Piper Jaffray and Merrill Lynch analysts provided their views on social media company LinkedIn Corp (NYSE:LNKD) and internet giant Yahoo! Inc. (NASDAQ:YHOO) regarding an acquisition by Microsoft and bids to purchase the company, respectively. While one analyst believes the sale price for Yahoo will likely rise due to the number of bidders, the other downgrades shares of LinkedIn but raises his price target to the announced deal price, believing shares are not likely to increase in the next year.
Piper Jaffray analyst Gene Munster offered his insights on yesterday’s announcement that Microsoft would acquire LinkedIn for $196 per share. Though the acquisition was unexpected, the analyst believes it makes strategic sense for Microsoft “given its focus on enterprise software.” The analyst also notes that the proposed offering for the deal seems attractive and would prevent another company from outbidding Microsoft. Munster also states that while a large M&A like this sometimes leads to a general trend in the industry, this specific deal is unique and will not cause a “sudden rush” of social media acquisitions.
Munster mentions that the acquisition and its resulting synergies will enable the two companies to create an “economic graph” combining LinkedIn’s professional network of workers, jobs, and skills with Microsoft’s various communication and projects.
The analyst downgrades LNKD from Overweight to Neutral but raises his price target to $196 from $180 due to the deal price. He states, “We downgrade shares from Overweight to Neutral as we expect the transaction to close as is.”
Gene Munster is ranked #6 out of 3,971 analysts on TipRanks. Munster has a 61% success rate recommending stocks with an average return of 17.1% per recommendation.
According to TipRanks’ statistics, out of all the analysts who have rated the company in the past 3 months, 33% gave a Buy rating, 4% gave a Sell rating, and 63% remain on the sidelines. The average 12-month price target for the stock is $172.28, marking a 10% downside from where shares last closed.
Analyst Justin Post of Merrill Lynch weighed in on Yahoo following reports that a second round of bids are coming in from companies to purchase the company. The analyst points to a $3.5-$4 billion bid from Verizon for core Yahoo, which excludes its patent IP and real estate. He also notes that AT&T and Quicken Loans founder Dan Gilbert each bid $5 billion for all of Yahoo’s assets, including a bid from TPG and a consortium of Bain Capital Private Equity. The analyst believes these bids likely reflect the company’s current financial situation. He explains, “We assume these bids incorporate the loss of Yahoo Japan search revenues in 2017, but are unsure if they assume loss of IP licensing revenues (if Yahoo Japan situation changes).”
The analyst believes that due to the amount of bids, the next and final round of proposals next month could go even higher. He notes that both Verizon and AT&T have “deep pockets”, while Dan Gilbert is backed by Warren Buffet and therefore does not need additional financing. Additionally, TPG held discussions with several partners to secure financing should it have to up its bid. Although many buyers will likely drive up the price of the sale, the analyst states that his “enthusiasm on higher bids is offset by weakening core business trends.”
Post comments that in the event only core Yahoo is sold, the company could easily sell its stake in Yahoo Japan and distribute the cash to its shareholders. Therefore, the Alibaba reverse spin would be “less critical to unlocking value.” While the analyst is not clear on Yahoo’s current tax structure, he does not believe the sale of core Yahoo would create a “large tax hit” due to the company’s many acquisitions. However, the analyst is cautious on the tax implications for its sale of Yahoo Japan. He explains, “We note that Yahoo owns 35% of Yahoo Japan so stake is strategic, but sale or distribution could be at an unattractive discount if a suitable buyer is not found.” Assuming that Yahoo sells its core business without its patents, the analyst believes the company will sell them separately, noting the recent transfer or 3,000 patents to Excalibur, its wholly owned subsidiary.
The analyst maintains his Buy rating on Yahoo with a $48 price target.
Justin Post is ranked #33 out of 3,971 analysts on TipRanks. Post has a 66% success rate recommending stocks with an average return of 18% per recommendation.
According to TipRanks, out of all the analysts who have rated YHOO in the past 3 months, 48% gave a Buy rating, 4% gave a Sell rating, and 48% remain neutral. The average 12-month price target for the stock is $41.98, marking a 15% upside from where shares last closed.