Yahoo! (YHOO) Suffers from a Lack of Focus - BMO

BMO Capital Market analyst, Daniel Salmon, cut Yahoo! (NASDAQ: YHOO) price target in a largely expected Neutral quarter. The key question for the analyst is how the company can focus on one monetization strategy when it is pursuing three. PT drops to $32, no change to Market Perform rating.

Yahoo! announced several strategic re-organization initiatives, including a 15% workforce reduction that will help yield $400 million in run-rate savings; it will also explore non-strategic asset sales (real estate, patents, etc.) that could yield $1B of proceeds, and the company is open to engaging “qualified strategic proposals.”

Guidance for 2016 was below consensus: revenue ex-TAC is expected to be $3.4-$3.6B (vs. $3.84B consensus), while adjusted EBITDA is seen in the range of $700-$800mm (vs. $846mm consensus.). This overshadowed, 4Q15 revenue ex-TAC of $1.0B which was ahead of the Street’s $948mm. Non-GAAP EPS of $0.13 beat our $0.12 estimate and was in line with consensus of $0.13. Search paid clicks were down 10%, search PPC was up 3%, display ads sold were up 8%, and display price per ad was up 6%.

In formally opening to strategic proposals, Yahoo has three potential options for realizing value including the previously announced reverse spin plan and the streamlining of the company around platforms (Mail, Search, Tumblr) and verticals (Sports, News, Finance, Lifestyle) in hopes of renewing growth. The challenge for investors is having confidence in successfully completing any one path, when attention is being given to all three.

The target price goes from $34 to $32, which implies $21.34/share for BABA (where we apply a 50/50 probability of full taxation), $5.83/share for core Yahoo; and $5.10/share for the Yahoo Japan stake, which we fully tax.

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

Shares of Yahoo! closed at $29.06 yesterday.

You May Also Be Interested In

• Commerzbank AG (CBK:GR) (CRZBY) PT Raised to EUR14.70 at Citi
• UBS Downgrades SSP Group Plc. (SSPG:LN) (SSPPF) to Neutral
• Fuchs Petrolub SE (FPE3:GR) (FUPBY) PT Raised to EUR45 at Stifel