Yahoo Earnings Fall Less Than Expected; No Update On Takeover Bids

By | April 19, 2016

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Giving no specifics on its efforts to find a buyer for its core, and perhaps other, businesses,  Yahoo ( YHOO ) late Tuesday reported Q1 earnings and revenue that topped Wall Street expectations despite what its CEO called “substantial noise.” Yahoo stock was up 1.5% in after-hours trading Tuesday after the company released its earnings, though its Q2 revenue outlook lagged analyst expectations. “Over the past two months, (CFO) Ken (Goldman) and I have spent time in person and on the phone with interested participants,” Yahoo CEO Marissa Mayer said on the company’s earnings conference call. “We personally answered hundreds of requests for information. We are moving forward at the fastest possible pace.” The company reportedly had set a deadline of Monday for bids by potential acquirers, as the company has put all options on the table after failing to generate consistent revenue growth over the past decade.  Verizon Communications ( VZ ), which owns AOL, reportedly is among the most active bidders. For Q1, Yahoo said that its earnings per share minus items fell 47% to 8 cents from 15 cents in Q1 2015, but analysts polled by Thomson Reuters had expected just 7 cents. Revenue fell 11% to $1.09 billion, in the upper end of Yahoo’s guidance range of $1.05 billion to $1.09 billion and just above the $1.08 billion that analysts had expected. Yahoo posted revenue minus TAC — traffic acquisition costs, or what Yahoo must pay to other sites to carry its ads — of $859.38 million, down 17%. That’s above the $847 million that FactSet had forecast. But it’s below the $1.04 billion in ex-TAC revenue that Yahoo reported in Q1 2015. For Q2, the company forecast revenue of $1.05 billion to $1.09 billion, down 14% at the midpoint and lagging consensus views of $1.102 billion. Despite “substantial noise,” Mayer said on the conference call, the company has “made great progress.” CEO Said Company Aligned On Top Priority “Our 2016 plan is off to a solid start as we continue to focus on driving efficiency, lowering costs and improving long-term growth,” Mayer said in the company’s earnings release. “In tandem, we made substantial progress toward potential strategic alternatives for Yahoo. Our board, our management team and I are completely aligned on this top priority for shareholders.” Yahoo has formed a strategic review committee of independent directors to consider strategic alternatives for the company and for its big stakes in China’s Alibaba Group ( BABA ) and in Yahoo Japan. Yahoo stock fell a fraction in Tuesday’s regular session, to 36.33, but it’s up nearly 40% since touching a nine-month low in early February. S&P Global Market Intelligence analyst Scott Kessler, in a research report last week, said that he was bracing for disappointment, “given continuing fundamental challenges and questions about company leadership.” At the time, Kessler downgraded Yahoo stock to hold from buy. On the other hand, Yahoo stock received at least two price-target boosts in the past two weeks. Pivotal raised its price target to 40 from 35, primarily due to recent gains by Alibaba. Most of Yahoo’s value comes from its 15% stake in the China e-commerce titan. Yahoo’s total market cap is about $34 billion. SunTrust Robinson Humphrey analyst Robert Peck raised his price target to 44 from 40 on April 13 and maintained a buy rating, citing “hidden assets” that could drive up the bidding price for the struggling Web portal. Those assets, Peck said, include royalties from Yahoo Japan, thousands of patents and plentiful real estate. Minus a “potential upside” from those assets, SunTrust expects Yahoo to fetch bids in the $6 billion to $8 billion range for its core business. Some reports estimate that as many as 40 groups have expressed interest in the wilting Sunnyvale, Calif.-based Web portal, although Fortune said in a report on Friday that the number was too high. News site Re/Code said that documents Yahoo provided to potential bidders predict that Yahoo’s 2016 revenue will fall nearly 15% and its earnings by more than 20%. On Tuesday, Goldman said that Yahoo’s head count, including contractors, was down 42% from the start of 2012 to 9,200, and the company continues to cut costs. Yahoo reported that its revenue from Mavens rose more than 6% to $390 million and accounted for 38% of total revenue, up from 33% in Q1 2015. Mavens refers to Yahoo’s revenue from mobile, social, video and native advertising, where revenue is growing. The company hopes that the segment will offset declining revenue from its legacy advertising. Scalper1 News

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