Shares of Yahoo! (YHOO) Tuesday fell 61 cents, or 3%, to $19.70 after the company last night reported Q4 revenue and profit per share that beat expectations on better-than-expected results in its search advertising business, but forecast this quarter’s revenue, and the full year, to miss consensus slightly.
There were no downgrades or upgrade of the stock Tuesday, that I could see, and price targets were going up both among bulls and among bears. Analysts like what appears to be a trend to lower “traffic acquisition cost,” or TAC, the price Yahoo! pays to generate traffic that sells ads. But results from Yahoo!’s traditional bread and butter of display ads was disappointing, suggesting to some the company has got to do better to “engage” visitors to its properties.
Estimates today went in different directions with each analyst, with the most aggressive expectations tempered somewhat but others seeing upside to what they’d been modeling for this year:
Heath Terry, Goldman Sachs: Reiterates a Buy rating and raises his price target to $25 from $24. Within his new target, Terry estimates the market is only assigning $5.73 per share to the core business but should be giving it a $10.65 per share value. “The company repurchased 80 mn shares in the quarter implying that $1.5 bn of the $3.0 bn it has committed to return to shareholders through buybacks, still remains [�] Incorporated into the guidance is an upfront increase in investment spending, resulting in significant operating leverage in 2H13 and beyond. Combined with lower-than-expected TAC, we expect adjusted EBITDA to expand 280 bp by 2015 after an initial yoy decline of 200 bp in 2013 [�] “The company looks to achieve higher engagement through product differentiation, innovation, and excellence, with roughly a dozen already identified products to focus on engaging a daily digital habit [�] Part of the focus includes reaching broadly to grow share and increase usage country by country [�] Appeal to broader demographic. Developing innovative products across all platforms to appeal to key demographics, likely leading to better monetization across search, display, mobile, and video.” Citing the likelihood of lower TAC, Terry raised his 2013 estimates to $4.53 billion in revenue and $1.20 per share from $4.37 billion and $1.03.
Colin Gillis, BGC Partners: Reiterates a Buy rating on the shares and a $21 price target. “The results are generally pleasing, particularly the improvement in search revenue and clicks. We note the company is facing headwinds in 2013 including a restructuring of its sales force, the end of its revenue-per-search guarantee, the potential for a decline in its earnings from equity interest due to the partial sale of its AliBaba stake, and the potential for more declines in a display advertising market that is rotating to programmatic and exchange-based buying [�] Display revenue growth ex-tac has been declining each quarter in 2012 all year when compared to 2011 [�] The company needs to drive better engagement of users in order to improve display revenue, and this is going to be a significant challenge facing Yahoo�s new management team [�] Search remains an area where the company has a clear opportunity to improve its fortunes. Paid clicks on Yahoo! properties and affiliate sites grew 8% QoQ and 11% YoY � indicating an improvement in the search algorithms as query growth was more muted.” Gillis cut his 2013 estimate to $4.62 billion in revenue and $1.23 per share from a prior $4.63 billion and $1.24.
Stephen Ju, Credit Suisse: Reiterates a Neutral rating on the shares and raises his price target to $21 from $19. “New CEO Marissa Mayer reiterated the overall broad strategy with a particular focus on mobile, personalization as well as the re-imagining of core search and display offerings, and we continue to believe this will likely increase the investor perception that the company has at last found the right management team to execute on the ongoing turnaround. However we maintain a wait-and-see stance pending further details around the product roadmap as it seeks to transform itself longer term into a growth company.” Ju cut his 2013 revenue estimate to $4.55 billion from a prior $4.75 billion, but raised his EPS estimate to $1.21 from $1.14.
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