A Melting Ice Cube? Yahoo's Earnings Have Little Impact In Wake Of Core Sale, SunTrust Says

Yahoo! Inc. YHOO reported better than feared 1Q results, but announced weaker 2Q guidance. SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating for the company, with a price target of $44. The analyst commented that Yahoo’s results were “not really material,” since the Board is actively exploring the sale of its core business.

Take On Performance

Analyst Robert Peck mentioned the key takeaways from the quarter as:
GAAP and Net revenue ex-TAC were marginally ahead of Street expectations. However, these figures were down 11 percent and 18 percent y/y, respectively. Search also declined by 21 percent y/y, while Display was down 1 percent.
MaVeNS GAAP revenue growth fell sharply to 7 percent y/y, from 26 percent in the prior quarter, and from 43 percent in 3Q15 and 60 percent in 2Q15. Mobile GAAP revenue growth also decelerated to 11 percent, from 15 percent in 4Q15, 31 percent in 3Q15, and 55 percent in 2Q15.
Adj. EBITDA came in higher than consensus expectations, driven mostly by business, product, and headcount rationalization.
Yahoo has almost completed its planned headcount reduction by 15 percent.
FCF came in at ~$300M, benefiting from ~$190M of a onetime tax refund.
Yahoo ended the quarter with $7.1B of liquidity.

Estimates Reduced

The revenue ex-TAC and EBITDA estimates for 2Q16 have been reduced from $864M to $842M and from $176M to $159M, respectively, in-line with the disappointing guidance.

Sale Of Core

Referring to the planned sale of the core business, Peck wrote, “While a "melting ice cube" could impact the transaction price, we think any difference would be modest relative to the potential value that can be unlocked in the Asian investments.” He added that Verizon Communications Inc. VZ is likely to be able to pay the most for the business, in view of potential synergies.