North America

Earnings Preview: Yahoo! Q1 2017 (YHOO)

By: Craig Bowles

Overview

Yahoo!, Inc. (YHOO) is slated to report 1Q 2017 earnings after the bell on Tuesday, April 18th. The earnings release is expected at approximately 4:05 p.m. ET. They will not conduct the conference call due to the pending core asset transaction with Verizon (VZ), according to Yahoo! Investor Relations. The company is a component of the S&P 500 and NASDAQ 100 Indices. Yahoo still owns a 15% stake in Alibaba Group (BABA). After the Verizon deal closes, Yahoo’s remaining assets will trade under the name to Altaba Inc. (AABA).

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analyst consensus is $0.14 (range $0.10 to $0.18). (Source: Yahoo! Finance) Consensus was $0.14 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 $800.14 mln. (Source: Estimize.com)
  • Revenues: The company is focusing on accelerating GAAP revenue growth. The current Street estimate is $1.23 bln (range $1.07 bln to $1.31 bln).
  • Yahoo! shares at 8.6x sales compares to a five-year average of 7.0x; 1.4x book value compares to a five-year average of 1.7x; 35.7x cash flow compares to a five-year average of 38.2x.
  • Analysts view Yahoo! with 9 Buy, 20 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 142,474 shares the last three months and sold a net 629,847 shares in the past year. (source: NASDAQ.com) In March 2015, Yahoo authorized an additional $2 billion for stock buybacks through March 2018.
  • Apart from the earnings and revenue figures, other variables that could impact post-market trading include display revenue, ads sold, paid clicks, and price-per click.
  • Yahoo! shares have a 1-day average price change on earnings of 2.89%. Options are pricing in an implied move of 2.78% off earnings.

Recent News

  • 03/25: Yahoo! liquidation could deliver a 20% gain to investors: The company is expected to have about $10 billion of net cash following the Verizon sale, plus a roughly one-third stake in Yahoo Japan (4689.Japan) worth $9 billion, and the Alibaba interest worth $41 billion. That totals about $60 billion, or $63 a share. Assume that Alibaba swaps shares for the Yahoo! Alibaba stake at a 15% discount, and that Yahoo! gets a 10% discount on the Yahoo Japan liquidation. That would give Yahoo! a total value of around $56 a share, according to a post on Barron’s.com.
  • 03/13: Yahoo! CEO Marissa Mayer will be succeeded by Yahoo! board member Thomas McInerney, a former executive at IAC/InteractiveCorp. (IAC), when the Verizon deal closes, according to a post on Barron’s.com.
  • 03/01: CEO Marissa Mayer gave up her promised annual bonus after the compromise of Yahoo!’s members’ data dating back to 2014, and repeated in 2015 and 2016. Chief counsel Ronald Bell has resigned, according to a post on Barron’s.com.
  • 02/21: Yahoo! recut a deal to sell its core Internet business to Verizon Communications and will receive $4.5 billion, down $350 million from the original price, according to a post on cnn.com.

Technical Review

Yahoo! 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 is holding up better recently than the major averages relative to the 50-day moving average as investors await the Verizon purchase and asset breakup. (Chart courtesy of StockCharts.com)

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Summary

Yahoo!’s internet business is being sold to Verizon at a reduced price after multiple hacks of user information but the total value of the stock is estimated at $56 which is close to the high end of estimates a year ago.  Insiders show some selling but nothing alarming. The company has missed and beaten analyst consensus by an average of 3c the last four quarters. Estimize consensus for Non-GAAP EPS of $0.16 on Revenue Ex-Tac of $806.78 mln compares to analyst consensus of $0.14 on Revenue Ex-Tac of $800.14 mln. Display revenue, ads sold, paid clicks, and price-per click also are a focus.

 

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