Yahoo! (YHOO) Investors are Demanding Change, SunTrust's Peck Says

SunTrust Robinson Humphrey analyst, Bob Peck, published a note this morning on Yahoo! (NASDAQ: YHOO) noting a list of concerns from angry shareholders. This list centered around 3 main areas: 1) core turnaround progress; 2) the risks of the Alibaba spin not being tax free; and 3) the stability and direction of management. Investors are asking how engaged the board is and what it needs to see to enact change.

After ~3.5 years and $7B in spending (M&A and R&D), management has been unable to show meaningful progress in the core turnaround. Since 2012, reported revenue and EBITDA have declined 9% and 45% respectively, and the trend appears to be worsening.

Investors are optimistic that the spin should be tax free and hope to have an opinion letter from Skadden Arps shortly but there is still the risk that the IRS deems the transaction taxable, which could usurp the majority of the value of Yahoo's Alibaba shares.

This year alone, they count 13 key executives who have left, which disrupts continuity. As the company considers another reorganization, they believe the board must assess if the current management team has support of 4 factions: senior executives, employees, partners, and investors. If not, they think a seamless transition to new leadership could be in the best interest of the company and shareholders.

No change to Buy rating or $40 PT.

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 $33.23 yesterday.

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