Yahoo (YHOO) Earnings Preview: What Wall Street’s Thinking

yahoo earnings

Yahoo Inc (YHOO) has been rising steadily since the open of trade Friday and is currently higher by 1.40 percent at $38.50 on above average volume. The stock is now challenging its one year highs along the $38 area as it continues to trade above its $34.37 200-day moving average and consolidating between $36.50 – $37.80 since its Q1 2016 earnings report. A turnaround in Q2’s core metrics and any addition plans for Yahoo has the potential to break the stock out from its current 3 and a half-month range.

Yahoo is set to announce its second quarter earnings after the bell on Monday, July 18th. The report will be for the fiscal quarter ending June 2016. Analysts expect the household internet name to report earnings per share of $0.10 and revenue of $1.08 billion. That would be $0.02 higher the $0.08 per share posted last quarter, and $0.06 lower the $0.16 posted in the second-quarter of 2015. Revenue is projected to be 13 percent lower than the $1.24 billion posted in the same period a year earlier. Meanwhile, EarningsWhisper.com reports a whisper number of $0.10 per share.

RBC Capital Market’s Mark Mahaney thinks the Street’s expectations for Yahoo’s 2Q16 are reasonable. Although the analyst reiterates in his research a ‘Sector Perform’ rating and $38 price target on the stock, he notes that the embattled California-based web portal with a “For Sale” sign out front is a not a ‘Buy’ candidate. According to Mahaney, the company’s operating efficiency in terms of EBIDTA estimates for the second half of the current fiscal year (and Yahoo’s own guidance) does require “a relatively aggressive” margin recovery.

Mahaney has a point. Despite years of trying to jump start its business by way of restructuring, layoffs and business reorganization efforts, Yahoo’s finances have continued to deteriorate. The company’s worldwide digital ad growth rate has been nonexistent, while asset inflows have been mostly flat over the past 5 years. In fact, Yahoo’s 2016 display ad sales are expected to decline more than 15 percent to less than 2% market share, according to eMarketer. Additionally, EBITDA in fiscal 2016 could drop to $750 million, nosediving to almost half the levels of fiscal 2014. Current annual net income and free cash flow are both in the red at $4.36 billion and $2.94 billion, respectively. Profitability-wise, Yahoo’s t-12 profit margin prints at a loss of almost 93 percent, while operating ones are at (4.3) percent. Diluted EPS is ($4.75).

Mahaney has been very critical of Yahoo. Back in May, he called the company the “most fundamentally challenged” name in the internet sector. While the once formidable Internet giant still draws a billion users to the site every month, it now accounts for a tiny slice of the time people spend online.

In other Yahoo news today, after the seemingly never ending process to sell its internet core business, the New York Times reports the company will consider final bids on Monday.

Names doing the rounds include telecom giants Verizon Communications (VZ)  and AT&T (T), several private equity firms like TPG, Advent and Sycamore Partners/Vector Capital, and Quicken Loans co-founder, Dan Gilbert, who is getting financial backing from Berkshire Hathaway’s billionaire Chairman Warren Buffett.

The publication said the sale of Yahoo’s core business is expected to bring as much as $6 billion, including intellectual property and land, far less than the $8 billion or more the company had been expecting.

The sale aims to separate the firm’s 384-million-share stake in Alibaba (BABA) from Yahoo’s operating business, a move the company said is “essential to maximizing value for our shareholders.” Well, that’s a no-brainer given Yahoo’s stock value is almost completely tied to Alibaba’s performance, not the company’s core business.

In early fiscal 2015, Yahoo CEO Marissa Meyer announced that the company intended to sell its Alibaba stake to avoid U.S. capital gains tax. By December, however, Meyer reversed that decision, saying she would pursue a spinoff of the company’s core Internet business instead, leaving the Alibaba shares in the old company.

Yahoo Stock Price Action

Yahoo shares have advanced 1.50% in the last 4 weeks and 2.13% in the past three months. Over the past 5 trading sessions the stock has gained 1.17%. The $35.9 billion Sunnyvale, California-based company has a median Street price target of $41.50 with a high target of $49. Currently there are 15 analysts that rate Yahoo stock a ‘Buy’, 18 rate it a ‘Hold’. No analyst rates it a ‘Sell’.

Yahoo! Inc. is down 1.09% year-over-year, compared with a 2.14 percent gain in the S&P 500.

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