Yahoo! (YHOO): Raising PT to $39 - RBC

RBC Capital analyst, Mark Mahaney, maintained his Sector Perform rating on shares of Yahoo! (NASDAQ: YHOO) and noted that the company reported Q2 Net Revenue of $841MM, just above RBC/Street estimates of $836/840MM and towards the high end of guidance ($810-850MM). Still, Net Revenue declined 18% Y/Y, which implies deteriorating asset risk. EBITDA of $172MM came in 15%+ ahead of RBC & Street & above guidance, driven primarily by lower than expected opex.

EBITDA Margin was down materially Y/Y, and EBITDA declined a material 34% Y/Y. YHOO reiterated its Revenue (ex-TAC) and EBITDA guidance for 2016, and provided Q3 guidance that bracketed the Street. YHOO implemented a Revenue accounting change related to its MSFT partnership which will result in higher Gross Revenue and TAC going forward, with no impact to core profitability.

Keys to the quarter:

1) Display Weakened – Declined 3% Y/Y ex-TAC, though on a tougher comp, with slightly improved volume (+9% Y/Y vs. 8% in Q1), but with deteriorating pricing (-15% Y/Y vs. -6% in Q1) …hard to get constructive on YHOO shares if its overall Display segment (47% of revenue) is declining

2) Search Still Really Struggling – Declined 23% (exTAC), dragged down by a 24% Y/Y decline in Paid Clicks, though pricing was up 8% Y/Y

3) Mavens Revenue Decreased – When excluding $119MM from the accounting change to the $504MM of Mavens Rev, Q2 showed a decrease of -4% Y/Y, largely due to pricing pressure in video ads on network sites (though O/O video revenue increased Y/Y)

4) Restructuring Nearly Complete – The CFO highlighted that restructuring costs are largely behind YHOO, he noted the company is running at the lowest opex and headcount in a decade. & 5) Strategic Alternatives – No new information was announced regarding strategic alternatives for the company, but rest assured, this remains a “top priority.”

Despite the challenges in the quarter, the price target increases to $39 from $38.

For an analyst ratings summary and ratings history on Yahoo! click here. For more ratings news on Yahoo! click here.

Shares of Yahoo! closed at $37.95 yesterday.

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