Yahoo held its annual Investor Day yesterday, and it looks like it failed to impress any Wall Street analysts.We’ve read over a few of the analyst reports and almost none of them have anything particularly positive to say about Yahoo. The comments are mostly muted.
Our understanding is that Carol Bartz was a snooze.
Part of the problem is that all anyone wants to hear about is what’s happening with Yahoo’s Chinese and Japanese investments. But, Yahoo can’t really talk about either, because negotiations are ongoing.
Another problem: company lowered its guidance and it’s apparently not going to hit its margin targets.
The one positive note we saw came from Youssef Squali at Jefferies who says in the short term Yahoo will remain “volatile,” but in the long term, “traction in display, stabilisation of dearch and resolution of the Asian issues should drive the stock meaningfully higher.”
Here are the bullet points from Macquarie’s Ben Schacter:
The Bottom Line – YHOO’s analyst day was difficult for investors and the company. Management did the right thing by raising the Alibaba issue at the onset of the day, however there were three key disappointments:
1) Alibaba issues – Not unexpectedly, the company was unable to say anything meaningfully new on the Alibaba situation.
2) Yahoo Japan – There was no meaningful update on the Yahoo Japan asset.
3) Guidance – YHOO guided down revenue expectations on lower RPS and its listing and fees businesses.
On the positive side, the company gave solid presentations on its potential to leverage investments related to its content and advertising systems. We are big believers in the benefits of personalised content and ads, but given YHOO’s history, investors will justifiably want to see this potential manifested in the P&L before they will give the company credit.
The bottom line is that we expect the China situation to be resolved quite soon (possibly within weeks). YHOO believes it will be able to retain the vast majority of Taobao’s value, while a sticking point is how to protect the off-Taobao potential of Alipay. We still have significant concerns around YHOO’s long-term ability to protect its overall Alibaba Group investment value. We simply think that Alibaba’s current management team thinks it deserves a bigger piece of the long-term economics. The recent events just remind us for the need to apply a discount to YHOO’s China assets. Regarding Yahoo Japan, a transaction will also get done at some point, but we wouldn’t expect a meaningful change to our value of YHOO shares regardless of the chosen structure. While we are believers in YHOO’s strategy to increase personalisation of content/ads, execution is key and YHOO now has the added challenge of fighting for market share as consumers migrate to new platforms and devices.
Here are Sqauli’s key takeaways:
At AD yesterday, mgmt. fleshed out its growth strategy around Display, expectations for Search growth to resume next year, but there were no new revelations around the Asia issues, notably monetization of Yahoo! Japan and agreement around Alipay ownership/remuneration. While this remains a show-me story ST, LT risk/reward looks positive to us.
Alipay Q&A left many questions unanswered… While mgmt tackled the Alipay issue head on, it was apparent that it did not want to antogonize Alibaba Grp, and perhaps the Chinese government, which we believe meant that mgmt stuck closely to scripted answers, invoking that 1) all negotiating parties have agreed to do everything to preserve the value of Taobao.com, 2) that there should be fair compensation for the asset transfer and 3) that Alibaba mgmt is “very cooperative”. While this provides some level of comfort, it provides no visibility into the likely outcome. As to timing, our best guess is that the parties could reach a resolution by the time the Chinese government doles out the required licenses in the Fall.
…while Yahoo! Japan is still a WIP. Mgmt. clarified that the Alipay talks are separate from those around Y!J, which are on-going. Tim Morse, CFO outlined options for a tax-efficient divestiture of Y!J (incl. a spin-off or tracking stock), options we’ve discussed before. That said, mgmt is working hard to protect as much value of its Asian assets as it can.
Display to grow double digits, Search/Margin guidance disappoint. With growth in traffic, engagement, ad budgets and a revamped salesforce, mgmt maintained its 13-16% CAGR for Display revs for 2011-2013 (vs. our 10% ests.) Mgmt also lowered 2011E growth guidance for Search, as lower RPS from MSFT weights it down, although early indications (April/May) point to some improvements. Mgmt believes that Search can show +3-6% growth in 2012-13 (vs. our +2.5%). Mgmt also lowered margin guidance to “below” its previous range of 27%-33% on lower Search and “Other” revs (vs. our 22-23%.)
YHOO remains a show-me story, but LT risk/reward positive. ST, YHOO should remain volatile, on news flow around the Asian assets. LT, traction in Display, stabilisation of Search and resolution of the Asian issues should drive the stock meaningfully higher.
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