Yahoo! Inc. Price Target Reduced To $43 By FBN

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Yahoo! Inc. (NASDAQ:YHOO) posted gloomy results in its core search/display business, recording a decline of 7% in net display revenue marred by lower than expected pricing. Net search revenue increased 6% year over year and paid click growth dropped to only 3%. Still, FBN Securities analyst Shebly Seyrafi, in a report dated July 16, 2014, noted the agreement between Alibaba and Yahoo as a Key positive.

Yahoo to gain from agreement

Recently, Yahoo closed an agreement with Alibaba under which it has to sell only 140 million shares at Alibaba’s IPO instead of prior agreement to sell 208 million. Largely, Investors are expecting Alibaba shares to increase in the after-market post IPO, so, Yahoo will gain more value if it sells fewer shares.

In the third-quarter, Yahoo is expecting net revenue in the range of $1.020 billion to $1.060 billion, below the consensus estimates of $1.10B. Adjusted EBITDA is expected to come in the range of $220-260 million.

Weak 2Q numbers

In the second-quarter, the company reported net revenue of $1.040 billion and NG Earnings per share of $.37. Net revenue in America came in at $775 million, a drop of 3% year over year. Net revenue from EMEA came in at $88 million, and Asia Pacific recorded net revenue of $178 million, which was a drop of 14% year over year. Alibaba posted revenue of $1.966 billion in March, an increase of 42% year over year and down from 66% growth in the fourth-quarter.

Net revenue from search came in at $428 million, a rise of 6% year over year. Search Click revenue increased by 19% and paid click growth of 3% year over year was countered by PPC growth of 15%.

Yahoo posted net display revenue of $394 million, a drop of 7% year over year as a strong ad growth of 24% was countered by a PPA decline of 24%. Two factors that pressurized the display business are the slow growth of Ad Manger Plus, which is expected to be a long-term catalyst of the display business, and contribution from premium advertising was low for Yahoo. According to analysts, Yahoo should offer better content to users to address such concerns.

Analysts at FBN reiterate Outperform rating on Yahoo, but lowered the price target from $46 to $43.


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