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

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Yahoo! Inc. NASDAQ:YHOO, Verizon Communications Inc. NYSE:VZ - A Melting Ice Cube? Yahoo's Earnings Have Little Impact In Wake Of Core Sale, SunTrust Says

Yahoo! Inc. YHOO 3.08% reported better-than-feared Q1 results, but announced weaker Q2 guidance. SunTrust Robinson Humphrey’s Bob Peck maintained a Buy rating for the company, with a $44 price target. The analyst commented that Yahoo’s results were “not really material,” since the Board is actively exploring the sale of its core business.

Related Link: Goldman Sees Little Near-Term Impact For Yahoo, Remains Neutral On Stock

Take On Performance

Peck mentioned the key takeaways from the quarter as:

  • GAAP and Net revenue ex-TAC were marginally ahead of Street expectations. However, these figures were down 11 percent and 18 percent year-over-year, respectively. Search also declined by 21 percent year-over-year, while Display was down 1 percent.
  • MaVeNS GAAP revenue growth fell sharply to 7 percent year-over-year, from 26 percent in the prior quarter, and from 43 percent in 3Q15 and 60 percent in 2Q15. Mobile GAAP revenue growth also decelerated to 11 percent, from 15 percent in 4Q15, 31 percent in 3Q15, and 55 percent in 2Q15.
  • Adj. EBITDA came in higher than consensus expectations, driven mostly by business, product, and headcount rationalization.
  • Yahoo has almost completed its planned headcount reduction by 15 percent.
  • FCF came in at ~$300 million, benefiting from ~$190 million of a onetime tax refund.
  • Yahoo ended the quarter with $7.1 billion of liquidity.

Estimates Reduced

The revenue ex-TAC and EBITDA estimates for 2Q16 have been reduced from $864 million to $842 million and from $176 million to $159 million, respectively, in-line with the disappointing guidance.

Sale Of Core

Referring to the planned sale of the core business, Peck wrote, “While a "melting ice cube" could impact the transaction price, we think any difference would be modest relative to the potential value that can be unlocked in the Asian investments.” He added that Verizon Communications Inc. VZ 0.42% is likely to be able to pay the most for the business, in view of potential synergies.

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

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