Mark Mahaney has moved from American Technology Research to Citigroup Smith Barney as the new Internet Analyst; his place is taken by Dave Edwards. Here's an extract from Dave's first note to clients about Yahoo (ticker: YHOO) and Google (ticker: GOOG):
GOOG & YHOO: Don't Stop Believin'...
Following a transfer of coverage on May 9th, we are issuing a revised thesis on Google and Yahoo! while maintaining our Buy recommendations, forward estimates and price targets. We consider Google and Yahoo! "must-owns" in the Internet space to take advantage of the growth in network-based (Internet and mobile) content, commerce, and services.
Our recommendation is based on the following factors:
1. We have a bullish outlook on key word search and branded (display +rich media) advertising and Internet and mobile consumer paid services.
2. We believe that Internet advertising is under-represented as a percentage of total advertising worldwide and we expect significant share shift over the next several years.
3. We view product innovation as a key to market leadership and as necessary to open the market to new opportunities (such as local advertising). We expect both Google and Yahoo! to continue introducing new, innovative products which should drive growth for each company and for the industry.
4. We expect both Google and Yahoo! to sustain robust growth with revenue up 36% and 25% and EBITDA / share up 23% and 25%, respectively, in 2006.
Based on this growth, we are maintaining our 12-month price targets of $290 for Google and $45 for Yahoo! or 26x and 27x EV/EBITDA, respectively.
For GOOG, we are currently estimating net revenue, EBITDA and pro forma EPS of $854 MM, $575 MM and $1.26 in the June quarter, and $3,623 MM, $2,426 MM and $5.33 in the full year 2005,respectively.
For YHOO, we are currently estimating net revenue, EBITDA and GAAP EPS of $873 MM, $359 MM and $0.13 in the June quarter, and $3,677 MM, $1,578 MM and $0.58 in the full year 2005,respectively.
Notice that Mary-Meeker-like colloquial tone in the title of the note? It's not a co-incidence: both Mark Mahaney and Dave Edwards worked in Mary Meeker's team in Morgan Stanley. Congrats to both on their new postitions.
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