Yahoo Still Trying To Get The Verizon Sale Done

Reviewing Yahoo! Inc. (NASDAQ: YHOO)'s third-quarter results, Susquehanna Financial said the company is still trying to get the Verizon Communications Inc. (NYSE: VZ) deal done.

Valuation Cut

Analyst Shyam Patil noted that Yahoo went the extra mile to prove with its traffic metrics that the recent data breach isn't a MAC, even as Verizon is clamoring for a valuation cut on the breach. The analyst estimates that investors are expecting a $500 million to $1 billion cut in valuation, but he feels the stock is discounting a $1.6 billion reduction.

Hits And Misses Of Q3

• Susquehanna noted Yahoo's third-quarter revenues, excluding TAC, were in line with its estimate and the consensus.
• EBITDA bettered expectations with help from lower cost of goods sold.
• Display, excluding TAC, was above estimates.
• Operating expenditure was in line.
• Search revenue, excluding change in revenue presentation, missed estimates.
• Other revenues were also below-par.

Related Link: 10 Questions Yahoo Investors Need Answers To

Guidance Dissected

The firm noted that Yahoo guided fourth-quarter net revenues lower, but EBITDA guidance is higher. Additionally, full-year 2016 revenue, excluding TAC, was reduced by $40 million, while EBITDA guidance was raised by $80 million, the firm noted.

Catalysts

Susquehanna sees the sale of patent portfolio and sales of Alibaba stake as well as the sale of Yahoo Japan stake as catalysts.

Raising Estimates, Price Target

The firm raised its 2016 and 2017 EBITDA and earnings per share estimates but lowered its revenues, excluding TAC, guidance slightly, reflecting the third-quarter results and the guidance.

Citing the increase in Alibaba Group Holding Ltd (NYSE: BABA), the firm raised its price target for Yahoo to $48 from $44, while it maintains its Positive rating.

In pre-market trading, Yahoo shares were up 1.13 percent at $42.15 but Verizon was losing 0.12 percent at $50.21. At last check in the first 30 minutes of the regular session, Yahoo was up 2.74 percent at $42.82, and Verizon was up 0.3 percent at $50.42.

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