North America

Earnings Preview: Altaba Inc. Q2 2017 (AABA)

By: Craig Bowles

Overview

Altaba, Inc. (AABA) is slated to report 2Q 2017 earnings before the bell on Tuesday, July 25th. The earnings release is expected at approximately 7:00 p.m. ET with an 8:30 a.m. conference call available at Altaba Investor Relations. After the Verizon deal closed on June 13th, Yahoo’s remaining assets including a 15% stake in Alibaba Group (BABA) began trading under the name Altaba Inc. (AABA) on June 19th.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analyst consensus is $0.13 (range $0.08 to $0.18). (Source: Yahoo! Finance) Consensus was $0.15 three months ago.
  • Revenues Ex-Traffic Acquisition Costs ‘TAC’: This has been the value most widely used to value the company. Analyst consensus expectations are for $811.10 mln. (Source: Zacks.com)
  • Revenues: The company is focusing on accelerating GAAP revenue growth. The current Street estimate is $1.28 bln (range $1.25 bln to $1.30 bln).
  • Altaba shares at 10.3x sales compares to a five-year average of 7.0x; 1.5x book value compares to a five-year average of 1.7x; 50.8x cash flow compares to a five-year average of 38.2x.
  • Analysts view Altaba with 11 (9 last qtr) Buy, 16 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Altaba shares have a 1-day average price change on earnings of 2.70%.

Recent News

  • 06/14: Raymond James reiterated an Outperform rating on shares of Yahoo! (now Altaba) with a $72 price target is based on a sum-of-the-parts (SOTP) analysis. “For Alibaba, we estimate a $65.7B value to Yahoo (based on a BABA price of $171 [~10% discount to our $190 price target for BABA]. We would also note that we assume a 50% probability that Yahoo’s reverse spin will be tax efficient (essentially zero taxes on Alibaba ownership). For Yahoo Japan we assume ~35% equity position which equates to $8.7B to Yahoo. Additionally, we add in net cash of $11.2B. Based on these inputs, we arrive at a 12- month price target of $72. We note that our more conservative scenario (full tax rate on BABA shares) implies a $60/share value while the more aggressive scenario (zero tax rate on BABA shares) yields $85/share value,” according to a post on Barron’s.com.
  • 06/13: Verizon Communications Inc (VZ) closed its $4.48 billion acquisition of Yahoo Inc’s (YHOO) core business. Marissa Mayer, chief executive of YHOO, resigned with most of her 53 acquisitions having been shut down or absorbed. She is replaced by Thomas McInerney, a former executive at IAC/InteractiveCorp. (IAC), according to a post on StreetInsider.com.
  • 06/09: BofAMerrill Lynch raised its price target on Yahoo! (now Altaba) to $70.00 (from $58.00) while maintaining a Buy rating while noting the robust outperformance in Alibaba’s shares following FY18 sales guidance, according to a post on StreetInsider.com.

Technical Review

Altaba shares found resistance a decade ago at $40 and the middle of this decade at $50, so the improvement since the .com bust has been slow but with higher lows. The stock has handily outperformed the S&P in 2017 but the rise appears tame when compared to Alibaba. (Chart courtesy of StockCharts.com)

Summary

Alibaba’s (BABA) share performance and increased guidance has analysts raising Altaba price targets from around $58 to $70+. The company has beaten and missed analyst consensus by an average of 4c the last four quarters. Analyst consensus of $0.13 on Revenue Ex-Tac of $811.10 mln.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.