“This was a difficult year for the company and the stock is down 37% from last January, reflecting challenges and weak investor sentiment,” he wrote in something of an understatement. “In addition to improvements in search monetization, we see several other business catalysts for 2007 such as bringing in high-quality inventory from eBay, better monetization of low-end inventory through Right Media and share gains in classifieds from the newspaper consortium partnership. YHOO will also anniversary some drags on its business, such as losing its largest search affiliate [i.e., MSN]. Despite potentially large improvements in inventory, we have YHOO losing U.S. branded market share next year in our assumptions.”
Sanderson says the stock could be a second half story if the Panama projects fails to significantly improve monetizaton of search queries. “Some investors have been questioning management, as is often the case when a stock is disappointing,” he writes. “If Panama goes poorly, investors will know this in early Q2 and the recent whispers for new management will become very loud. This would likely renew the idea of selling the company and/or turning the search business over to GOOG, which we estimate could add 35% to our 2007 EBITDA forecast. This potential makes us think YHOO will work as a stock next year, but disappointments in Panama would mean it’s a [second half] stock.”
Yahoo shares today are up $1.06, to $28.20.