Could YHOO Stock Surge on Earnings?
Yahoo! Inc. (NASDAQ:YHOO) reports earnings after the closing bell today, but investors are more interested in news about the company’s upcoming sale. YHOO stock could swing wildly if CEO Marissa Mayer reveals the top bid for Yahoo’s core business.
As for earnings, analysts are predicting income of $0.10 a share compared to $0.16 year-over-year. That would be a decline of approximately 37.5%, which makes sense considering that revenue is expected to be $840 billion. Just last year, revenue was $1.0 billion. (Source: “Yahoo’s looming sale to take center stage during earnings,” MarketWatch, July 18, 2016.)
Over the last three months, YHOO stock’s performance has closely tracked the S&P 500. It rose 3.74% against the market’s 2.20%, suggesting the stock is no longer suffocated by pessimism. The secretive auction has buoyed expectations for Yahoo’s stock outlook.
According to FactSet’s poll of 30 different analysts, the consensus price target for YHOO stock is $41.41. Most of that optimism is likely driven by the company’s impending sale.
Let’s back up for a second, though. What part of the company is being sold off?
After several years of dismal performance, CEO Marissa Mayer was forced to put up the company’s core assets for sale. Things like Yahoo! Finance, Tumblr, and “Yahoo Mail” are all up for grabs. The company’s stake in Alibaba Group Holding Ltd is not.
We know that Verizon Communications Inc. and AT&T Inc. are leading contenders in the auction. There were also bids from private equity firms like TPG Capital and Advent International, and a joint offer from Vector Capital and Sycamore Partners.
There’s a simple reason why private equity firms are hunting Yahoo: the company has valuable assets. However, those assets are covered in layers of fat. The company’s constant hiring and acquiring left it with a bloated YHOO stock. (Source: “Bloated Yahoo May Face Job Cuts After Sale of Core Assets,” Bloomberg, July 17, 2016.)
According to public information, the company is way less productive on a per-employee basis. Just take a look at the table below:
|Revenue per Worker|
|Company||Headcount||Revenue per Worker|
|Verizon Communications Inc.||173,300||$185,637|
Although both Verizon and AT&T are in labor-intensive fields, they still squeeze out more revenue per employee than Yahoo.
The contrast is even more noticeable when you compare YHOO stock to those in its own corner of the stock market. Google and Facebook are pulling in $315,948 and $400,000 per employee, respectively.
Clearly, the potential buyers think there’s a chance to get Yahoo up to Google and Facebook’s level. The company is estimated to cut 3,000 jobs this quarter, with more layoffs on the horizon.