Yahoo! (YHOO) Up 3.6% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Yahoo! Inc. YHOO. Shares have added about 3.6% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Yahoo Beats on Earnings in Q4, Delays Verizon Deal
Yahoo! Inc.’s fourth-quarter 2016 earnings exceeded the Zacks Consensus Estimate on higher revenues. Shares moved slightly higher as investors are actually looking forward to the sale of the company rather than its earnings.
Over the last one year, the stock has outperformed the Zacks Internet Services industry. It gained 42.38% compared with the industry’s gain of 12.78%.
The results were driven by continuous strong performance in mobile and native businesses. Two consecutive quarters of earnings beat show signs of a business revamp at a good time since Yahoo is on the verge of selling its core assets to Verizon.
Marissa Mayer stated that the integration plan is on track and the company will remain deeply responsible for protecting users’ information and enhancing security.
Yahoo had given an update on the time of completion of the deal. The deal was expected to be completed in the first quarter of 2017 but now the company has extended it to the second quarter.
Revenues
Yahoo reported GAAP revenues of $1.469 billion, up 15.4% year over year and 12.6% sequentially. Traffic acquisition cost (TAC) was up 13.7% sequentially and 87.9% from last year. Excluding these costs in all periods, net revenue was up 11.9% sequentially and 4.4% year over year.
For 2016, GAAP revenues were $5169 million compared with $4968 million for full year 2015. Yahoo combines revenues from O&O and affiliate sites and presents it under Search and Display categories.
Search revenues (ex-TAC) were up 4.5% sequentially and 16% year over year. The key metrics were a huge disappointment in the last quarter, with paid clicks dropping 21% year over year. Price per click (PPC) grew 18%.
Display revenues (ex-TAC) grew 20.3% sequentially and 4.7% from the comparable quarter of 2015. The number of ads sold increased 4% from the year-ago quarter with price per ad (PPA) decreasing 10%.
Mavens (mobile, video, native, social) grew 12.6% sequentially and 25% from the year-ago quarter.
Mobile growth is extremely important because of the increasing use of mobile devices to connect to the Internet. Traffic-driven mobile revenues amounted to $495 million in the fourth quarter.
Other (fees, listings and leads) revenues were up 3.3% sequentially but down 8.8% from year-ago quarter.
Search, Display, and Other platforms represented 35%, 52% and 13% of Yahoo’s fourth-quarter ex-TAC revenues, respectively.
By geography: Yahoo generated around 77.9% of revenues on an ex-TAC basis from the Americas (up 12.6% sequentially but down 3.4% from Dec 2015), around 7.4% came from the EMEA region (up 25.7% sequentially but down 8.3% year over year) and 14.7% from the Asia/Pacific (up 2.9% sequentially but down 7.7% year over year).
Margins
Yahoo generated gross margin of 47.5% in the fourth quarter, up 140 basis points (bps) sequentially but down 635 bps year over year.
The company generated operating margin of 4.4% that was better than the previous quarter’s -4%.
Net Income
Including the special items and the amount given out to non-controlling interests, Yahoo’s GAAP net income was $162 million (17 cents per share) compared with $54.61 million (loss of $4.70 per share) in the December quarter of last year.
Balance Sheet
Yahoo’s cash and short-term investments balance was $6.82 billion at quarter-end, up $219.9 million during the quarter. The company generated $255.3 million of cash from operations, of which $41.6 million was spent on capex.
Guidance
Yahoo did not provide any guidance for the first quarter of 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimate. There has been one revision higher for the current quarter.
Yahoo! Inc. Price and Consensus
Yahoo! Inc. Price and Consensus | Yahoo! Inc. Quote
VGM Scores
At this time, Yahoo's stock has a subpar stock has a subpar score of 'D' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been trending upward for the stock, the magnitude of this revision has been net zero. Notably the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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