NEW YORK (TheStreet) - Yahoo! (YHOO) shares have been on a roller coaster since Alibaba's (BABA) - Get Report IPO on Friday as the catalyst pushing the search giant's stock higher has essentially been taken out of the picture and investors are now going elsewhere.
Yahoo! which owned a 22.6% stake in Alibaba pre-IPO, sold 140 million shares of its holdings in the offering, leaving it with a roughly 15% stake in the company. The cash significantly boosts Yahoo!'s balance sheet. At the end of the second quarter, Yahoo! held $4.3 billion in cash, compared to $5 billion at the end of 2013, a drawdown of $700 million.
As of mid-day Tuesday, Yahoo! shares are down 7.5% since Thursday's close. (Alibaba priced its IPO at $68 a share on Thursday evening.) The stock is trading up 0.23% to $38.74 at last check.
That said, several analysts have upped their price targets on Yahoo!'s stock over the past few days. Here's what analysts had to say:
Brian Wieser, Pivotal Research Group (Hold; $41 PT)
We are updating our Yahoo price target to $41 on a YE2014 basis to reflect the impact of the Alibaba IPO last week. While we are not incorporating specific assumptions around how Yahoo will deploy the surplus cash it retains (we estimate the company will hold $6bn on its balance sheet by YE2014), advertising-related acquisitions seem - or should be - all but inevitable given the company's current traction within the advertising community. In our view the best option for Yahoo would be to focus on ad tech companies with strong - and retainable - management teams.
Youssef Squali, Cantor Fitzgerald (Buy; $43 PT)
Alibaba priced its highly anticipated IPO at $68/sh ... which results in an aggregate valuation of $169.4B for BABA and $9.5B in gross proceeds for YHOO (for 140M shares). With BABA's share price set, we are now updating our YHOO valuation to reflect this first tranche sale and YHOO's remaining second tranche (384M shares at our estimated 12-month target of $90/sh.). We're maintaining a BUY rating and increasing our PT to $43 from $39. Additionally, we continue to believe that a tax-efficient sale of the second tranchecould provide as much as $10-15/sh of upside to our PT.
We're maintaining our estimates for core Yahoo! and updating our Alibaba and Yahoo! Japan valuations, which added ~$4/sh to our YHOO PT.
Jason Helfstein, Oppenheimer (Outperform; $48 PT)
We are increasing our YHOO price target to $48 from $43, based on the public valuation of BABA shares, rolling-forward to 2016 estimates. On Friday, BABA shares closed at $93.89, 36x 2015E net income. As a result, we are increasing our 12-18 month valuation of BABA to $275B, based on 30x 2016E net income. Our 2016 multiple for BABA shares is modestly above that for Tencent and BIDU, which trade at 28x 2015E EPS. Our current sum-of-the-parts (SOTP) price target implies 17% upside, and we are maintaining our Outperform rating. Separately, our "tax-advantaged" scenario suggests a $60 valuation, assuming a 15% "payment" instead of 38% taxes.
Bull-case valuation best realized by a separation of the assets via tracking stocks. Assuming 15% "payments" to Alibaba and Softbank to effect tax-free spins, this suggests a "bull-case" valuation of $60 per share. However, as long as YHOO management has access to cash, we believe investors will significantly discount this in the share price.
TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate YAHOO INC (YHOO) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance, good cash flow from operations, expanding profit margins and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Although YHOO's debt-to-equity ratio of 0.09 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 2.99, which clearly demonstrates the ability to cover short-term cash needs.
- Compared to its closing price of one year ago, YHOO's share price has jumped by 38.31%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- Net operating cash flow has slightly increased to $357.41 million or 8.03% when compared to the same quarter last year. Despite an increase in cash flow, YAHOO INC's cash flow growth rate is still lower than the industry average growth rate of 41.67%.
- The gross profit margin for YAHOO INC is currently very high, coming in at 83.10%. Regardless of YHOO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YHOO's net profit margin of 24.87% compares favorably to the industry average.
- The revenue fell significantly faster than the industry average of 43.9%. Since the same quarter one year prior, revenues slightly dropped by 4.5%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: YHOO Ratings Report
--Written by Laurie Kulikowski in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.