RBC Asks, 'Will Yahoo's Fundamentals Ever Base Out?'
- Yahoo! Inc. (NASDAQ: YHOO) shares are down 13 percent since January 4.
- RBC Capital Markets’ Mark S. Mahaney maintained a Sector Perform rating for the company, while reducing the price target from $42 to $33
- Yahoo announced better-than-expected Q4 results, but weaker-than-expected 2016 guidance, Mahaney stated.
Yahoo reported its Q4 net revenue at $1.00B, ahead by 5 percent of the RBC and Street estimates. Net revenue declined 15 percent y/y, implying deteriorating asset risk. The company’s EBITDA came in at $215MM, ahead by about 13 percent of the RBC and Street estimates.
EBITDA margin contracted significantly during the quarter, with EBITDA down 47 percent y/y, which is a cause for concern, analyst Mark Mahaney commented. Moreover, Yahoo’s guidance for both Q1 and 2016 were disappointing. Management provided a detailed strategic plan to return the company to growth in 2017.
The net revenue and EBITDA estimates have been reduced by 8 percent and 14 percent, respectively.the EBITDA estimate for 2016, at $782MM, represents the lowest level in more than a decade.
Mahaney pointed out that Q4 marked the third straight quarter of “a material reduction in our YHOO estimates.” He added that Yahoo’s shares were down only 2 percent in the after-market, which seems to signal “a washed-out stock.”
“The stock-picking lesson may be that stocks don’t wash out until fundamentals base out,” the analyst said. Yahoo’s Q1 guidance calls for another EBITDA decline of around 50 percent y/y and the company continues to be “a “really, show me” story.”
Mahaney expressed concern regarding strong headwinds for Yahoo from robust growth in the ad platforms of Facebook Inc (NASDAQ: FB), the rapid rise of Programmatic ad buying, and the solid expansion of the platforms of Alphabet Inc (NASDAQ: GOOGL).
“Yes, YHOO looks highly inexpensive on a SOP basis. But until we gain confidence that fundamentals & estimates have based out, we can’t recommend the stock,” the RBC Capital Markets report noted.
Latest Ratings for YHOO
|Oct 2016||MKM Partners||Maintains||Buy|
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.