Standard & Poor’s has keyed in today on both Yahoo! (YHOO-NASDAQ) and Google (GOOG-NASDAQ) ahead of the earnings reports next week. Analyst Scott Kessler is the one making this call at S&P, and this is their "equity research" instead of the debt research.
On the Google (GOOG) position, S&P Reiterated its 3-STARS (HOLD) rating ahead of its Q1 results after the market close on Thursday, April 19. S&P puts gross revenues of $3.65 billion and EPS of $2.86, and believes they translate as modestly higher than those of the Street, which estimates net revenues and EPS excluding stock-based compensation. S&P believes that Google’s continuing marketshare gains support our first quarter estimates; but S&P also believe margins in the first quarter and going forward could be restrained by large distribution deals, content-related payments, and expenses related to YouTube. At 40-times S&P’s 2007 EPS estimate, it feels Google as reasonably valued.
On the Yahoo! (YHOO) position, S&P Reiterated its 2-STARS (Sell) rating ahead of its first quarter results after the market close on Tuesday, Apr. 17. S&P sees revenues of $1.2 billion and EPS of $0.11, roughly in line with the Street consensus. It believes the Panama search technology upgrade aided search-related metrics and financial results, but thinks the near-term benefits of Panama are perhaps being overestimated at this point. It remains optimistic about the newspaper consortium and the recent Viacom win, but notes that Yahoo’s display business is facing pressure from social media. S&P concludes that it thinks YHOO shares are overvalued at 54-times its 2007 EPS estimate.
We normally wouldn’t cover just a couple of reiterations from a negative Internet analyst, but S&P equity research is frequently deemed by most on the street as being independent and free from any of the inherent conflicts of interest that often occur at other Wall Street brokerage firms.
Jon C. Ogg
April 13, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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