Despite delivering earnings that beat expectations, analysts this morning are giving Yahoo a tepid review.
Yahoo has failed to deliver something to truly get the Street excited about the stock.
Really, the thing that has analysts most excited is the potential for Yahoo to sell its Asian assets, which are valued around $10.5 billion, or $10-$11 per share.
Here’s what analysts are saying:
- Heath Terry at Canaccord: “Display Growth Not Enough … Yahoo’s Q1/11 results beat expectations, though revenue declines accelerated for the second quarter in a row as the strength in display revenues failed to offset the weakness in search revenues. While there were some bright spots in the display business and in some of the usage metrics management focused on, such as engagement levels in the new mail beta, the overall business continues to deteriorate. While there is substantial asset value on the balance sheet, until the core business stabilizes we expect YHOO to continue to underperform.”
- Youseff Squali of Jefferies: “1Q Results Generally Positive, Much Work Remains … Yahoo!’s Display business has shown clear improvement in 1Q11, with higher user engagement and faster revenue growth, while Search remains challenged. Our Buy rating is predicated on a cheap valuation, gradual turnaround in the core business, and the eventual unlocking of value in the Asian assets.”
- Jordan Rohan at Stiefel Nicolaus: “Yahoo!’s quarterly results were slightly better than expected and 2Q11 earnings guidance is above our prior estimates. But there are serious issues with the Microsoft search partnership, as the combined revenue per search (RPS) is currently lower than what Yahoo’s old Panama platform had generated. The situation is serious enough that Yahoo has delayed indefinitely the transition of international search markets to Microsoft. The bull case remains the value of the cash and Asian assets at almost $11 per share.”
- Ross Sandler at RBC: He’s very positive: “Yahoo delivered a clean beat in 1Q11 and an in-line guide for 2Q11, much improved from prior quarters’ releases. Display was the standout performer once again, increasing +17% organic, an acceleration from 4Q10’s Y/Y, and 10% net after factoring in the auto accrual comp. Search was weak as expected, but ahead of our estimate. Importantly, Yahoo exceeded consensus EBITDA by 7%, the first bottom-line beat in several quarters. We are encouraged that consensus estimates going forward finally reflect reality following some of the revenue step-downs heading into 2011, so we don’t expect any more downward estimate revisions from here. Next up for Yahoo is its analyst day, which should showcase how the company will achieve its goal of “over 30% operating margin by 2013″, which is significantly above current consensus estimates. On top of the margin visibility, we may have an update on the Yahoo Japan situation. We think Yahoo could be turning the corner on its core domestic fundamentals, and with potential Asian asset catalysts ahead, we think shares can work higher from here. We are increasing our EBITDA by 7% for 2011; we maintain our Outperform rating and increase our price target to $22 from $20.”
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