Bob Peck Thinks Yahoo's Core Could Sell For $4-$8 Billion

• Yahoo! Inc. YHOO shares are down 13 percent since January 4.
• SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating for the company, with a price target of $40.
• The planned sell-off of Yahoo’s core is justified in view of its continued poor performance despite significant investments, Peck stated.

Analyst Bob Peck mentioned that Yahoo’s core business continues to be under pressure, despite significant turnaround efforts. The company’s core revenues ex-TAC [adjusted for TIPLA, YJ royalties and patent sales] declined 10 percent year-over-year, while EBIDA was lower by 40 percent.

Yahoo’s Q4 results showed that MaVENS growth slowed to 26 percent in Q4, from 43 percent in Q3. The company expects MaVeNS to grow only 9 percent in 2016, versus 44 percent growth in 2015.

Related Link: RBC Asks, 'Will Yahoo's Fundamentals Ever Base Out?'

Yahoo is now looking to sell its core assets. Peck mentioned that these could be worth $6-$8 billion for a strategic buyer and $4-$6 billion for a financial buyer.

“We continue to have faith in the board that it will honor its fiduciary duty and move swiftly to test the market for accretive only offers. If they do not materialize, we applaud the board for simultaneously right-sizing the cost base and potentially a spin,” the analyst wrote.

Yahoo has also disclosed a turnaround plan involving headcount cuts and focus on core assets Mail, Search and Tumblr, along with key verticals News, Sports, Finance and Lifestyle.

The company’s revenue and EBITDA guidance for 1Q16 and 2016 was short of expectations due to mobile search investment and cost reductions. “Importantly, the company expects to be on a $1B annual EBITDA run-rate exiting 2016 and mobile search is est. to reach rev breakeven in 2H'16,” the SunTrust report stated.

The EBITDA estimate for 2016 has been reduced from $809 million to $779 million.