Cantor Fitzgerald research analysts Youssef Squali, Naved Khan, and Kip Paulson provide an in-depth look at Yahoo ahead of their 4Q13 report. They expect growth trends to remain muted, but with Alibaba on the horizon, investor’s patience could pay off.



Yahoo Earnings

We expect Yahoo! Inc. (NASDAQ:YHOO) to report muted 4Q:13 results on 1/28, inline with expectations. While 2013 represented a year of right-sizing, investment and acquisition, 2014 should be the year where monetization efforts drive a resumption in top-line growth. In the meantime, prospects for the highly anticipated Alibaba IPO this year, cost containment, and a current buyback should maintain positive momentum in the stock, in our view.

Estimates vs. consensus

Our 4Q:13 net revenue and EBITDA estimates of $1,224.7M and $418.3M, respectively, are slightly ahead of the Street’s (FactSet) $1,201.2M (guidance $1,180-1,220M) and $410.9M (guidance $400-420M). Our GAAP EPS estimate of $0.35 is three cents ahead of consensus.

Growth trends remain well below industry rates

Yahoo! Inc. (NASDAQ:YHOO) remains a share loser in both Display and Search. Our estimates assume that Display revenue ex-TAC decreased 2.1% Y/Y to $509.2M (vs. -6.7% Y/Y in 3Q:13) and Search ex-TAC increased 1.8% Y/Y to $434.9M (vs. +2.9% Y/Y in 3Q:13). These rates compare to global industry estimates of roughly mid-teens for both segments.

Mobile, personalization, and social to remain focal points…

Consistent with management’s M&A playbook, the theme of recent acquisitions has consistently tied into a) mobile, b) social, c) personalization, or d) other areas of focus that strengthen Yahoo!’s core offerings.

… but monetization and 2014 outlook are key

While we’ve seen significant progress in company culture, product improvement, and even an uptick in user engagement, 2014 is supposed to be the year when Yahoo! Inc. (NASDAQ:YHOO) shows improvement in monetization and hopefully a resumption of growth. In fact, our 2014 estimates call for overall revenue growth of +5.0% Y/Y vs. -0.4% in 2013.

Investors are still getting paid to wait

Yahoo! Inc. (NASDAQ:YHOO)’s 24% stake in Alibaba and 35% stake in Yahoo! Japan continue to lift/support shares. Alibaba, in particular, with revenue/EBITDA growth of ~60/75% Y/Y (our estimates for 2014) should remain a positive catalyst as we approach the highly anticipated IPO. We currently estimate Alibaba’s IPO valuation at $153B (see our SOP valuation analysis on page 2 for details).


Yahoo! Inc. (NASDAQ:YHOO) is trading at 1.9x revenue and 5.4x EBITDA on our FY:14 estimates (ex. Asian assets). Our $38 PT is based on a 5-year DCF supplemented by our Sum-of the-Parts valuation. Risks include new initiatives’ failure to gain traction, monetization of Asian assets, and decline in Media property usage.