Both Yahoo! Inc. (NASDAQ:YHOO) and Intel Corporation (NASDAQ:INTC) reported earnings yesterday. The companies stole headlines as the public continues to speculate on the future of Yahoo and Intel’s massive job cuts. Analysts weigh in on the long term viability of both tech giants.
Mark Mahaney of RBC Capital weighed in Yahoo after the Internet giant posted earnings, reporting first quarter net revenue of $859 million, slightly beating his estimates but still marking an 18% Y/Y decline. Ultimately, Mahaney believes the earnings were “better than expected,” but still display “clearly deteriorating fundamentals.”
Yahoo posted first quarter EPS of 8 cents per share, slightly ahead of the overall analyst consensus of 7 cents. Mahaney comments, “This marks the first quarter in a year where EPS results have not led to a material reduction in our estimates. It is possible that fundamentals are basing out at YHOO.”
Mahaney says it is unclear whether or not Yahoo’s Display segment is declining because Ads Sold increased 6% Y/Y, but the price per ad declined. This is important to watch as Display comprises nearly half of Yahoo’s revenue. Search revenue is falling, though Mavens revenue is slowly increasing. Overall, Yahoo is “keeping ALL options open,” from operational restructuring to a reverse spin to strategic options for its core business. Mahaney notes that Verizon, Daily Mail, and TPG have allegedly submitted bids ranging from $4 to $8 billion, which the analyst views as “ballpark reasonable.”
Big picture, the analyst remains “concerned that emphatically strong growth in Facebook’s and Google’s ad platforms and the rapid rise of Programmatic ad buying are creating intensified headwinds for YHOO.” As a result, Mahaney maintains a Sector Perform rating on the stock and increases his price target from $33 to $38 thanks to appreciation of the company’s Asian assets.
According to TipRanks, Mark Mahaney has a 62% success rate recommending stocks with an 18.6% one-year average return per rating. Out of the analysts who have rated the stock in the last 3 months, 46% are bullish, 50% are neutral, and 4% are bearish. The average 12-month price target is $38.65, marking a 6% upside.
Intel released first quarter earnings yesterday, making headlines for its plans to slash 12,000 jobs amid significant restructuring plans. Matt Ramsay of Canaccord weighs in on the blue chip giant following its mixed earnings release.
The company posted revenue of $13.80 billion, relatively in-line with consensus estimates, but “below the guidance midpoint as the Client business again declined sharply Q/Q and even Y/Y despite an easy compare and DCG growth remained below the long-term target ahead of the 14nm Broadwell launch.” The analyst also highlights a 22% Y/Y increase in IoT. The company posted better-than-expected EPS of $0.54, ahead of the consensus of $0.49, marking a 2% year-over-year increase. Ramsay attributes this win to “strong IoT growth, gross margin above consensus and a favorable tax rate.”
Ramsay calls Intel’s decision to cut 12,000 jobs “prudent,” as a move to “protect earnings growth and cash flow in the face of persistent PC market declines approaching 10% Y/Y.” Intel’s near-term macro environment remains challenging, and consequently the analyst is lowering his 2016 revenue estimates from $59.1 billion down to $57.5 billion, and lowering his 2017 revenue estimates from $61.1 billion down to $59.8 billion. Despite the cut, Ramsay believes the company’s “core growth engines of data center, IoT and memory are positioned for strong growth through 2016.”
Ramsay reiterates a Buy rating with an unchanged price target of $38, noting that his long-term thesis is “supported by a revenue and investment shift toward higher margin DCG and strong memory and IoT franchises.” He concludes, “we grow increasingly confident in our bullish long-term thesis and believe Intel can gradually grow the business even in a potentially sharply declining PC environment.”
According to TipRanks, 67% of analysts covering Intel are bullish, 30% are neutral, and 3% are bearish. The average 12-month price target between these analysts is $36, marking a 14% potential upside.