Skip to main content

Yahoo! Gets Sell Rating

Yahoo! is up 9% year to date and valued at 44 times trailing earnings. Google, rated sell, trades at 25 times. We view risk/reward as highly unfavorable and strongly discourage clients from owning shares.

By Chris Bulkey, principal analyst at Technology Research Group

NEW YORK (

TheStreet

) -

Yahoo!

(YHOO)

reported revenue of $1.60 billion (up 1% year on year) and earnings of $0.22 per share (vs. $0.08 year on year) for the first quarter of 2010 (TRG estimates: $1.16 billion and $0.08 per share).

Measurable drawdown of revenue deferrals renders upside from expectations meaningless. Even with this non-conservative action, top-line growth remained elusive.A one-time gain, continued use of cost containment measures, R&D reduction, and deferred tax asset utilization equate to shoddy earnings quality. The combined effect of a distressed operating model and aggressive financial reporting can be seen in a disastrous cash flow progression (down 45% year on year).

Scroll to Continue

TheStreet Recommends

Yahoo! financials are in complete disarray. There's really no other way to put it. The results come as no surprise. What is surprising is a lack of volatility and scarcity of short sellers. Shares are down less than 4% in after hours trading. Short interest is almost nonexistent at a little more than 2% of the float. Whether this changes remainsto be seen.

Valuation and Recommendation

Yahoo! is up 9% year to date and valued at 44 times trailing earnings. Comparable search engine provider

Google

(GOOG) - Get Alphabet Inc. Class C Report

, rated sell, trades at 25 times. We view risk/reward as highly unfavorable and strongly discourage clients from owning shares. We reiterate a sell rating and $8 price objective on Yahoo! (target multiple remains 20 times revised 2010 EPS estimate).

--- Written by Chris Bulkey in Narberth, PA

>> Who Owns Yahoo!?: Carl Icahn