Wednesday, July 18, 2007

Yahoo! (NASDAQ:YHOO): Color on quarter

Several firms comment on Yahoo! (NASDAQ:YHOO) after the co released its Q2 results last night:

- Goldman Sachs notes that while 2Q2007 results were generally in-line with recently-lowered estimates, they remain concerned about the trends that are driving the underperformance versus original expectations for EBITDA and the limited visibility in the company's ability to achieve 2H2007 and 2008 numbers despite the significant cut in guidance. Specifically, the firm believes that a mix-shift in ad buys to lower-CPM inventory as well as potential pressure on premium pricing could be creating a more difficult operating environment. Based on the cuts to EBITDA guidance without corresponding revenue trimming, it appears that Yahoo!'s margin profile could be changing or the level of investment is increasing meaningfully.

GSCO expects shares to trade down given the 11% lower EBITDA guidance that should also reset 2008, while several uncertainties still exist (pricing on premium display inventory, ramp in search, audience growth, level of investment, margin of AT&T sub biz, and margin profile as affiliate revenue deteriorates) that could result in further estimate cuts.

- Jefferies notes the areas of weakness in 2Q07, namely growth in display ads (due to poor monetization of non-premium inventory and lack of any meaningful perfomance-based products), affiliate revenues (impacted by rising TAC rates, tepid search volume, and a clean-up of the network) and international search revenues (where Panama has not yet been rolled out), should continue to hamper growth for the remaining of 2007.

One of two things is likely to happen within the next 12-18 months, in Jeffco's view; either management is successful in executing against its (and Street) expectations -- of accelerating growth in both dispaly advertising and search revenue (they are modeling for ~25% Y/Y growth in search and mid teens growth in display advertising in FY08, up from 7% and 13%, respectively,) or they're not, in which case the chances for a sale increase significantly. The firm continues to view YHOO as a "value" pick, given its valuation, its strong brand and its unique set of assets that make it an attractive acquisition target for a large technology or media company.

At the after hours price of $26.40, the stock is trading at EV/EBITDA of 12x on FY08 estimates (adjusted for Yahoo! Japan and others) vs. eBay at 13x and Google at 17x.

Maintains Buy, lowers tgt to $34 from $35.

- Citigroup highlights lowered margin outlook due to increased marketing & R&D spend, significant headcount ramp, and impact of RightMedia and acquisitions. Details on new investments were skimpy, but a fresh approach -- including more funding of strong assets & removal of weak ones – is probably the right approach.

They are incrementally less positive. And there could befurther downside – firm would peg trough valuation at approximately $23 (10X 08EV/EBITDA). But if margins truly trough in H2:07 (likely), revenue growth accelerates from these levels (probable), & YHOO continues to buy back stock, then YHOO could perform very nicely in 2008...the AMZN of ’08???. Maintains Buy.

Notablecalls: I think that the investors that buy YHOO here have immense belief in management's ability to perform. I certainly lack this belief. It looks to me Yahoo! has stopped innovating. The web users are generally a disloyal bunch, hopping quickly to the next cool thing. Yahoo had the first mover advantage but has certainly lost it. Do you use Yahoo for search? I used to but now I use Google. Do you use Yahoo for news? No! We have CNN, TSCM, WSJ etc for that.

I do use Yahoo Finance, though. Especially the message boards. But these are of entertaining value at best.

I also have no view on the s-t movements.


SiamTwin said...

agreed - even John Mackey has stopped using yahoo stock message boards...

notablecalls said...