Mark Mahaney, Citigroup:
Results ONLY Modestly Disappointing: Buy This Weakness
- Yahoo! posted a Miss & Lower quarter -- $1,068MM rev./$0.16 recurring GAAP EPS vs. Street at $1,069MM/$0.17. Branded/Display advertising was exceptionally strong; Search (esp. International) was exceptionally weak. March and 2006 guidance modestly lower than the Street.
- Fundamentals mixed. Y/Y organic rev growth decelerated from 40% in Sept. to 36% in Dec., while EBITDA margins were up 130 bps Y/Y to 43%, with 47% incremental margin. 84% FCF/EBITDA conversion close to record high.
- Modestly lowering estimates. '06 rev from $4.70B to $4.68B, EBITDA from $2.1B to $2.0B, GAAP EPS from $0.77 to $0.54 (with $0.15 of that due to new FAS 123 options expensing rules). Accordingly, PT declines from $46 to $43.
- We see the 13% after-market correction as Buying Opportunity: 1) Branded up very powerful 40% Y/Y; 2) Search Engine "Fix" remains key 2006 catalyst; 3) 06/07 EBITDA multiples of 19X/15X a discount to 27%+ expected growth.
Did YHOO's fundamentals improve? No and Yes. Organic Y/Y revenue growth was 36% in the December quarter, a deceleration from the 40% Y/Y growth seen in the September quarter. On the margins side, EBITDA margins increased 130 bps Y/Y and 170 bps Q/Q to 43.0%. Y/Y incremental EBITDA margins were 46.5%, indicating the potential for further margin expansion.
Were fundamentals better than the Street expected? No. Revenue of $1,068MM, EBITDA of $459MM, and recurring GAAP EPS of $0.16 were lower than Street expectations for $1,069MM, $470MM, and $0.17, respectively.
Did the company raise guidance relative to the Street? No. Going into the release, Street consensus for the March quarter was $1,086MM in revenue and $448MM in EBITDA, and the midpoints of the company's new guidance are $1,070MM and $425MM, respectively. And going into the release, Street consensus for 2006 was $4,767MM in revenue and 2,071MM in EBITDA, and the midpoints of the company's new guidance are $4,725MM
and $1,985MM, respectively.
Scott Kessler, S&P Research:
YHOO shares are markedly lower in pre-market trading, after posting operating EPS of $0.16 vs. $0.13, $0.02 below our forecast. Revenues were slightly below our estimate. While we are maintaining our '06 sales forecasts, we are cutting our EPS outlook to $0.54 from $0.66, reflecting less favorable margin projections and more significant option exposure. We believe YHOO is investing to better compete with the likes of Google (GOOG 465.1**). Based on revised DCF and sum-of-the-parts analyses to account for the stake in Yahoo! Japan, our 12-month target price falls to $40 from $45.
Derek Brown, Pacific Growth Equities:
Q4 Results And 2006 Outlook Disappoint; Reducing Estimates;
Maintaining Buy Rating
In line Q4:05 results and lackluster guidance. Yesterday after the close, Yahoo! reported Q4:05 results that were generally in ine with our/consensus estimates and slightly above the mid-point of management guidance. Perhaps more noteworthy and surprising, management introduced what we felt was generally disappointing 2006 guidance, reflecting solid display advertising dynamics, offset by possible Search marketshare erosion, delayed improvements in Search monetization efforts, increasing Search TAC rates, and heavier-than-expected investment across a number of categories, products, markets and geographies.
Lowering estimates but maintaining Buy rating. Given metrics/trends revealed in Q4:05, as well as management’s disappointing introductory 2006 guidance, we are reducing our forecasts across the board. Nonetheless, we are maintaining our Buy rating on Yahoo!’s shares given its unique global franchise, deep consumer relationships, and what we feel are its balanced growth prospects. Accordingly, we encourage long-term, growth oriented investors to build/add to positions on likely weakness.
...Yahoo!’s Q4:05 results. Total gross revenue, net revenue, and OIBDA were $1.50B, $1.07B, and $0.46B, respectively, compared with our forecasts of $1.46B, $1.07B, and $0.48B, respectively. Consensus net revenue stood at $1.07B while the high end of guidance called for net revenue of $1.08B and OIBDA of $0.48B. Excluding gains, tax benefits, and other adjustments related to investments and Yahoo!'s transaction with Alibaba.com, the Company’s PF EPS was $0.16, in line with our estimate, but $0.01 shy of Street consensus. Overall in Q4:05, Yahoo! experienced 36% y/y revenue growth, all of which was “organic.