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Here are the reactions of two sell-side analysts to Yahoo's (ticker: YHOO) Q1 earnings results. Extracts from notes sent to clients this morning:


Mark Mahaney, American Technology Research:

Yahoo! posted a strong Beat & Raise March quarter -- $821MM net revenue and $345MM EBITDA were 3% and 12% above consensus, respectively, with $0.13 GAAP EPS above consensus by $0.02. June quarter and 2005 full-year guidance were both solidly above the Street.

Fundamentals clearly improved -- organic revenue growth accelerated from 42% Y/Y in December to 44% in December (and versus a tough March 2004 comparable). And EBITDA margins increased 270 bps Y/Y to a record high 42%. The strength and the upside came from Search (up 17% Q/Q) and from Fees (up 10% Q/Q). Branded Advertising (down 13% Q/Q) was a bit soft relative to our expectations, but not out-of-bounds with seasonal patterns. Simple take-away is that all three revenue engines are humming for YHOO.

We are modestly raising our estimates -- 2005 GAAP EPS goes from $0.53 to $0.58, and we think we're conservative. Our price target remains $45 (37X our 2006 FCF of $1.03 or 27X our 2006 EBITDA of $1.33, adjusting for YHOO Japan, NOLs, and cash). Just maintaining the current EBITDA multiple (25X 2005) and applying it to 2006 estimates gets you a $42 stock (20% upside). And we believe YHOO's growth rates (30%+ sustainable growth) merit a higher multiple. So, yes, we're Buyers-At-The-Open.

The clear positive derivative is GOOG. The YHOO results give us greater conviction in our Street-high GOOG estimates. So, yes, we're Buyers-At-The-Open on GOOG too.

Derek Brown, Pacific Growth Equities:

INVESTMENT SUMMARY   

  • Yesterday, Yahoo! posted outstanding Q1:05 results, topping our estimates, Street consensus, and the high end of  guidance 
  • Worldwide online advertising market (Display and Search) dynamics remain very healthy and for-pay service offerings  continue to gain traction
  • We are raising our estimates on “bullish
    Source: Sell-side reaction to YHOO 1Q05 results