Updated from 12:24 p.m. EST on Jan. 29.Yahoo!
(YHOO)
reported numbers that beat on the bottom line but missed the top line and earnings before interest, taxes, depreciation and amortization (EBITDA) estimates. To make matters worse, the company lowered guidance for first quarter 2008 and full year 2008 as well on the revenue and EBITDA front as well.
Yahoo! reported revenue of $1.40 billion, EBITDA of $527 million and 15 cents per share in earnings vs. expectations of $1.41 billion, $523 million and 11 cents share, respectively. The company was able to beat earnings estimates due mainly to earnings from equity interests.
Yahoo! is guiding first-quarter 2008 revenue to $1.33 billion at the midpoint vs. expectations of $1.37 billion.
For full year 2008, Yahoo! said that revenue would be $5.65 billion at the midpoint and EBITDA would be $1.85 billion vs. consensus of $5.92 billion and $2.22 billion, respectively, for respective misses of $270 million and $370 million.
Most important, the lower revenue from the AT&T
(T)
renewed contract are going to flow 100% to margins, which, as a result, will lead to lower EBITDA and margins.
EBITDA margins in fourth quarter 2008 were 37.6%, down substantially from the 44.2% in the year-ago quarter.
Marketing revenue came in at $1.16 billion, up 14% year over year, while fees revenue checked in at $242 million, also up 14% year over year.
The company also announced that it will be cutting up to a 1,000 jobs, which will more than likely affect morale pretty badly.
With the bar set so low now, all the bad news out for the world to see, trading at a little over 9 times EBITDA and maybe even a buyout/strategic investment possible, Yahoo! could be worth looking at for long-term investors.
YHOO Preview: Almost a Value Play
Yahoo!
(YHOO)
is set to report earnings after the close of trading today.
The Street expects earnings of 11 cents per share on revenue of $1.41 billion for the December quarter. For the March quarter, estimates remain steady at 11 cents per share in earnings on slightly lower revenue of $1.37 billion. For the year ending December 2008, the current consensus is for earnings of 52 cents per share on revenue of $5.9 billion.
Yahoo! is really stuck in no-man's land, and to make matters worse, the company is going to have to cut jobs to reduce expenses going forward. Things have not been this bad for Yahoo!, even back when the Internet bubble burst, when the company was a fraction of today's size.
Here are some questions to consider on the release and call:
Is there a U.S. ad recession, and does it only pertain to Yahoo!? (Google
(GOOG)
does not seem to show an ad spend decrease, although we will find out this quarter.)
How much money will the headcount reductions save the company?
How much will the company lose in access revenue, and what does it propose to counter those losses?
How is the integration of recent acquisitions (Blue Lithium, Right Media, etc.) coming along, and what are their contributions going to be going forward?
How is the company's cost per 1,000 impressions?
What is guidance for first quarter and full year 2008?
What is Yahoo!'s competitive positioning vis-à-vis Google et al.?
The Street expects $510 million in earnings before interest, taxes, depreciation and amortization. What will be the actual number generated?
How will the restructured AT&T
(T)
contract affect revenues (lower for sure)?
How does Yahoo! plan to counter declines in affiliate (search) revenue?
Does the company plan to unlock value in its foreign holdings (Yahoo! Japan, Alibaba, et al.)?
I think that management might guide cautiously going forward given the uncertainties surrounding its business, slashing of jobs and the restructuring of the AT&T contract.
The stock is almost a value play here, however, and if it goes a few points lower, the value boys could start eyeing the company if they haven't started already.
This is not a good stock for a trade, but it could be a compelling buy a few points lower.
Good luck whichever way you are positioned into the call, long or short.
At the time of publication, Somaney was long Google stock and Google calls, although positions may change at any time without notice. Jay Somaney is a partner and fund manager with TSG Capital Partners, a hedge fund based in Plano, Texas, and founder of GlobalTechStocks.com, a subscription site that focuses on technology and Indian stocks (including ADRs), providing information, news and chatter. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback; click here to send him an email.
