North America

Earnings Preview: Yahoo! Q4 2016 (YHOO)

By: Craig Bowles

Overview

Yahoo!, Inc. (YHOO) is slated to report 4Q 2016 earnings after the bell on Monday, January 23rd. The earnings release is expected at approximately 4:05 p.m. ET. They will not conduct the conference call due to the pending 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).

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analyst consensus is $0.21 (range $0.11 to $0.26). (Source: Yahoo! Finance) Consensus was $0.20 three months ago.
  • Revenues Ex-Traffic Acquisition Costs ‘TAC’: This has been the value most widely used to value the company. Company guidance is $880 mln to $920 mln. Analyst consensus expectations are for $910.66 mln. (Source: Estimize.com)
  • Revenues: The company is focusing on accelerating GAAP revenue growth. Company guidance is $1.36 bln to $1.40 bln. The current Street estimate is $1.38 bln (range $1.35 bln to $1.41 bln).
  • Yahoo! shares at 8.0x sales compares to a five-year average of 7.0x; 1.2x book value compares to a five-year average of 1.7x; 35.4x cash flow compares to a five-year average of 38.2x.
  • Analysts view Yahoo! with 12 Buy, 22 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • Insiders have sold a net 105,134 shares the last three months but bought a net 113,363 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 2.85%. Options are pricing in an implied move of 4.26% off earnings.

Recent News

  • 01/23: SEC is probing Yahoo over the previously disclosed cyber breach, according to a post on Reuters.com.
  • 01/22: Yahoo’s “core” will change its name to Altaba Inc., according to a post on Benzinga.com.
  • 01/18: Yahoo!’s estimated net asset value is around $60, according to a post on Barron’s.com.
  • 01/06: A.T. Kearney says Verizon probably won’t back out of the Yahoo deal if you believe that the ad technology is part of the play and you believe that access to a billion users is valuable, according to a post on CNBC.com.
  • 12/15: Yahoo! Stock fell 6.1% after reporting another data breach, calling into question the $4.83bn acquisition by Verizon Communications (VZ). Evercore ISI says Yahoo’s core business represents only 10% of their Yahoo target price of $39 and there is potential for a more favorable tax-rate assumption around Yahoo’s 15% stake in Alibaba (BABA), according to a post on Barron’s.com.
  • 12/04: Yahoo Japan, a joint venture between SoftBank and Yahoo, was upgraded to a Buy by Nomura Securities raised this stock to Buy and suggested a 40% upside while suggesting its Yahoo Shopping site, one of the company’s new businesses, could double its sales to 16 billion this fiscal year and could report 25 billion in revenue next year, according to a post on Barron’s.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. Stocks and the economy in general tend to struggle more in the latter stages of each decade and the Yahoo’s stock seems to be conforming to this decade cycle. (Chart courtesy of StockCharts.com)

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Summary

Yahoo! core assets being sold to Verizon is still being questioned after a massive email breach which is now under SEC investigation.  Stock buybacks should reduce downside potential. Insider selling continued, so has been pretty steady the past nine months. The company has missed and beaten analyst consensus by an average of 2c the last four quarters. Estimize consensus for Non-GAAP EPS of $0.22 on Revenue Ex-Tac of $909.57 mln compares to analyst consensus of $0.21 on Revenue Ex-Tac of $910.66 mln. Display revenue, ads sold, paid clicks, and price-per click also are a focus.

 

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