Can Mayer Successfully Transition Yahoo: An Analysis Of Her Mobile-Centric Strategy And An Algorithmic Forecast
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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.
- Yahoo has moved considerably higher as a result of Alibaba.
- However, core business developments and the prospects of future capital returns make the investment opportunity extremely promising.
- On purely a tangible basis, Yahoo is worth $42.28 billion.
- However, after running an updated sum-of-the-parts analysis, the business should be worth $56 billion (conservatively).
- Various newer divisions of Yahoo are becoming profitable, presenting opportunities for future growth.
- The Display segment continues to struggle.
- Many of the new revenue drivers will demand attention in upcoming quarters.
- Recent events surrounding Yahoo have led it to be a very compelling investment for a variety of reasons.
- Sum of the parts analysis shows YHOO could be undervalued by as much as 40% with plenty of downside protection.
- Starboard reveals an interesting strategy that seems to coincide with Mayer's view from Q3 Earnings.
- Yahoo reported a phenomenal quarter and disclosed qualitative information that helps to quantify Yahoo's recovering search, display and native ad business.
- Earnings growth will come from mobile (native ads), share buybacks and strategic acquisitions.
- I believe that a combination of these three factors along with further upside in its Alibaba stake will drive the valuation premium significantly higher by the end of the year.
- Yahoo reported their quarterly earnings which was embraced by Wall Street.
- The shares have failed to trade above the BABA IPO high of $44 per share.
- I suspect the company's efforts to negate the tax effect will be futile.
Yahoo Earnings: Mobile, Windfall Profits From Alibaba Sale Boost Results
- The sale of Yahoo's 140 million shares in Alibaba boosted its cash position by $7 billion to $12 billion.
- While Yahoo's core search ad revenues (excluding TAC) improved by 6% year-over-year, its display ad revenues declined by 6%.
- The primary reason for growth in search ads revenue was the growth in the price per click.
Yahoo: Ignore The Headlines, The Q3 '14 Results Were Bad
- Yahoo reported Q314 numbers that generally beat estimates based on non-repeating items.
- Operations continue to show negative trends.
- A big jump in earnings from equity interests provided all of the upside that will drop going forward with the reduced investment in Alibaba.
Update: Yahoo Talks Taxes And Acquisitions On Q3 Earnings Call
- Yahoo reported higher than expected earnings on 3Q earnings call.
- CEO Marissa Mayer says company brought in tax experts to help minimize tag burden from sale of Alibaba shares.
- Mayer defended her acquisition strategy and said Tumblr would generate $100 million next year.
- This earnings call confirmed my arguments that Yahoo needed to minimize its tax burden and would need to get Tumblr generating revenue.
- YHOO 3Q14 beat on both EPS and revenue with guidance inline with consensus.
- The legacy business continues to experience a decline while search seems to have stabilized.
- The prospect of capital allocation could support the stock in the near-term. I prefer Google and Facebook among internet advertisers.
Yahoo Beats Estimates, But Is It Enough To Shake The Haters Off?
- Q3 results for Yahoo! beat on revenue and earnings estimates.
- Revenue was up 1% Y/Y and 6% sequentially.
- I rate the shares a buy as mobile search revenue and stock buybacks could spur the stock higher.
Fri, Nov. 14, 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
Wed, Nov. 12, 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."
Wed, Nov. 5, 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.
Wed, Oct. 22, 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
Wed, Oct. 22, 9:19 AM| 1 Comment
Tue, Oct. 21, 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
Tue, Oct. 21, 4:07 PM
Fri, Sep. 26, 12:21 PM
- In an open letter, activist investor Starboard Value says it's "a significant shareholder" in Yahoo (YHOO +3.9%), and calls for the company to "explore a strategic combination with AOL (AOL +6.1%)."
- Starboard also wants Yahoo to "[unlock] the substantial value" in its Alibaba and Yahoo Japan stakes in a tax-efficient manner (could be easier said than done), cut losses in its display ad/content ops by $250M-$500M through cost cuts, and put an end to its "aggressive" M&A strategy.
- The firm estimates a $17.67/share "value gap" exists between Yahoo's trading price and its sum-of-the-parts valuation, something it attributes to tax worries and concerns about how Yahoo will spend any Alibaba/Yahoo Japan proceeds (previous).
- It thinks an AOL deal "could offer synergies of up to $1 billion by significantly reducing the cost overlaps in [Yahoo and AOL's] Display advertising businesses as well as synergies in corporate overhead." Starboard also believes an AOL merger could lower Yahoo's Alibaba/Yahoo Japan tax bill.
- Josh Brown argued last week Yahoo is now a prime target for activists. Starboard once waged a failed proxy battle against AOL.
- Yahoo and AOL have both spiked in response to Starboard's letter.
Mon, Sep. 22, 7:32 AM
- The Alibaba catalyst in the rearview mirror, Bank of America and Bernstein both pull Buy ratings on Yahoo (NASDAQ:YHOO).
- Softbank (OTCPK:SFTBF) tumbled 6.1% in Tokyo action overnight. "Part of the market used Softbank as an investment vehicle for Alibaba," says Jefferies' Atul Goyal. "And now that segment of the market doesn’t need to invest in it." Softbank owns 34% of Alibaba and its CEO said last week it has no intention of being a seller. Goyal reminds those selling Softbank today that Alibaba is just one of its investments, and Masayoshi Son has a number of other potential gems in the portfolio.
- Yahoo -2% premarket
Fri, Sep. 19, 12:10 PM
- After peaking at $99.70, Alibaba (NYSE:BABA) has reversed course and is now at $92.14, slightly below an opening trade of $92.70. Shares are still 35.5% above their $68 IPO price.
- Yahoo (YHOO -3.5%) has reversed course as well. 121M Alibaba shares have already changed hands. Yahoo's volume for the day has reached 90M, more than 3x the company's daily average.
- Prior Alibaba coverage
Fri, Sep. 19, 12:01 PM
- Alibaba (NYSE:BABA) opened at $92.70 and has quickly jumped to at $99, up 45.6% from a $68 IPO price. Its market cap stands at a whopping $246.6B (66x FY14 EPS), as investors bet the company's strong top-line growth (46% Y/Y in Q2) won't let up.
- Yahoo (YHOO +1.2%) remains higher. With underwriters expected to exercise a 15% overallotment option, the company will be selling 140M shares through the IPO, good for pre-tax proceeds of $9.5B.
- SoftBank's (OTCPK:SFTBF) 797.7M-share stake has a current pre-tax value of $79B.
- Prior Alibaba coverage
- Prospectus, IPO preview
Fri, Sep. 19, 10:14 AM
- All signs suggest Alibaba (NYSE:BABA) will open well above its $68 IPO price. At $80/share, the company would be worth $197B.
- Yahoo (YHOO +1.4%) is trading higher. Shares have already priced in some positive Alibaba-related news since mid-July.
- Update (10:21 AM): Alibaba is now indicated to open in an $82-$85 range.
- Update 2 (10:30 AM): The range is now up to $84-$87.
- Update 3 (10:44 AM): It's now up to $86-$88.
Thu, Sep. 18, 3:12 PM
Mon, Sep. 8, 3:54 PM
- In what may be the first coverage of Alibaba (Pending:BABA), Atlantic Equities' James Cordwell - expecting the company to continue to gobble up share - rates the stock Overweight with $100 price target (current IPO price range is $60-$66).
- The biggest risk to the outlook, he says, is Alibaba not owning fulfillment centers. It's an approach that has worked well so far, says Cordwell, "but that could become a weakness as competitors extend their in-house capabilities.”
- As for Yahoo (YHOO +5.4%), Cantor's Youssef Squali says the company should end up with about $8.8B in gross proceeds and $5.7B net (though tax treatment could increase this amount) after selling 140M shares of its 523.6M share stake in Alibaba. He's got a Buy rating and $39 price target on Yahoo, but thinks the Alibaba IPO could boost the stock to $49.
Fri, Sep. 5, 7:04 PM
- Yahoo (NASDAQ:YHOO) is adding to its Friday gains in response to Alibaba's setting of an $60-$66 IPO price range that spells a $147.9B-$162.7B valuation range, which in turn gives Yahoo's 523.6M-share stake a $33B pre-tax valuation at the midpoint.
- Of interest: While Yahoo can be required to sell 140M shares at IPO time (down from a prior 208M, thanks to a recent deal amendment), Alibaba's prospectus only states Yahoo is selling 121.7M through the offering, thereby leaving it with a 16.3% post-IPO stake.
- If 140M shares are sold, Yahoo stands to reap pre-tax proceeds of $8.8B at the midpoint; if 121.7M are sold, proceeds total $7.7B. Yahoo has already promised to return at least half the post-tax proceeds to shareholders.
- Given huge investor interest, there's a healthy chance Alibaba will hike its price range before the IPO, which will reportedly arrive on Sep. 19.
Wed, Jul. 23, 9:40 PM
- After talking with an unnamed "large Yahoo shareholder that is preparing a presentation" featuring a similar thesis, fund manager Eric Jackson thinks there's a good chance Alibaba (Pending:BABA) or SoftBank (OTCPK:SFTBF) will acquire Yahoo (YHOO +3.3%).
- His reasoning: Whereas the value of Yahoo's stakes in Alibaba and Yahoo Japan (OTCPK:YAHOF) are currently discounted for future tax payments, the pre-tax valuations are what matter to Alibaba and SoftBank. The former would be buying back a 22.5% pre-IPO stake in itself, and the latter would be adding to its respective 34.3% and 43% stakes in Alibaba and YJ.
- Jackson estimates Yahoo's assets are worth $56/share to either acquirer - he values the post-IPO Alibaba stake at $33, the YJ stake at $9, and Yahoo's core business at $5, and adds $9 for cash (inc. IPO share sales).
- He speculates Alibaba (were it the buyer) could trade the YJ stake to SoftBank for part of its Alibaba stake (adding to the scope of its buyback), and notes new SoftBank Internet/media chief Nikesh Arora reportedly wanted to buy Yahoo while at Google.
- One caveat: Acquiring Yahoo would give SoftBank a 56.8% stake in Alibaba before factoring IPO dilution. The Chinese government likely wouldn't be pleased with that. Jackson suggests SoftBank could trade part of its Alibaba stake post-acquisition for "something of similar value," but doesn't say what.
- Previous: Alibaba reportedly planning September IPO
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