Yahoo: Too Late to Dump, No Reason to Buy

Several firm comment on Yahoo (NASDAQ:YHOO) this morning following Q4 results (see conference call transcript):

- Citigroup is downgrading their rating to Hold from Buy and lowering target to $22 from $33 saying 1) With EBITDA likely to be flat to down in '08, there is no reason to give YHOO a premium to traditional media companies; 2) Surprise uncertainty over YHOO's '08 investments and their impact on growth is a new negative; & 3) YHOO appears to be continuing to lose share in Search market. What makes YHOO a Hold and not a Sell are its potential to be acquired, it search outsource option, its still very large Web presence, and its Mainstream Media Multiple - 7.0X EV/EBITDA on '08.

- Oppenheimer is downgrading their rating to Sector Perfrom from Sector Outperform as they now believe that YHOO has become a "show me" story, as management has no credibility with investors as estimates are declining. As such, they have reduced their '09 EBITDA, non-GAAP EPS and FCF estimates by 25%, 26% and 21%, as they expect similar reductions across the Street.

- RBC Capital is more positive saying as painful as it is in the near-term, their thesis on Yahoo in the high-teens remains: a) the company is forced to make shareholder value-enhancing decisions shortly, or b) activist shareholders or potential acquirers could force it upon the management team. Yahoo's $30B market cap should find support from the $14B in other assets ($8B assuming discounts), implying an 8x EV/EBITDA multiple in the after-hours trading. Firm's rating remains Outperform, and their target has been reduced to $24 from $30.

- Morgan Stanley retains Overweight-V rating owing to a bet on: 1) improving financials or 2) catalysts for change –Considering Yahoo!’s holdings in Yahoo! Japan, Alibaba, GMarket are worth $10B (or ~$7 per share, assuming a 25% liquidity discount), net cash is $1.6B (~$1 per share), Yahoo! proper is trading at ~9x C2008E and ~8x C2009E EBITDA. Firm assumes revenue and EBITDA growth accelerates in 2009E, as they believe core strategy is sound and current core business trends seem to support thesis. In markets like the one they are in now, where – for better or worse – investors have a ready / fire / aim attitude and patience can be hard to find, stocks (and companies) get too cheap to resist. Yahoo!’s ability to remain independent may be a function of its ability to deliver compelling financial results (combined with a positive outlook and improved communication) in CH1:08.

Notablecalls: I really have no opinion on YHOO here. I feel it's probably too late to dump it but I just don't see any reason to buy it either. I suspect the stock will sink further in the near-term.