Yahoo's 2Q12 Earnings – Setting up Ground for the Company’s Turnaround
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yahoo (NASDAQ: YHOO) recently reported its 2Q12 Earnings. While the revenues were a bit light they showed a sign of stability. Total Revenues showed a flat trend despite growth in search and display, 4% and 1.5% respectively, as “other revenues” declined by 7% YoY.
Important Takeaways
- 1) The Alibaba Deal, an effort by Yahoo to monetize its Asian assets appears to be on schedule and the CFO Tim Morse during the call stated that it should happen within a 6 month timeframe. There was no update on Yahoo Japan.
- 2) Management suggested about returning the asset sales proceeds (around $4 Billion) to its shareholders being a priority.
- 3) During 2Q12, the company repurchased $456M of stock or 2% of the shares outstanding given the estimated asset sales proceeds from Alibaba.
- 4) Yahoo’s content is gaining traction in accordance to our previous analysis (See: Yahoo: Media Properties Are Likely the Key) as the media page views showed a continuous growth trend of 5% in 2Q12 QoQ after increasing 7% in 1Q12 QoQ.
- 5) There was no Q3 guidance/strategy update following the appointment of the new CEO, Marissa Myers.
Analysis
The stabilization of sales should be taken as a positive as these results suggest that the core business is not crashing for Yahoo and we could continue to see stable cash flows from it. There is still plenty of work to be done for Yahoo's search monetization and mobile strategies; and with a stable free cash flow, we believe that Yahoo has the potential to turn the tables.
Moreover, most of the impact of Q2 share repurchases will show in the Q3 share count and therefore we expect additional EPS upside in the next quarter. Although there was no update on Yahoo Japan we believe the value of Yahoo’s 35% stake is ~$6.7B at current market prices. Yahoo management has previously suggested monetizing Yahoo Japan on the Analyst Day via a spin off or some other tax saving solution. Monetizing the Asian assets will allow Yahoo to buyback a substantial amount of stock which will result in EPS upside and may act as a catalyst for the stock.
Finally, we believe Yahoo’s initiatives in the content marketplace may create world class opportunities for advertisers to market their products and events resulting in the revenue upside for Yahoo.
Going Forward
We were a little upset about Myers not being on the call as we wanted to get a sense of Yahoo’s strategy going forward. There are many opportunities in place for Yahoo and with the appointment of Myers, who was critical in some of the most important launches from Google (NASDAQ: GOOG) such as Google Maps, Gmail etc., we are hoping Yahoo to improve the search monetization, devise a mobile strategy and launch new products to gain visibility in the market. The content strategy for Yahoo has started to gain traction and we expect Yahoo to show continued growth in terms of visibility and revenues in the long term. We maintain our bullish view on Yahoo with the Asian asset monetization and share repurchases taking place in the coming months that could result in substantial returns to the shareholders.
Note: The article was originally published on TheAnalystHub.com. For more in-depth research articles please visit our site today.
TheAnalystBlog has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
