Brian Bolan, research analyst at Jackson Securities, sent clients a note on Yahoo! (YHOO) CFO Susan Decker's recent statement that the company would likely report quarterly revenue in the bottom half of the previously estimated range. His note follows:
At an investor conference today, Yahoo! CFO Susan Decker stated that the company would likely report results that would be closer to the bottom half of the range previously given. The previous range that was given was $1.115B to $1.225B in revenue and $445M to $505M in operating cash flow. Our previous estimate was slightly above the midpoint of guidance, our new estimate reflects the changes in the market. The reason for the lowered guidance is a slowdown in advertising spending in two key areas, autos and finance. The realization of the drop in advertising in the auto segment has future spending put further in doubt. Chrysler (DCX) announced today that shipments to dealers would be lower by about 24% as demand has slowed and inventories are already high. This brings a healthy amount of doubt into the picture for the future growth of advertising in the auto segment.
The other key area that is experiencing a slowdown is finance. A key component of the finance advertising market is the mortgage and re-finance component. This space has been hurt over the last several months due to rising interest rates and high amounts of available new home inventories. The first round of brokerage reports (Goldman Sachs, Lehman Brother, Bear Stearns) have come in on the high side of expectations leading us to believe that this group is not likely to be pulling back on any internet advertising dollars.
Coming on the heels of a slight topline miss in the most recent quarter, investors are again shedding shares of YHOO with the stock trading lower by around 12% on the day. The idea that a rising tide lifts all ships is true in its inverse, and Google (GOOG) is being taken out to sea by this tide, dropping some 20 points in reaction to the Yahoo! news.
During the call management noted that their market share has been 29.5% and 30% over the last two years and they are pleased with this level given the significant competitive concerns in the market. We noted in our last report on the company that the delay in the Panama project would likely not lead to any market share gains in the second half of 2006, but could begin to produce results in 2007.
As a result, we are lowering our estimates for 3Q06. We are giving the topline a small haircut of about $60M, which translates into a one penny reduction in EPS. Our target price is currently under review.
click to enlarge
YHOO 1-yr chart: