Broadpoint.Amtech Maintains a 'Buy' on Yahoo! (YHOO); Smaller & Leaner After Microsoft Deal Closes
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Broadpoint.Amtech maintains a 'Buy' rating on Yahoo! Inc. (Nasdaq: YHOO), raises price target from $19 to $21.
Broadpoint analyst says, "Post the Microsoft (Nasdaq: MSFT) deal closing and various non-core asset divestitures/closings/partnerships, YHOO should be meaningfully smaller and leaner, but should also be a significantly more profitable company. In this note, we walk through what we think YHOO's P&L will look like in 2011 and beyond. We think it is possible to see EBITDA margins increase drastically to ~50-55%, while revenue will likely be 15% below 2009 levels. Many may be dubious about the new margin structure, but with ~50% of its revenue (Search and Fees) at potentially 75% operating margin by 2011, YHOO has tremendous leverage..."
"As for the stock, we believe that the near- to mid-term margin transformation will continue to drive interest in the stock and outweigh longer-term concerns. Additionally, YHOO's assets in Asia also remain a key value driver for investors. All in, by 2011, we estimate YHOO should deliver approximately $2.1B in EBITDA and have about $6.2B in cash. In addition, we estimate the value of YHOO's Asia assets at approximately $10.2B (after a 25% discount for taxes/liquidity). Applying the average large-cap Media EV/EBITDA multiple of 6-7x, this implies a per share equity value of $20-$22."
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Yahoo! Inc. provides Internet services to users, advertisers, publishers, and developers worldwide.
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