Yahoo! Gains as Merrill Lynch Raises Rating and Target Price
Shares of Yahoo! Inc. (YHOO) climbed nearly 1.2%, touching a high of $51.03, before closing a trifle lower at $50.99, following an upgrade from Neutral to Buy by Merrill Lynch’s media analysts Justin Post and Joyce Tran. In addition, the analysts increased the price target to $62.00 from $55.00.
The analysts believe that Yahoo is well positioned to benefit from its equity stake in the Chinese e-Commerce giant, Alibaba Group Holding Ltd. (BABA), and the associated tax upside potential.
In September, the Chinese e-Commerce major went public on the New York Stock Exchange and began trading at $92.70, well above its IPO price of $68. Since then, its share price has increased to $107.90. The analysts opines that though Yahoo offloaded 27% of its holdings in Alibaba IPO, the company still owns 384 million Alibaba shares, currently worth about $42 billion. Yahoo still has a significant amount of cash to pursue any strategic alternatives.
Moreover, the analysts remain optimistic about the improvement in Yahoo’s core business outlook, increase in active user growth and its commitment to return value to shareholders through buybacks. Post and Tran remain encouraged by CEO Mayer’s attempt to bring in revenues by acquiring start-ups and investing in content and services. Over the last two years, CEO Mayer has acquired about 22 companies accounting for 20% of Yahoo’s total acquisition history since 1997.
On the contrary, Post and Tran downgraded Google (GOOGL) to Neutral from Buy and cut the price target to $580 from $600. They opine that Google faces severe disapproval in Europe about everything from confidentiality to tax policies. Also, the analysts opine that the competitive landscape has changed a lot over the last few years and Google has been losing share in the search and advertising market. Recently, Firefox replaced Google with Yahoo as the default search engine. This was a major setback for the search giant as it has been the web browser’s default search engine since 2004. Also, Apple (AAPL) replaced Google with Microsoft’s Bing as its default search engine.
Currently, Yahoo has a Zacks Rank #3 (Hold), while Google holds a Zacks Rank #4 (Sell).
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