- Banc of America says they applaud the news of co-founder Jerry Yang taking back the reigns of the company, given his vision and long history with the organization. They believe the move potentially pushes YHOO closer to its technology roots and provides a much needed boost to company morale and strategy. Firm is adjusting their tgtdown to $35 from $36 to reflect management guidance of Q2 revenue in the low-end to mid-point of previously announced guidance. They continue to expect double-digit search monetization growth rates in the back half of 2007 and expect to see the effects of its Right Media acquisition and newspaper partnerships in 2008. Maintains Buy.
- Deutsche Bank maintains their Hold rating on shares of Yahoo! amidst yet another cut to ests (perhaps not up to 1,000 but getting there) and the removal of Terry Semel [CEO]. While they view Jerry Yang's CEO appointment as a long-term strategic positive (focus on re-investment and R&D), they think Yahoo! remains in pretty bad shape, in terms of over-emphasis on margins and cash flows (at the expense of rev growth), slowing user/rev growth, display ads under pressure, search ramp still challenging and access deals heading into re-negotiation. 2007 EBITDA could be at risk due to Yang's focus on re-building Yahoo! DB is lowering their revenue est. in '07 and '08 to $5.1bn and $5.9bn (from $5.2bn and $6.1bn) and EBITDA to $1.9bn in '07 and $2.4bn in '08 (from $2.1bn and $2.5bn). Price tgt is cut to $26 from $28.
- Morgan Stanley notes they are believers in culture and leadership (especially from engaged founders) and remain enthusiastic about Yahoo!'s asset base. Net, they think this leadership change should prove to be a long-term positive for Yahoo!.
The bad news is that visibility into Yahoo!'s traditional branded / display advertising and affiliate network revenue (together 65% of revenue in C2006), at the margin, has worsened in CQ2E. For CH2:07E, Yahoo!'s Y/Y implied revenue guidance range was +9-26% with a mid-point of +18%. For CH2:07E, 'middle to low-end' growth would imply +9-18% growth, vs. MSCO +17% estimate. Net, if results come in at the 'middle to low-end' of the guidance range for C2007E, this would imply 0% to -5% change to firm's revenue estimates.
Maintains Overweight-V - In their view, Yahoo! remains a 'turnaround growth story' with innovative leadership amidst a more nimble organization and promising revenue generating initiatives both in process and to come. They continue to expect accelerating revenue growth in CH2:07E / C2008E to benefit Yahoo! shares.
Notablecalls: If Terry Semel had not stepped in as the CEO/Chairman of YHOO 6 years ago, the company would have been a marginal player today. Semel saved Yahoo. Clearly, Yahoo lacks the IT talent GOOG has, and while I suspect Mr. Yang can reset the priorities, I see no reason why they should fare any better than say MSFT. But I guess that's a topic for the intellectuals.
On the trading side, we have YHOO lowering their outlook. The stock managed to stay above the $29 level in after hours action but I suspect we may see sub-$29 levels today. Operationally, the company is a mess and the only way Yang and his team can make it better is by upping the tech spending. That will eat into margins and hurt the valuation. And I'm not even sure it's going to work. The stock is not cheap here and the risk is skewed to the downside.