yahoo would return the proceeds of the sale of those assets to shareholders.

If Yahoo decides to take that path, investors who decide to stay in the name must commit themselves to liking Mayer’s turnaround strategy.