Yahoo! is scheduled to host an analyst day on Tuesday, October 27th, the first since 2006, when Panama took center stage. Since then Yahoo has gone through several growing pains and has reached a point where it's future as an independent company rest on a turnaround in the display business and the stated benefits from the Microsoft deal. If both fail to be fruitful, the firm will likely be folded into the hands of Microsoft.
Investors will give Yahoo about two years to emerge from its desperate state so Bartz has a decent runway ahead and several tools at her disposal that if used wisely, will enhance shareholder value.
As for the analyst day, the following are the 18 questions I would want management to answer:
1. Management believes that Yahoo! is a mature business. Internet advertising is only 6-10% penetrated depending on what estimates you use. eCommerce only represents a single digit percentage of retail sales. Given those numbers, the Internet as a medium is far from mature. How can Yahoo! return to growth?
2. The display business rebounded sequentially in both 2Q09 and 3Q09 and a fundamental shift occurred in 3Q09, whereby guaranteed inventory outpaced non-guaranteed inventory. How sustainable is that shift? Is it industry wide or specific to Yahoo!? How can you provide confidence that the display business, despite its secular issues, is headed for a turnaround that is not cyclical?
3. The search partnership with Microsoft failed to initially delight investors but some are slowing coming to terms with the longer-term margin and free cash flow benefits of the deal. When do you anticipate that the deal will receive regulatory approval? What arguments have you heard against the deal? When exactly do you believe the paid search component will be implemented and which markets will roll out first? How many search engineers will remain at Yahoo!?
4. How do you plan to differentiate yourself from AOL, whose focus is display advertising and whose search business is outsourced to Google?
5. Facebook and Twitter have grown usage exponentially and have taken mindshare from Yahoo! over the past two years. How does Yahoo plan to be relevant in the newest forms of online media? How can Yahoo! compete with these two companies? Does it need to compete with them or is a partnership sufficient?
6. Yahoo! has shuttered or sold multiple business units over the past two years. What other business units can you part ways with that would not sacrifice longer-term growth? Is Hotjobs a business worth including in the Yahoo! portfolio?
7. How does Yahoo! plan to remain competitive through innovation? In what areas are you focusing your engineering talent?
8. Would you consider selling all of Yahoo! to Microsoft?
9. What is Jerry Yang's role in the organization today?
10. How do you plan to motivate and incentivize your employees?
11. Yahoo has sizable monetizable Asian assets. What are the long-term plans with these assets? How does Yahoo! benefit from holding on to those assets?
12. Google, Amazon, and eBay generate 50% and more of their revenues from international markets, whereas, Yahoo only generates 30% of gross revenues outside the U.S. What are Yahoo!'s plans to grow its international operations?
13. Yahoo's has many relationships with mobile carriers but Google has stolen Yahoo's thunder in the mobile space with the advent of Android. How can Yahoo regain its momentum in the mobile space?
14. You have $4.5 billion in cash on the balance sheet and no debt. What are the best uses of your cash? Investments in the core business? If so, how much, and at what scale? Share repurchases? Acquisitions, and if so, what is attractive to Yahoo? What holes need to be filled? Would you consider a one-time dividend as the cash balance builds?
15. What is your relationship like with Google? Do you communicate with Google's upper management?
16. Outside of the benefits of the Microsoft deal, how will margins, cashflow, and earnings improve? How can you squeeze more efficiencies out of the non-search businesses?
17. Should you lever the balance sheet, and if so, what is the optimal ratio?
18. What are your longer-term margin goals?
Read More!
Tuesday, October 27, 2009
Sunday, October 25, 2009
Flying High With Expedia
Expedia is scheduled to report 3Q09 results on Thursday October 29 prior to the market open. Consensus calls for revenues of $828 million and EPS of $0.43. My model is projecting revenues of $840 million and EPS of $0.47, four cents ahead of the Street. The shares are likely to rally after the print.
Traffic to the site in 3Q09 was robust, up in the double digits, and results should benefit from FX. In addition, search CPCs for travel terms have remained subdued, and that should help margins.
Expedia currently trades at 9.2x 2010 EBITDA vs. Priceline, which trades at 11.7x 2010 EBITDA. There is no clear reason why Expedia should trade at a lower multiple, and I would argue that Expedia, due to its market leading position, should trade at a higher multiple. If we assume that Expedia trades at Priceline’s multiple, then we would instantly argue for a 20% upside to the share price.
The shares should benefit from both higher estimates and multiple expansion, which should lead to a share price in the $40s from $26 today. The Internet peer group, the most appropriate group to compare Expedia to, is trading at a mean multiple of 15x 2010 EBITDA. Historically, the travel websites have traded at a discount to their Internet brethren due to cyclical concerns, pricing pressures, and other secular issues such as competition from the hotel and airline supplier sites. However, the latter has not materialized in a meaningful way so as to suppress the growth of the online travel sites. Overtime I expect the multiple gap to narrow.
Read More!
Traffic to the site in 3Q09 was robust, up in the double digits, and results should benefit from FX. In addition, search CPCs for travel terms have remained subdued, and that should help margins.
Expedia currently trades at 9.2x 2010 EBITDA vs. Priceline, which trades at 11.7x 2010 EBITDA. There is no clear reason why Expedia should trade at a lower multiple, and I would argue that Expedia, due to its market leading position, should trade at a higher multiple. If we assume that Expedia trades at Priceline’s multiple, then we would instantly argue for a 20% upside to the share price.
The shares should benefit from both higher estimates and multiple expansion, which should lead to a share price in the $40s from $26 today. The Internet peer group, the most appropriate group to compare Expedia to, is trading at a mean multiple of 15x 2010 EBITDA. Historically, the travel websites have traded at a discount to their Internet brethren due to cyclical concerns, pricing pressures, and other secular issues such as competition from the hotel and airline supplier sites. However, the latter has not materialized in a meaningful way so as to suppress the growth of the online travel sites. Overtime I expect the multiple gap to narrow.
Read More!
Sunday, October 11, 2009
YouTube Could be EBITDA Positive in First Quarter 2011
It is now precisely three years since Google announced the acquisition of YouTube for $1.65 billion in stock and the debate has shifted from potential revenues to lack of profitability of the online video website. Google has publicly stated that YouTube will be become profitable in the near future without quantifying the timeframe. Based on my own projections for YouTube’s revenues and using every piece of reliable information I was able to put together on costs to deliver online videos and display ads, I am estimating that Google will become EBITDA positive in the first quarter of 2011.
The acquisition of On2 Technologies for $107 million in August 2009 is key to reducing Google’s bandwidth costs with its advanced video compression technologies. Note that I have not made assumptions for the fact that YouTube is layered on Google’s infrastructure. That would have the added effect of reducing its costs.
Click on image to expand.
Read More!
The acquisition of On2 Technologies for $107 million in August 2009 is key to reducing Google’s bandwidth costs with its advanced video compression technologies. Note that I have not made assumptions for the fact that YouTube is layered on Google’s infrastructure. That would have the added effect of reducing its costs.
Click on image to expand.
Read More!
Tuesday, October 6, 2009
Sirius XM Could Avert Bankruptcy
Sirius XM's shares cannot get love from Wall Street. The shares have been stuck at the 60 cents range since August and a recent survey from the Street.com voted SIRI as the company most likely to go bankrupt. I mentioned SIRI as one stock to consider in my write-up Stocks to Buy in a Cyclical Advertising Recovery, although a majority of their revenues are subscription based.
The $4 billion market cap company (including the Liberty preferred shares) has $3.3 billion in debt with three quarters of that coming due between 2011 and 2013. With only $550 million in cash on the books today, 2010 will be a show me year in terms of driving the model to profitability and avoiding bankruptcy.
CEO Mel Karmazin is intent on improving the company's cash flow to avoid that scenario and I think he has a greater than 50% chance of succeeding. Couple that with Liberty Media's interest in avoiding a SIRI bankruptcy, I am inclined to consider the shares at these levels. Liberty can make a cash tender offer for all outstanding shares of SIRI that it does not already own between year two and three of the merger, according to company filings. However, as discussed below, a poison pill may inhibit that action prior to August 2011.
A reverse split is likely in the near future allowing institutional holders who face limits on share prices to buy the stock. Although the flip side is that shorts can come in again with a vengeance.
True is that the retail channel is dead and should remain so for sometime and that the dismal September auto sales figures, following the end of the cash for clunkers program, does not portend an exciting future for the company. However, I think Karmazin can milk the existing 15 million self-pay subs, which are declining only marginally, while continuing to cut costs from the model.
The company has guided for $400 million in EBITDA for 2009 and could likely beat that number. The recent music royalty pass-through fees are high margin revenues and should grow EBITDA along with the increased fee for family plan subscriptions and the add-on fee for Internet streaming. The used car market, where an estimated 15 million pre-owned cars are enabled with a satellite radio, presents an attractive growth opportunity.
In the coming years, more costs can be taken out by renegotiating the unprofitable Howard Stern contract, Nascar, and the MLB. I believe that SIRI has already renegotiated the GM contract, paying GM a lower revenue share and achieving lower subscriber acquisition costs. Further, satellite capex is likely to be reduced significantly beyound 2011 after the last spare satellite is launched into orbit, providing a boost to free cash flow. And don't forget the nearly $7 billion in NOLs that is valuable to an acquirer, although a poison pill put in place in April 2009 limits the value of these NOLs if the company is acquired prior to August 2011.
So alls not gloom and doom for SIRI. There is light and value at the end of the tunnel.
Read More!
The $4 billion market cap company (including the Liberty preferred shares) has $3.3 billion in debt with three quarters of that coming due between 2011 and 2013. With only $550 million in cash on the books today, 2010 will be a show me year in terms of driving the model to profitability and avoiding bankruptcy.
CEO Mel Karmazin is intent on improving the company's cash flow to avoid that scenario and I think he has a greater than 50% chance of succeeding. Couple that with Liberty Media's interest in avoiding a SIRI bankruptcy, I am inclined to consider the shares at these levels. Liberty can make a cash tender offer for all outstanding shares of SIRI that it does not already own between year two and three of the merger, according to company filings. However, as discussed below, a poison pill may inhibit that action prior to August 2011.
A reverse split is likely in the near future allowing institutional holders who face limits on share prices to buy the stock. Although the flip side is that shorts can come in again with a vengeance.
True is that the retail channel is dead and should remain so for sometime and that the dismal September auto sales figures, following the end of the cash for clunkers program, does not portend an exciting future for the company. However, I think Karmazin can milk the existing 15 million self-pay subs, which are declining only marginally, while continuing to cut costs from the model.
The company has guided for $400 million in EBITDA for 2009 and could likely beat that number. The recent music royalty pass-through fees are high margin revenues and should grow EBITDA along with the increased fee for family plan subscriptions and the add-on fee for Internet streaming. The used car market, where an estimated 15 million pre-owned cars are enabled with a satellite radio, presents an attractive growth opportunity.
In the coming years, more costs can be taken out by renegotiating the unprofitable Howard Stern contract, Nascar, and the MLB. I believe that SIRI has already renegotiated the GM contract, paying GM a lower revenue share and achieving lower subscriber acquisition costs. Further, satellite capex is likely to be reduced significantly beyound 2011 after the last spare satellite is launched into orbit, providing a boost to free cash flow. And don't forget the nearly $7 billion in NOLs that is valuable to an acquirer, although a poison pill put in place in April 2009 limits the value of these NOLs if the company is acquired prior to August 2011.
So alls not gloom and doom for SIRI. There is light and value at the end of the tunnel.
Read More!
Monday, October 5, 2009
IACI: Malone Selling His Shares. Should You?
In a filing late Friday, John Malone’s Liberty Media indicted that it sold 2.3 million shares of Barry Diller’s IAC/InterActiveCorp between September 25 and October 1, bringing its ownership stake to approximately 19%. Is that a bearish signal?
Fundamentally, I do not think so. Management of Liberty Media have stated their willingness to part ways with IAC’s shares either because there is no strategic reason to own the shares or due to the nasty spat with Diller over the spin-offs. Could be that Liberty needs to sell equity holdings to avoid being regulated as an investment company, which would increase their cost structure and reduce their ability to conduct tax efficient asset sales and swaps – investors in Liberty Media’s tracking stocks should keep an eye on that. Whatever the reason, the presence of an active seller is likely to keep a lid on the shares for sometime.
In a previous write-up, Stocks to Buy in a Cyclical Advertising Recovery, I listed IACI as one of my picks. The company has $1.8 billion in cash or $13 per share, about 70% of the stock’s value, and is an active share repurchaser, having repurchased 16 million shares in the first half of 2009, and has a new authorization for 20 million shares (cost of ~$400 million today). It appears that share buybacks are the primary use of cash at the moment and the 20 million shares represent about 15% of the outstanding shares. Thus, Diller can more than partially offset the selling pressure from Malone’s 19% stake with buybacks and thus keep the shares stable.
IAC has a nice mix of assets that are growing nicely. Plus it is a derivative play on Google given Ask.com’s search relationship with the search giant. My work and checks have shown a rebound in Google’s CPCs in the past month, which should have a positive effect on Ask.com’s financials. Match.com should improve both its top-line growth and margins in 3Q, excluding the U.K. operations, which was sold to Meetic.
The shares are trading at 5x 2010 EBITDA, below Yahoo at 6x 2010 EBITDA, but largely free of Yahoo’s secular issues. My sum-of-the-parts valuation, values the company at $25, about 30% upside from current trading levels.
3Q09 consensus revenues, EBITDA, and GAAP EPS are $336 million, $43 million (13% margin), and $0.13, respectively. I am calling for an in-line quarter so nothing spectacular. However, I would continue to nibble at the shares as Malone exits his position.
Read More!
Fundamentally, I do not think so. Management of Liberty Media have stated their willingness to part ways with IAC’s shares either because there is no strategic reason to own the shares or due to the nasty spat with Diller over the spin-offs. Could be that Liberty needs to sell equity holdings to avoid being regulated as an investment company, which would increase their cost structure and reduce their ability to conduct tax efficient asset sales and swaps – investors in Liberty Media’s tracking stocks should keep an eye on that. Whatever the reason, the presence of an active seller is likely to keep a lid on the shares for sometime.
In a previous write-up, Stocks to Buy in a Cyclical Advertising Recovery, I listed IACI as one of my picks. The company has $1.8 billion in cash or $13 per share, about 70% of the stock’s value, and is an active share repurchaser, having repurchased 16 million shares in the first half of 2009, and has a new authorization for 20 million shares (cost of ~$400 million today). It appears that share buybacks are the primary use of cash at the moment and the 20 million shares represent about 15% of the outstanding shares. Thus, Diller can more than partially offset the selling pressure from Malone’s 19% stake with buybacks and thus keep the shares stable.
IAC has a nice mix of assets that are growing nicely. Plus it is a derivative play on Google given Ask.com’s search relationship with the search giant. My work and checks have shown a rebound in Google’s CPCs in the past month, which should have a positive effect on Ask.com’s financials. Match.com should improve both its top-line growth and margins in 3Q, excluding the U.K. operations, which was sold to Meetic.
The shares are trading at 5x 2010 EBITDA, below Yahoo at 6x 2010 EBITDA, but largely free of Yahoo’s secular issues. My sum-of-the-parts valuation, values the company at $25, about 30% upside from current trading levels.
3Q09 consensus revenues, EBITDA, and GAAP EPS are $336 million, $43 million (13% margin), and $0.13, respectively. I am calling for an in-line quarter so nothing spectacular. However, I would continue to nibble at the shares as Malone exits his position.
Read More!
Subscribe to:
Posts (Atom)
Posts
