Meanwhile analysts at a third firm said they’re expecting the company to miss consensus on earnings and, in fact, post a GAAP loss rather than a slight profit as Wall Street is projecting currently.
Yahoo Downgraded by Pivotal
Pivotal Research analyst Brian Wieser said in a report dated July 11 that Yahoo is “going the other direction in terms of market share,” noting that the company peaked between 2004 and 2006 with about 20% of the global digital ad market but now has only about a 3% share.
He added that any potential buyers of Yahoo probably have plans to try to reverse the decline, but he believes bids will be more conservative. He values the company’s core business at $3.5 billion, excluding cash.
He also downgraded Yahoo stock from “buy” to “hold“, although he maintained his $41 YHOO stock price target.
Yahoo Downgraded to ‘Neutral’ at SunTrust
SunTrust Robinson Humphrey analyst Robert Peck downgraded Yahoo from Buy to Neutral and cut his price target from $44 to $42 per share. He said while Yahoo should see about $6 billion from selling its core business, any transaction bears some “sell the news” risk for its stock.
The company is expected to make an announcement about a sale around July 18. Peck explained that recent disclosures could cause a deal to carry more contingencies and that liquidating the Yahoo Japan and Alibaba Group Holding Ltd (BABA) stakes is “convoluted and complex.”
Additionally, he believes the “hook” nature of the Alibaba stake might reduce the premium on the buyout and that any transaction could take up to 18 months if it is ever completed at all.
RBC Expects Yahoo to Post Losses
Yahoo is due to release its next earnings report late this month, and RBC Capital Markets analyst Mark Mahaney and team expect the company to post net revenue of $836 million excluding traffic acquisition costs. This is slightly lower than consensus at $841 million. They’re projecting $148 million in EBITDA, which is in line with consensus, and GAAP losses of 2 cents per share, versus the Street’s projection of a penny per share in profits.
They report that comScore traffic trends were neutral for Yahoo in April and May as U.S. unique visitors to Yahoo Sites declined 4% year over year in the second quarter, while is still a slight improvement from the 6% decline observed in the first quarter. U.S. desktop search query share data was negative for the company as it declined about 50 basis points year over year and 60 basis points sequentially in April and May. Yahoo now holds about a 12.1% share of U.S. desktop searches.
In this month’s earnings report, the RBC team will be focusing on search metrics such as paid clicks, which declined 21% year over year in the first quarter. They will also be looking at display metrics, as they’re projecting a 3% decline in display revenue in the second quarter. They maintained their Sector Perform rating on the stock.