What does Wall Street think of Yahoo the morning after?

April 22, 2009

The reaction to Yahoo’s earnings in the stock market this morning was relatively positive. Shares rose 2 percent right off the bat, but we’ll see what happens as the day rolls on. Meanwhile, here are what some Wall Streeters had to say about the quarter in various research reports.

Signal Hill Capital Group: While all of Yahoo’s business segments declined, display was by far the hardest hit.  Display ad sales fell 27% sequentially and 13% YoY to $371 million, as premium inventory is either not selling out, or is selling at very depressed CPM’s.  Yahoo’s search business declined less, but is hardly a bright spot.  Search revenue dropped 9% sequentially, compared with Google’s 4% sequential decline.

Collins Stewart: Given how bad display and search ad trends were during the March quarter, we believe the earning was not bad. CEO Bartz is clearly bringing fresh perspective, sound cost management, and portfolio optimization approach, which we believe will start yielding positive results. We continue to believe that Microsoft-Yahoo search deal is very likely and silence by CEO Bartz during the earnings call suggested to us that something is brewing.

Jefferies & Co: While severe macro headwinds yielded tepid revenues, management has moved aggressively to protect margins and realign costs. We are encouraged by the new CEO’s efforts to make Yahoo! more fit, which would position it better to compete long-term and also give it more
leverage in any negotiations with Microsoft.

Bernstein: Possibly one of Yahoo!’s stranger earnings calls seemed to excite the after-market – the stock was up almost 5% in after-hours trading. The company’s 1Q:09 operating performance was poor – revenues of $1.58 billion were down -13% YoY, technically lower than consensus but thanks to cost and expense  reductions in the quarter earnings were in line with analyst’s expectations of $0.08/share. The call did little to shed any light on  management’s strategy other than to cut headcount by 5%, outsource some under-performing businesses and generally wait until the economy improves.

Barclays Capital: Yahoo becoming more of a margin expansion story, but core advertising pressures remain & we think they are more than just macro related. We think shares are fairly valued at current 6x EBITDA, or $15. Margin expansion should provide some support and potential for a search deal or more remains, but would like to see better entry point and/or more fundamental improvement in search & display before becoming more positive on YHOO shares.

Keep an eye on:

  • News Corp’s stake in German pay-TV broadcaster Premiere will swell to 30.5 percent as the media conglomerate agreed to take up almost a third of new shares issued in Premiere’s second capital hike (Reuters)
  • Carl Icahn has extended a tender for $316 million in Lions Gate Entertainment notes as the studio moves aggressively to thwart his overtures and talks with potential partners for its TV Guide cable channel, sources familiar with the discussions said. (Reuters)
  • Global recorded music sales fell by more than 8 percent in 2008 to $18.42 billion led by a sharp drop-off in sales in the United States, according to the world music trade body (Reuters)

(Photo: Reuters)

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