Yahoo Q4 2014 Preview: Looking For Tax Efficiency; Mobile/Search Near-Term Catalysts
- Yahoo reports after-market on Tuesday, with the market putting greater focus on the tax efficiency of Asian assets.
- Mobile and search are the near-term drivers, given YHOO's strength in vertical sites.
- Remain bullish on YHOO.
On The Bright Side: Yahoo! Rolls Ahead In Video Advertising
- Large tech incumbents are paying up major dollars for ad-tech assets.
- The Yahoo!-BrightRoll deal shows that large tech values scalability in the buy vs. build decision tree.
- Video platforms are drawing the most dollars and interest. Operators must show cross-device capability.
New Reason Appears For Yahoo Investors To Fear Alibaba's Business Structure
- Much of Yahoo's value still ties into its ownership of Alibaba's stock.
- Foreign ownership issues of Chinese securities came into question recently, possibly snaring major U.S. institutional investors.
- This brings up the issue of the corporate structure of Alibaba and its VIE issues.
- This article looks back at some of the considerations of VIEs and finds reason to be concerned about them.
- In addition, both Yahoo and Alibaba have been seeing declining EPS estimates, and as high P/E stocks, that topic also is problematic for investors.
- Like many companies, Yahoo must deal with persistent activist pressure.
- Starboard Value owns shares of both Yahoo and AOL, and thinks the two should merge.
- In its latest letter, Starboard urges Yahoo not to make the mistake of being too hasty to dump its Alibaba stake.
- Starboard warns the Internet company to not buy a media company.
Yahoo 2015 Outlook: Mobile Monetization And Tax Efficiency In Focus
- Mobile monetization and tax efficiency will likely dominate YHOO's headlines heading into 2015.
- Yahoo's presence in niche verticals remains compelling and offers a wide variety of monetization potentials.
- One point in tax reduction is equivalent to ~$400 million in tax saving. Such capital could be used to pursue accretive M&A to strengthen its niche verticals.
Mobile Advertising Is Yahoo's Biggest Tailwind In 2015
- Yahoo’s great run this year is not only due to Alibaba’s IPO. Investors also appreciate Yahoo’s emergence as a serious mobile advertising player.
- Yahoo management needs to imitate LinkedIn’s strategy in China.
- Acceding to play by the rules of Chinese censors will greatly improve Yahoo’s chances of grabbing significant share in China's ad business.
Yahoo: Three Major Growth Catalysts Going Into FY 2015
- Yahoo's equity interest in Alibaba will increase in value in FY 2015, and by estimates will be worth $56 billion.
- The core search business has better growth prospects, as a result of closing a deal with Firefox.
- Search revenue may increase to $4.32 billion, assuming users keep Yahoo as the default search engine.
- Native ads should drive financial performance, as they tend to perform better on a cost-per-impression basis.
- Yahoo Search may become Safari's default search engine.
- This puts Google in a tough position as it continues to battle anti-trust issues in Europe.
- Microsoft will also benefit as it shares 12% of Yahoo's search revenue.
- Following the Firefox deal, and assuming Yahoo can also get Safari, Yahoo may become the best play on Search going forward.
- Yahoo's assets and cash are a good hedge against downside risk.
- Yahoo's position in Alibaba has given it a lot of breathing room. It should carefully let its strategy unfold in 2015.
- Yahoo may still appreciate further if it continues to land big deals such as the new partnership with Mozilla Firefox.
Can Mayer Successfully Transition Yahoo: An Analysis Of Her Mobile-Centric Strategy And An Algorithmic Forecast
- Yahoo stock has more than tripled due to the company’s investment in Chinese e-commerce giant Alibaba.
- Yahoo has acquired new startups to enter new growth markets in online advertising.
- Yahoo is trying to find a tax-free way to return remaining investment in Alibaba to shareholders.
- I Know First algorithm correctly predicted stock price increase in June 30th article and forecasts a future bullish signal for Yahoo stock.
- Firefox will make Yahoo its default search engine.
- Yahoo's search business may undergo a significant period of growth, assuming factors such as pricing and the total number of ads sold increase significantly.
- When conservatively estimating the impact of Firefox, paired with growth in pricing, the search business may grow from $1.8 billion to more than $4 billion in revenue over the next three years.
Yahoo-Mozilla Deal Likely Worth Billions For Yahoo
- Yahoo's search engine will soon be the default search for Firefox, which currently controls 14-19% of the browser market share.
- I estimate that this deal will add $2-2.7 billion of revenue to Yahoo per year, and $2.3-3.1 billion if Yahoo terminates its search engine deal with Microsoft next year.
- Yahoo may be able to capitalize further on this tremendous opportunity by increasing Firefox usage through promotion on its web page.
- YHOO is suitable for Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is fairly valued at the present time.
- The market is implying an 11.28% earnings growth over the next 7-10 years, within a margin of safety relative to the rate the company has seen in recent years.
Yahoo's Acquisition Of BrightRoll Highly Accretive Over The Next 5 Years
- Yahoo acquired BrightRoll, a programmatic ad buying platform, which is distinct from a real-time bidding exchange.
- Programmatic ad buying is expected to grow at a fairly high rate as advertisers re-appropriate marketing budgets for targeted ad-buying across publishers.
- The $640 million acquisition offers meaningful upside prospects, as video advertising is expected to take off along with programmatic ad-buying.
Update: Yahoo's Acquisition Of BrightRoll Is A Significant Step In The Right Direction
- Yahoo has been looking to double down on video advertising, and has confirmed it is buying BrightRoll.
- This acquisition supports my original thesis that Yahoo would need to acquire video ad technology to succeed.
- This acquisition means that Yahoo will likely not acquire AOL.
Yahoo Eyes Video Ad Dollars With BrightRoll Acquisition
- This acquisition can catapult Yahoo to a No. 1 position in terms of the number of ads served in the US.
- BrightRoll leads the video ad tech industry, and continues to dominate over some of the top ad tech platforms such as LiveRail and Adapt.tv.
- Video online ad spending is expected to exceed $12.71 billion by 2018.
Nov. 17, 2014, 3:38 AM
- Amid a campaign to merge AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO), activist investor Starboard Value has revealed that it bought a 2.4% stake in AOL in the third quarter.
- Starboard also took a stake in Yahoo during the same period, urging CEO Marissa Mayer to consider a combination of the two companies.
- Starboard has disclosed the size of its position in Yahoo, listing 7.7M shares, or about a 0.8% stake, putting it just outside the list of top 10 shareholders in the company.
- Previously: Activist Starboard takes stake in Yahoo, calls for AOL merger
Nov. 14, 2014, 3:12 PM
- Oppenheimer has hiked its Yahoo (YHOO +2.1%) target by $12 to $61, and FBR has hiked its target by $10 to $60. Shares have made new highs, and (with a big assist from Alibaba) are now up 27% YTD.
- FBR's William Bird: "YHOO offers a lower-cost play on Alibaba with the potential for improved core Yahoo performance as new initiatives (i.e., mobile, native, social, and video) likely start to overcome core display pressure."
- His new target (naturally) reflects Alibaba's post-IPO rally, partly offset by expectations of lower buybacks (due to a higher stock price) and a slight reduction to his sum-of-the-parts valuation due to the BrightRoll deal.
- Two days ago: Yahoo, Alibaba rally following (more) bullish notes
Nov. 12, 2014, 1:15 PM
- Much as they did a week ago, Yahoo (YHOO +2.8%) and Alibaba (BABA +3.7%) are rallying following upbeat Street commentary. BofA/Merrill and UBS have hiked their Yahoo targets in the wake of the BrightRoll deal, BMO and SunTrust have offered positive remarks about Alibaba's Singles Day performance, and HSBC has launched coverage on Alibaba at Overweight.
- BofA/Merrill's Justin Post argues BrightRoll "should enhance Yahoo’s video ad serving capabilities and put the company in a more competitive position with Facebook’s LiveRail, AOL’s Adap.tv and YouTube." His target has been hiked by $7 to $55.
- SunTrust's Robert Peck thinks Alibaba's Singles Day revenue may have risen 65% Y/Y. He also expects the company's mobile monetization rate (up strongly in FQ2, though still below PC levels) to rise again in FQ3, aided by "Tmall growth and strong ROIs for mobile ads on Taobao."
Nov. 12, 2014, 3:10 AM
- At least two more top-10 Yahoo (NASDAQ:YHOO) shareholders are pushing for an AOL (NYSE:AOL) merger and have taken their plea directly to AOL CEO Tim Armstrong.
- Armstrong has acknowledged the potential benefits of a merger, but indicated he would only consider a friendly deal, Reuters reports.
- The move follows a campaign by activist investor Starboard Value, which is pushing Yahoo to consider a deal with AOL and unlock its valuable stakes in Asian Web companies.
- Previously: AOL CEO downplays Yahoo talk, predicts ad shakeup
- Previously: Activist Starboard takes stake in Yahoo, calls for AOL merger
Nov. 11, 2014, 4:58 PM
- "BrightRoll is a large, growing and profitable business with net revenues expected to exceed $100 million this year," says Yahoo (NASDAQ:YHOO) as it announces its acquisition of the video ad platform. The deal is expected to close in Q1 2015.
- Yahoo notes BrightRoll's programmatic (automated) ad platform handles ad-buying for 87 AdAge Top 100 U.S. advertisers, as well as all of the top 10 demand-side (advertiser-facing) online ad platforms. Meanwhile, BrightRoll's publisher-facing offerings monetize ad inventory for "tens of thousands" of sites/apps.
- Yahoo, hungry for some time to grow its video ad scale and put an end to its display ad revenue declines, declares acquiring BrightRoll "will dramatically strengthen Yahoo's video advertising platform, making it the largest in the US."
- The acquisition price is lower than the ~$700M previously reported by TechCrunch. Yahoo just reaped $6.3B in post-tax Alibaba IPO proceeds; it has promised to return at least half of the sum to shareholders.
Nov. 10, 2014, 2:59 PM
- Hortonworks, provider of one of the two most popular software distributions for the Hadoop big data/analytics framework, has filed for an IPO under the symbol HDP. Underwriters include Goldman, Credit Suisse, RBC, Pac Crest, and Wells Fargo. (prospectus)
- For now, Hortonworks is only filing to raise up to $100M, but given the company was valued at over $1B in an early-2014 funding round, that figure might rise. Yahoo (YHOO +1.7%), which spun out Hortonworks in 2011 in tandem with VC firm Benchmark, has a 19.6% pre-IPO stake. Teradata (TDC +1.9%) owns 8.3%, and H-P 5.9%.
- Both sales and losses have been growing rapidly as enterprises embrace Hadoop to analyze giants sets of unstructured data, and Hortonworks spends aggressively to go after the opportunity. Revenue for the nine months ending Sep. 30 totaled $33.4M (+110% Y/Y), and net loss $86.7M.
- Gross billings for the 12 months ending Sep. 30 totaled $65.7M. Hortonworks had 233 support subscription customers at the end of the period.
- Cloudera, Hortonworks' biggest rival, raised $900M in March ($740M from Intel) at a $4.1B valuation. Both Hortonworks and Cloudera have been working to add enterprise-class reliability and management features to their Hadoop distributions.
Nov. 9, 2014, 11:48 AM
- Potential investors include Yahoo (NASDAQ:YHOO), private equity firm Kleiner Perkins Caufield & Byers, and others.
- Previously: Yahoo set to invest in Snapchat at $10B valuation
- Previously: Kleiner Perkins investing in Snapchat at ~$10B valuation
- Previously: Alibaba looking to invest in Snapchat at $10B valuation
- Previously: Facebook reportedly offered $3B for Snapchat, was turned down
Nov. 5, 2014, 11:32 AM
- Plenty of firms (including many of the underwriters who just launched coverage) have hiked their Alibaba (BABA +3.5%) after the company beat FQ2 revenue estimates yesterday (while posting in-line EPS) on the back of strong GMV growth and improving mobile monetization. Both Alibaba and Yahoo (YHOO +2.3%) are making fresh highs.
- In addition to Alibaba's gains, Yahoo is benefiting from a bullish launch from SunTrust's Robert Peck. Peck considers the weakness in Yahoo's core properties priced in, and believes the Street is "giving little credit to some of the progress made more recently around mobile, native [ads], Tumblr, search, and video." He estimates the core business is being valued at less than 1x EV/EBITDA.
- Morgan Stanley likes Alibaba's 262% Y/Y mobile GMV growth, and thinks the acceleration seen in Taobao GMV points to improved conversion rates. Meanwhile, Jefferies and BofA/Merrill are pleased with management remarks suggesting an average customer's spending grows considerably over time.
- Cantor: "A differentiated pricing model, strong brand and unmatched scale continue to give Alibaba an unfair competitive advantage relative to peers both in and outside China. We believe the company's outsized growth and margin profiles should support higher valuation over time."
- The firm has hiked its FY15 revenue and EPS estimates, albeit while slashing its EBITDA estimate on expectations spending will remain elevated. Alibaba, for its part, doesn't plan to provide guidance.
Nov. 4, 2014, 10:19 AM
- Alibaba (NYSE:BABA) is up 2.7% after beating FQ2 revenue estimates on the back of 54% Y/Y growth - it was driven by a 49% increase in GMV, and more than a 3x increase in mobile monetization rate. EPS was only in-line, as aggressive spending yielded an 890 bps drop in non-GAAP EBITDA margin.
- Yahoo (YHOO +1.3%) is moderately higher following the numbers. Its remaining 384M-share stake in Alibaba has a current pre-tax value of $40.2B. SoftBank's (OTCPK:SFTBF) 797.7M-share stake has a pre-tax value of $83.4B.
Oct. 30, 2014, 2:09 PM
- Lisa Utzschneider, formerly Amazon's display ad chief, is now Yahoo's (YHOO +0.3%) SVP of Americas sales. She'll be in charge of all North/South American ad sales teams. (PR)
- Ned Brody, hired just over a year ago from AOL (following a legal squabble) to be Yahoo's Americas ad chief, is now its SVP of ad tech and strategy. Kara Swisher reported last week Marissa Mayer's relationship with Brody "remains strained," and that a search for a replacement was ongoing.
- The Americas accounted for 76% of Yahoo's Q3 revenue. The region's sales rose 2% Y/Y, with search ad growth offsetting a display ad decline.
Oct. 22, 2014, 11:36 AM
- "We have the best tax experts in the country working intensively on structures to maximize the value to our shareholders of our remaining stake in Alibaba," said Marissa Mayer during Yahoo's (NASDAQ:YHOO) Q3 CC. Her company is set to pay $3.3B in taxes on its sale of 140M Alibaba shares at IPO time.
- CFO Ken Goldman added Yahoo "negotiated hard" with Alibaba to "be able to take actions" during the 12-month lockup period for its remaining 384M-share Alibaba stake that would leave Yahoo "in position to create structures or approaches that would allow us to hopefully presumably take advantage of minimizing taxes."
- FBR has cited Yahoo's tax-saving efforts as a reason for upgrading shares to Outperform post-earnings; it sees up to $13/share in potential savings. The firm is also upbeat about Yahoo's mobile efforts.
- In the wake of TechCrunch's report about a potential BrightRoll acquisition, Marissa Mayer responded to a question about acquiring a programmatic ad company by suggesting Yahoo is open to buying a firm that's "either in the building block category or the strategic category," albeit while cautioning "more consideration" would be needed.
- As expected, the 24% Y/Y drop in Yahoo's display ad prices was attributed to low prices for native ads (often shown on mobile devices); Mayer said Yahoo is looking to boost prices by improving targeting. Regarding search ads, she noted paid click growth (flat Y/Y) was pressured by ad quality improvements in Asia-Pac; Americas paid clicks were up 9%.
- Prior Yahoo earnings coverage
Oct. 22, 2014, 9:19 AM| 1 Comment
Oct. 21, 2014, 5:56 PM
- Yahoo (NASDAQ:YHOO) recorded a $6.3B Q3 post-tax gain related to its Alibaba IPO windfall. The company expects to pay $3.3B in cash taxes related to the sale Q1 2015.
- The company disclosed on its CC mobile was responsible for $200M of Yahoo's Q3 revenue (17% of total). It expects full-year gross mobile revenue (doesn't back out traffic acquisition costs) of more than 1.2B.
- Marissa Mayer predicts Tumblr (acquired last year for $1.1B) will produce over $100M in 2015 revenue, and generate positive EBITDA.
- YHOO +2.1% AH. Q3 results, guidance/details.
Oct. 21, 2014, 4:36 PM
- Yahoo (NASDAQ:YHOO) guides in its Q3 earnings slides (.pdf) for Q4 revenue (ex-TAC) of $1.14B-$1.18B, above a $1.17B consensus. Op. income is expected to fall to $190M-$230M from $330M a year ago.
- Buybacks provided a lift to Q3 EPS: $282M worth of shares were repurchased, and Yahoo entered into a $1.1B accelerated repurchase agreement under which it "prepaid $1.1 billion and received an initial delivery of approximately 15 million shares on September 30, 2014." A final settlement occurred on Oct. 17, through which $933M worth of shares were repurchased.
- The company previously promised to return at least half its Alibaba IPO proceeds (pre-tax value of $9.4B) to shareholders.
- Q3 display ad revenue (ex-TAC) -6% Y/Y to $396M, slightly better than Q2's 7% drop. Display ads sold +24%, but price per ad -24%; the transition to native ads from traditional banner ads likely contributed to both swings.
- Search ad revenue (ex-TAC) +6% to $450M, even with Q2's growth. Search click revenue (excludes Microsoft payments) +17%; paid clicks were flat, but price per click rose 17%.
- Americas revenue +2% to $831M; EMEA +2% to $81M; Asia-Pac -2% to $182M. Opex +6% to $1.05B.
- Q3 results, PR
Oct. 21, 2014, 4:07 PM
Oct. 21, 2014, 10:28 AM
- BrightRoll, long seen as an IPO candidate, offers video ad buyers a network of 21K+ sites and apps. It both directly sells to advertisers looking to run programmatic (automated) video ad campaigns across the network, and also connects with 3rd-party ad platforms such as Google's DoubleClick, AOL's Adap.tv, and Facebook's LiveRail.
- comScore estimates BrightRoll's network reached 155M U.S. users as of June. The company was reported last year to pulling in over $100M/year in revenue.
- TechCrunch reports hearing Yahoo (YHOO +1.3%) has signed term sheets with BrightRoll, and that a deal (if it closes) is likely to involve a ~$700M-$725M price.
- Yahoo, which just reaped an Alibaba IPO windfall, has been hungry to grow its video ad sales for some time. The company has signed a slew of video content deals and acquired streaming tech developer RayV, and is reportedly thinking of launching a YouTube rival (possibly while leveraging Tumblr)
- Fellow video ad tech provider TubeMogul (TUBE +2.5%) is rallying; its market cap is currently $398M
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