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MARKETS LIVE BLOG:

STOCKS EXTEND GAINS AS RESULTS SEASON KICKS INTO HIGH GEAR

Tech-focused investors prepare for fresh wave of earnings highlighted by struggling Tesla

Why Is Yahoo (YHOO) Up 5.6% Since the Last Earnings Report?

Zacks Equity Research
Updated

It has been about a month since the last earnings report for Yahoo! Inc. YHOO. Shares have added about 5.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Yahoo  Q1 Earnings & Revenues Up Y/Y, Verizon Deal On

Yahoo! Inc.’s first-quarter 2017 earnings and revenues grew year over year.

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Revenues

Yahoo reported GAAP revenues of $1.327 billion, up 22.1% year over year but down 9.7% sequentially. Traffic acquisition cost (TAC) was up 116.7% year over year but down 3.1% sequentially. Excluding these costs, net revenue (revenue ex-TAC) was down 3.1% year over year and 15.2% sequentially.

Search revenues (ex-TAC) were down 12.4% year over year and 7.9% sequentially. The key metrics were a disappointment in the first quarter, with paid clicks dropping 12% year over year. Price per click (PPC) however grew 10%.

Display revenues (ex-TAC) grew 4.8% year over year but were down 24.8% sequentially. The number of ads sold increased 2% from the year-ago quarter with price per ad (PPA) remaining flat.

Mavens (mobile, video, native, social) grew 35.6% year over year but decreased 11.5% from the previous 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 $412 million in the first quarter, up a massive 58.5% year over year but down 11.4% sequentially.

Other (fees, listings and leads) revenues were down 4.3% year over year and 2.6% sequentially.

Display, Search and Other platforms represented 48%, 37% and 15% of Yahoo’s fourth-quarter ex-TAC revenues, respectively.

By geography: Yahoo generated around 78.1% of revenues on an ex-TAC basis from the Americas (down 2.2% from Mar 2016 but flat sequentially), around 6.7% came from the EMEA region (down 11.9% year over year and 10.4% sequentially) and 15.2% from the Asia/Pacific (down 5.9% year over year but up 3.4% sequentially).

Margins

Yahoo generated gross margin of 43.5% in the first quarter, down 958 basis points (bps) year over year and 407 bps sequentially.

The company’s operating margin of -4.4% was poorer than the previous quarter’s 5.6%.

Net Income

Including the special items and the amount given out to non-controlling interests, Yahoo’s GAAP net income was $99.4 million (10 cents per share) against net loss of $99.2 million (loss of 10 cents per share) in the March quarter of last year.

Balance Sheet

Yahoo’s cash and short-term investments balance was $6.9 billion at quarter-end, down $8 million from the previous quarter. The company generated $214.5 million of cash from operations, of which $61.6 million was spent on capex.

Guidance

Yahoo did not provide any guidance for the second quarter of 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimates. There have been three revisions higher for the current quarter In the past month, the consensus estimate has shifted by 17.5% due to these changes.

Yahoo! Inc. Price and Consensus

 

Yahoo! Inc. Price and Consensus | Yahoo! Inc. Quote

VGM Scores

At this time, Yahoo's stock has an average Growth Score of 'C', however its Momentum is doing a lot better with an 'A'. However, 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 aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

While estimates have been trending upward for the stock, the magnitude of these revisions is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an in line return from the stock in the next few months.


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