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Oppenheimer Boosts Yahoo's Target: Alibaba Gains And Core Sale Valuation Responsible

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Oppenheimer’s Jason Helfstein mentioned that although growth at Mavens has been slowing, Yahoo! Inc. YHOO 3.28% appears to be executing on its plan to “simplify products, reduce costs, and focus on higher margin ad-tech solutions.”

Helfstein maintained an Outperform rating on the company, while raising the price target from $40 to $49.

The analyst explained the increase in the price target was based on the appreciation in Alibaba Group Holding Ltd BABA 0.68%'s shares, assumptions that the core business would be sold for 8x EBITDA, the Alibaba stake continued to be untaxed, and Yahoo Japan being sold on a taxable basis.

Related Link: A Melting Ice Cube? Yahoo's Earnings Have Little Impact In Wake Of Core Sale, SunTrust Says

Q1 Performance

Yahoo reported its Q1 net revenue two percent above the midpoint of the guidance and the consensus. Net display declined 1 percent year-on-year, as compared to the 2 percent decline in Q4, “driven by lower priced inventories on programmatic/video,” Helfstein stated.

However, net search declined 21 percent, as the company continues to work on eliminating undesirable network partners and executing on its shift toward mobile.

Q2 Guidance

The revenue and EBITDA guidance came in below consensus, with the midpoint of the revenue guidance implying a 20 percent year-on-year decline, as Yahoo exists its legacy products.

“2Q EBITDA guidance assumes margin midpoint of 17.5 percent, down 675bps y/y on loss of TIPLA payment and legacy expense items. FY16 guidance remains unchanged,” the analyst added.

Helfstein also pointed out that searching for strategic alternatives was still a top priority for the board and management.

DateFirmActionFromTo
Apr 2016Goldman SachsMaintainsNeutral
Apr 2016BarclaysMaintainsEqual-weight
Apr 2016CitigroupMaintainsNeutral

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