April 18, 2012
Analyst Sameet Sinha in Barron’s “Yahoo! Rising: Strategy Not Fully Convincing, But Street Hopeful”
By Tiernan Ray
Shares of Yahoo! (YHOO) are up 49 cents, or 3.3%, at $15.50 after the company last night beatQ1 estimates, forecast this quarter’s revenue slightly ahead of consensus, and CEO Scott Thompson on the conference call following the report laid out a vision for “six points” he intends to pursue as the strategy to return the company to growth.
That strategy has satisfied neither bull nor bear this morning, judging from the notes I’ve seen.
However, there seems to be goodwill toward Thompson and people seem impressed with his personal style and sense of conviction. And, anyway, estimates are going up:
Gene Munster, Piper Jaffray: Reiterates an Overweight rating and an $18 price target, while raising his 2012 estimate to $4.47 billion in revenue and 97 cents EPS from a prior $4.39 billion and 79 cents. Munster seems encouraged by the take-charge manner of Thompson’s remarks last night: “Yahoo!’s new CEO Scott Thompson has firmly established himself in role as leader of the organization. Thompson said that he is not satisfied by the company’s current revenue growth rate, which we believe is the long term key for Yahoo!’s success. The company stated that it will invest up to 500 bps of margin to invest in new opportunities, which it will offset by the recent and ongoing reorganization of the company. Additionally, Thompson believes Yahoo! spread itself too thin and expects to shut down 50 properties in the coming months.”
Sameet Sinha, B. Riley & Co.: Reiterates a Buy rating and a $20 price target. Sinha liked the stronger-than-expected results in search, the discipline on operating expenses, the quarter-over-quarter 1% growth outlook, and the mention on the call that “conversations with Alibaba are ongoing” regarding how to monetize Yahoo!’s stake in its Asian assets. He wasn’t entirely satisfied by the strategy laid out, however: “We were waiting for more details around the plans for the company formulated by the new CEO. Management did provide some details but were short on specifics. Understandably, management cannot open the kimono here but some additional thoughts would have been helpful.” Sinha raised his 2012 Ebitda estimate to $1.77 billion from $1.68 billion, and raised his 2013 estimate to $1.93 billion from $1.86 billion.
Jim Frieldland, Cowen & Co.: Reiterates a Neutral rating, writing that while the strategic plan is “aggressive,” he’s not sure it will amount to much: “We expect Scott Thompson’s strategic plan to yield higher near term profits, excluding restructuring costs. However, we remain skeptical on the company’s ability to meaningfully reaccelerate growth given the secular headwinds in search and display.” Friedland raised his estimates for this year to $4.44 billion from $4.43 billion and to $1.22 per share from $1.04 per share.
Brian Nowack, Nomura Equity Research: Reiterates a Neutral rating and a $14 price target. Although search was the “bright spot,” Yahoo! is still challenged to make the Microsoft deal work: “That said, MSFT adCenter remains an issue as YHOO again did not close the RPS gap as much as they hoped. YHOO remains confident it will close the RPS gap before the MSFT guarantee expires in 1Q:13, but this remains a risk, as we believe adCenter is still monetizing at roughly 30% of the rate of Panama.” The strategy was lacking: “We did not hear any specific strategies to bring eyeballs back to YHOO. Management said it will eliminate ~50 underperforming sites to hone its focus on the core verticals mentioned above, and it intends to re- emphasize the Yahoo! Commerce business (autos, travel and shopping) […] we continue to need a sign that the long-term top-line concerns will abate before we would turn more positive.”
Clay Moran, The Benchmark Company: Reiterates a Hold rating and a $17 price target. He also thinks the strategy needs to be more clearly defined: “He did not articulate any meaningful change to Yahoo’s operating strategy except via an as yet-to-be-defined Commerce segment. We think more dramatic change is required to improve Yahoo’s growth prospects.”