J.P. Morgan’s Imran Khan Thursday morning raised his rating on Yahoo (NASDAQ:YHOO) to Overweight from Neutral, citing the company’s steps to address its weakness in display advertising. He says the company has signed display ad partnerships that will generate about $94 million in incremental revenue in fiscal 2008.
And he says the recent Right Media acquisition “has allowed Yahoo! to achieve price lifts of about 50% on non-premium inventory in trial runs.” He thinks Yahoo can grow the display ad business 19% in 2007 and 16% in 2008.
Khan also says there is still upside from Panama, the project to improve search monetization. He says rollout of Panama in Japan, Korea, and Europe is on schedule and should boost strong revenue per search growth in the second half. He estimates that the company’s revenue per search is over half that of Google’s (NASDAQ:GOOG).
Not least, Khan says the company’s “innate asset value should limit downside.” He notes that the company trades at 11.1x fiscal ‘08 enterprise value/EBITDA, compared to Microsoft’s (NASDAQ:MSFT) acquisition of aQuantive (AQNT) at 31x, and Google’s acquisition of Doubleclick at an estimated 24x. He says that “the market has undervalued YHOO’s assets.”
The upgrade is offsetting any concerns about Wednesday’s news that the company’s chief technology officer, Farzad Nazem, has decided to retire.
Yahoo Thursday morning was up 42 cents at $28.80.