Home Technology Yahoo! Gets PT Increase From BAML On Buybacks, Better Visibility

Yahoo! Gets PT Increase From BAML On Buybacks, Better Visibility

On Wednesday, after the closing bell, Yahoo! Inc. (NASDAQ:YHOO) reported third quarter earnings. The company beat estimates with 3Q revenues coming in at $1.09bn and EPS at $0.35, vs Street estimates of   $1.08bn in revenue and EPS of $0.26. EPS primarily beat forecasts due to a $135mn foreign tax credit. Net display, at flat y/y missed analysts’ +1% estimate (page views light, macro pressure in Europe), but search grew 11% and beat, due to RPS improvements and Microsoft Corporation (NASDAQ:MSFT) revenue guarantee growth. Key take away is revenues are stabilizing (ests. will be going higher due to Alibaba.com Limited (HKG:1688) Tech. IP Licensing agreement revs.) but traffic remains flat to down. Share Buy backs are now on the horizon as well.


Management indicated that the company will return the $3bn in Alibaba.com Limited (HKG:1688) after-tax cash proceeds to shareholders through buybacks (vs. a dividend) via open market purchases. The remaining buyback capacity at yesterday’s $15.77 close is over
180mn shares.


Gabelli & Company, Inc. analysts Brett Harriss has released a report on the stock with a buy recommendation.  Harriss calculates a 2013P PMV of $30 per share, based on our sum-of-the-part analysis. He believes that Mayer-driven operational improvements and continued share repurchases will act as near-term catalysts.  He also believes continued value creation at Alibaba Group, Y!J, and Yahoo.com will drive share appreciation. At current prices, Harriss estimates investors receive the core US business, Yahoo.com, and its $1.7 billion in EBITDA for free. This is similar to what Dan Loeb wrote about the company, while he was waging his war to change the board.

Price Target Increase

BAML is  raising their Price target to $19 from $18, based on $13 in asset value and an unchanged 4x multiple to 2013E EBITDA (reflecting mobile platform uncertainties). BAML sees better visibility for new CEO Marissa Mayer, buybacks,
and more stable revenue trends as possible stock drivers/catalysts in 2013.


The Yahoo! Inc. (NASDAQ:YHOO) picture gained a bit more clarity, and investors cheered the renewed support of share buyback  The much-awaited strategy vision of new CEO, Marissa Mayer was largely as expected, with a heavy focus on mobile and ad technology, particularly programmatic buying. Mayer noted that acquisitions of less than $100mn were where she was most comfortable, and most investors are more comfortable there too.

A demandside platform would make sense and would jive with Mayer’s comment about helping advertisers run a campaign in the “middle of the night.” Though intermediary solutions like these will continue to be squeezed, few expect Yahoo! to go head-to-head with Google as the leading supplier of ad tech, and instead to be more focused on building its tech stack to reinvigorate O&O revenue (similar to how Interclick is playing out).

Disclosure: No position