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Yahoo is
scheduled to report fourth quarter 2008 results after the market
closes on Tuesday, January 27. Based on our analysis, we are
expecting YHOO to report disappointing results that fail to meet
Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $1.33 billion and EPS of $.15. This
would represent a 5% decline in revenues from last year’s $1.4
billion in the same period. The current analyst consensus calls
for revenues of $1.38 billion and $.17 EPS.
While we
expect Yahoo to report disappointing Q4 results based on the
challenging economic environment, the real story will be in the
company’s 2009 guidance and strategy for the future. We expect
2009 guidance could be lower than Wall Street is currently
estimating as advertising budgets are being cut drastically as
the economic headwinds intensify.
Yahoo will
probably be given a pass regardless of what Q4 results are as
Wall Street is more concerned now with what actions Carol Bartz
will take to reinvigorate the company. Most importantly of
course is whether any deal with Microsoft is in the foreseeable
future.
Weak
consumer demand coupled with a deteriorating advertising
environment will make for a challenging 2009. However, we
continue to believe that there is tremendous value in Yahoo’s
assets and expect that new management may be able to leverage
those assets more effectively. In addition, we would expect a
search deal with Microsoft to be consummated in the first half
of 2009 which should provide a boost to the share price.
Share
Performance
Yahoo's
shares are up 7% since the beginning of the year. In 2008, Yahoo
shares fell 48% poorly underperforming the Dow Jones index’s 34%
decline.
Valuation
Shares are
now trading at 25x consensus 2009 EPS estimates. This is a
premium to the relative valuations of their peer group. While we
believe there is a lot of untapped value in Yahoo’s assets, we
expect that the shares may sell off further following the
quarterly results.
Recommendation:
Hold with a $12 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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