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Yahoo: The Turnaround

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Internet search and content provider Yahoo (click ticker for report: ) reported first-quarter results that were mediocre. Revenue ex-TAC (excluding traffic acquisition costs) was flat year-over-year, falling short of consensus estimates. Earnings per share easily exceeded consensus expectations, rising 52% year-over-year to $0.35. Yahoo provided non-GAAP earnings per share of $0.38 that excluded stock-based compensation expense. Unfortunately for shareholders, the EPS increase was mostly the result of a 10% reduction in share count, a reversal of one-time charges, and a significantly lower tax rate. Non-GAAP operating income fell $7 million year-over-year to $224 million. Operating cash flow also declined to the magnitude of 26%, while free cash flow also declined 20%. In our view, the quarter was not nearly as strong … Read more

Shares of Baidu Are Just Too Cheap

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Valuations for internet technology companies are literally all over the place. On one end of the spectrum sits LinkedIn (click ticker for report: ) and Amazon (click ticker for report: )—fast growing firms with sky-high PE multiples and tremendous credit given to the long-run. On the other end, we have Apple (click ticker for report: ) generating fantastic amounts of free cash flow, and trading with a single-digits forward PE. Chinese search giant Baidu (click ticker for report: ) falls closer to Apple, and we think shares look incredibly cheap at current levels. Let’s take a closer look at the search giant. Valuation Baidu’s valuation on a discounted cash flow basis looks extremely reasonable. We estimate shares to be worth … Read more

LinkedIn Surges on Terrific Revenue Growth

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Online business networking giant LinkedIn (click ticker for report: ) reported fantastic growth for its fourth quarter late last week. Revenue surged 81% year-over-year to $304 million, easily exceeding consensus expectations. Earnings also easily surged past consensus estimates, growing nearly 200% year-over-year to $0.35 per share on an adjusted basis (Image Source: LinkedIn). Strength was broad based, as the firm’s human resources tools drove talent solutions revenue 90% higher on a year-over-year basis, to $161 million. With membership growth strong (up 39% during the year) and the network now having over 200 million users, LinkedIn has become the de facto market place for employers and job hunters alike. As a result, its talent solutions business becomes more valuable literally by … Read more

Could the FCC Hurt Carriers’ Profits?

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Reports have surfaced that the FCC wishes to create a free, nation-wide WiFi network in order to facilitate web and cellular traffic. Though plans are only in the initial stages (and we are not jumping to any conclusions), the government could provide the US with a high-speed network at no cost, helping to put the nation on par with the Internet service achieved in several other countries. The news does not alter our fair value estimates for companies in our coverage universe, pending new details regarding probability and timing of implementation. Understandably, the companies that currently own spectrum and experience fantastic returns on networks are a bit upset about the possibility. The high margins achieved by wireless operators Verizon (click … Read more

Facebook’s Mobile Ads Remain Strong

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Social networking giant Facebook (click ticker for report: ) announced solid fourth-quarter earnings Thursday afternoon. Revenue surged 40% year-over-year to $1.6 billion, easily exceeding consensus expectations. Earnings were also better than anticipated, jumping 13% year-over-year to $0.17 per share. Advertising revenues grew 41% year-over-year to $1.3 billion, driven mostly by mobile. Payments revenue increased 8% sequentially, but was flat year-over-year when adjusted for accounting changes. We believe this segment will be less material to the firm’s overall revenue mix going forward, so we aren’t too worried about this segment’s performance. The real story of the quarter was mobile (shown below). Mobile monthly average users (MAUs) surged 57% year over year and 13% sequentially—and the daily active users (DAU) for mobile … Read more

Marissa Mayer’s Yahoo! Revitalization Continues

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Monday afternoon, former tech darling Yahoo! (click ticker for report: ) reported solid fourth-quarter results. Revenue jumped 2% year-over-year to $1.35 billion, and revenue ex-TAC (traffic acquisition costs) came in at $1.2 billion, a 4% year-over-year increase that was in line with consensus expectations. Operating earnings per share jumped 28% year-over-year to $0.32, easily exceeding consensus estimates. As wonderful as it is to see revenue grow, the real story at Yahoo! remains the turnaround that CEO Marissa Mayer has embarked upon. Given the incredibly competitive market for talent in the tech industry, Mayer has worked to transform the company into one of Silicon Valley’s best places to work. She noted in the conference call: To date, we introduced rigorous hiring … Read more

Best Ideas Newsletter Portfolio Holding Google Rebounds with a Strong Fourth Quarter

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Search giant and Best Ideas Newsletter portfolio holding Google (click ticker for report: ) reported better than expected fourth quarter results Tuesday afternoon. Revenue, excluding traffic acquisition costs (TAC), grew 39% year-over-year to $11.3 billion, a tad short of expectations. Earnings, adjusted for extraordinary items, were up 12% year-over-year to $10.65 per share, exceeding consensus estimates. We still like the company’s current valuation. Google’s core business continued its strong performance during the fourth quarter. Total revenue at the core business soared 22% year-over-year to $12.9 billion. Google-owned sites and Google network sites experienced strong growth of 18% and 19%, respectively. Traffic acquisition costs grew a little faster than revenue, up 25% year-over-year, a trend we will continue to monitor closely, … Read more

So…It’s Not a Smartphone: Our Thoughts on Facebook’s New Graph Search

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Rumors have swirled since Facebook (click ticker for report: ) announced an event to reveal “something it was building” that took place earlier today. We’ve heard everything: Facebook is buying RIM, the company is building its own smartphone, or maybe Zuckerberg was ready for his Steve Jobs moment, where he’d show the world something we didn’t even know could exist. At the end of the day, it was an evolution of the existing timeline feature and a direct attack at Google (click ticker for report: ), Yelp (YELP), and even Twitter. This innovation is the Graph Search. When we profiled Facebook after its IPO, we suggested that one of the company’s greatest paths to profitability was search, and we continue … Read more

Is Facebook’s Move Fundamentally Driven?

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After bottoming in early September last year, shares of Facebook (click ticker for report: ) have been off to the races, climbing back to over $31 at a rapid pace. The company is still trading below its initial offer price, however. The big jump has been (in part) a result of the company reporting a tremendous jump in mobile revenue, and thus far, we’ve seen Facebook prove to be one of the best companies at profiting from the rapid shift from PCs to mobile. Without question, we think the good news about mobile revenue is a positive shift in fundamental data. However, we do not think such news is worthy of the incredibly positive price action. We continue to believe that fast-money traders and speculators … Read more

Fiscal Cliff Averted; Aerospace Rallying

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After a volatile December, two of our favorite aerospace names, Astronics (click ticker for report: ) and EDAC Technologies (click ticker for report: ), are rallying significantly after a deal was finally reached to avert the fiscal cliff. Precision Castparts (click ticker for report: ), which had steadily moved higher during the fiscal-cliff ordeal thanks to optimism surrounding its planned acquisition of Titanium Metals (TIE), is also seeing strength today. We assumed both profit taking and overblown fears of defense cuts were the culprit behind the increased volatility, and it seems as though that could be the case. We continue to see substantial upside at these firms thanks to the massive, multi-year commercial aerospace backlogs of the large airframe makers. Our Best Ideas portfolio … Read more