By Chris Bulkey, principal analyst at Technology Research Group
NEW YORK (
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).
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
, 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