Yahoo: Where’s The Growth?

Yahoo (YHOO) shares are sagging after the company late yesterday reported decidedly mixed Q1 results.

On the one hand, the company posted impressive 20% growth in its display advertising business. But on the other hand, its search ad business disappointed, and revenue ex-TAC was actually down a hair from a year ago. The company saw some early benefits from its search deal with with Microsoft (MSFT) in the quarter, but there remain deep concerns on the Street about whether the turnaround CEO Carol Bartz is trying to engineer is going to play out. Bulls on the stock see signs of progress, and a cheap stock bolstered by significant value on the balance sheet; bears think the company will continue to flounder.

Here’s a look at how the Street is viewing the stock, first the bears, and then the bulls.

The bearish view:

• Martin Pykkonen, Janco Partners: Maintains a Market Perform rating and $16 target. “We still need more signs of sustainable total revenue growth in a double-digit year-over-year growth rate range (with stable or increasing operating margins) before we would recommend buying the stock.”
• Steve Weinstein, Pacific Crest: Keeps his Sector Perform rating. “YHOO shares appear cheap, but the business needs a growth catalyst.”
• Mark May, Needham: Hold rating. “Clear signs of meaningful growth [are] largely still absent…and as a result, we continue to advise caution.”
• Tim Boyd, MKM Partners: Neutral rating. “The Q1 search results highlight our primary concern on YHOO shares: Can it stop the bleeding vis-a-vis search market share?”
• Jeetil Patel, Deutsche Bank: Hold rating. “Reinvestment in opex plus weakness in high-margin fees and search revs represent the themes for the year, leading to lagging growth and modest EBITDA growth.”
• Heath Terry, FBR Capital: Repeats Underperform rating. “While the considerable assets and potential value on Yahoo’s balance sheet will continue to provider valuation support, we believe for the recent outperformance of Yahoo’s shares to continue, the negative trends in engagement, segment share and search will have to stabilize,” he writes. “With the stock trading at 24x FY 11 EPS, in line with the group, and even the most recent data suggesting these trends are continuing, we believe YHOO will likely underperform its peers.”
• Jordan Rohan, Thomas Weisel Partners: Market Weight rating. The results, he writes “left some questions about the long-term prospects for Yahoo.”

The bullish view:

• Douglas Anmuth, Barclays Capital: Overweight rating. “YHOO is beginning to realize early cost benefits from MSFT and our positive thesis on YHOO remains intact based on the ad rebound, margin expansion, Asian assets and valuation.”
• Mark Meeker, Morgan Stanley: Overweight rating: “We continue to find Yahoo’s valuation attractive and believe its Asian assets remain under-appreciated.”
• Sameet Sinha, JMP Securities: Outperform rating. “Our thesis on Yahoo is that it will be able to maintain share of online advertising over the next two quarters and then start to gain share in Q4 as it is able to stabilize and grow its search platform.”
• Scott Kessler, Standard & Poor’s: Strong Buy rating. “We still see YHOO as a compellingly valued turnaround story.”
• Justin Post, Bank of America/Merrill Lynch: Buy rating. “The company has re-established it’s position as the leading display platform and guidance suggests growth acceleration in Q2.”
• Youssef Squali, Jefferies: Buy rating. “Management’s bold statement that Yahoo’s share of search has bottomed out and will grow again is a clear indication of greater conviction in an improving environment,” he writes. “We find YHOO attractive given the valuation, resumption of growth and margin upside.”

YHOO is down 84 cents, or 4.6%, to $17.54.