M&A Strategy, Return of Cash Key Focal Points for Yahoo! (YHOO) Investors into Q3 Report - Analyst

Cowen and Company affirmed Yahoo! (Nasdaq: YHOO) at Market Perform with a price target of $32 heading into the company's Q3 report.

Analyst John Blackledge sees Yahoo! reporting revs of $1.04 billion and GAAP EPS of $0.27. The analyst continued, We forecast Display revenue (ex-TAC) to decline 11% y/y, below the 7% y/y decline in 2Q14. We estimate Search revenue to increase 2% y/y (vs.+6% y/y) last quarter. As for EBITDA, we forecast $240MM, down 28% y/y and modestly below consensus estimate of $249MM.

...investors will likely look to see if paid clicks growth remain strong (+3% y/y in 2Q14) given management's stated commitment to the search business. On the display side, investors will likely key on whether ads sold continued to increase (up from 24% y/y in 2Q14). However, the Ads sold growth has come at the expense of price (-24% y/y in 2Q14) and has been down the last six quarters. As a reminder, the display biz last quarter was heavily impacted by lower premium ad revenue and a delay in transitioning to Ad Manager plus, Blackledge continued.

Key areas of interest for investors:

1) Acquisitions and clarity around the M&A strategy, recent activist speculation around an AOL combination and the reported (per press) investment in Snapchat);

2) Buybacks and the pace of return of cash (mgmt has said it will return half of the Alibaba proceeds) and liquidation of the remaining Alibaba holdings;

3) Tumblr monetization update;

4) Mobile Metrics and integration of Flurry; and

5) Guidance and commentary on the health of core display and search businesses.

For an analyst ratings summary and ratings history on Yahoo! click here. For more ratings news on Yahoo! click here.

Yahoo! closed at $38.45 yesterday.

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