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Here's Why MKM Partners Lowered Yahoo's Price Target


In a report published Wednesday, MKM Partners analyst Rob Sanderson commented that Yahoo! Inc. (NASDAQ: YHOO) remains a "great unlocking of value" story with potential for meaningful upside on a turnaround in the core business, but the company is not a near-term earnings story.

According to Sanderson, Yahoo shares are "attractive" as management continues to take an aggressive approach in unlocking shareholder value through buy-backs and asset divestures, while "pruning" expenses and re-positioning the company for growth.

The analyst said several aspects of Yahoo's core business are showing signs of growth that will offset declines in Display. As an example, Yahoo's mobile, video, native and social businesses ("Mavens") contributed $363 million in gross revenue during the first quarter. Mavens now represent 33 percent of traffic-driven revenue, up from 22 percent a year ago.

With that said, Sanderson is now expecting core Yahoo will return to growth during 2015. His prediction does not factor in "aggressive" expectations for Tumblr monetization, which is also expected to provide "good growth potential" over the next few years.

Sanderson also noted that the company's amended agreement with Microsoft Corporation (NASDAQ: MSFT) allows Yahoo to explore new monetization strategies, including monetizing traffic through its own Gemini platform or through Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL).

Why A Target Price Slash?

Sanderson explained that his downward revised price target of $58 reflects a revised price target on shares of Alibaba Group Holding Ltd (NYSE: BABA) of $115 which was lowered from a previous $125 on Monday by analysts at MKM Partners.

Alibaba is the largest component of Sanderson's sum-of-parts valuation by a "long way" at 74 percent. While shares of Yahoo have outperformed Alibaba this quarter, the stock should be directionally correlated on Alibaba's upcoming report.

Finally, Sanderson argued that if shares of Alibaba reach his firm's $115 price, Yahoo shares could see a further $9 upside. In addition, a tax-free spin of Yahoo Japan will add $3 per share and valuation and if Yahoo-core returns to industry growth rates, shares could see a $6 upside.

Latest Ratings for YHOO

Oct 2016JefferiesDowngradesBuyHold
Oct 2016NeedhamDowngradesBuyHold
Oct 2016MKM PartnersMaintainsBuy

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Posted-In: Alibaba Gemini Mavens MKM Partners Rob SandersonAnalyst Color Price Target Analyst Ratings

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