Due to consecutive poor results in recent quarters, Citi Research has downgraded Yahoo to neutral.
Yahoo Inc. is going through a bad patch recently. The company failed to meet the analysts’ expectations as well as could not turn around its fate. The business was significantly declining and the investors demanded to sell the core internet business as soon as possible. One of the activist investor, Starboard Value, urged to take action immediately or else it will launch a proxy war. For that matter, the firm launched an auction process for the sale of its business but no one exactly knows what is happening behind the scenes.
Due to poor performances in the past quarters and failed to over turn its business, Citi Research has downgraded US search engine giant Yahoo to neutral as the options to either sale or spin off its core internet and advertising business is reflected in its share price. The stock is going down day by day and the investors want the board of directors to take appropriate action before it is all over. Mark May, who is a reputable analyst, recently raised Yahoo’s price target from $32 to $37 and gave 60 percent weightage in favor of a sale of its core business.
On one hand, the investors are urging to sale out the business whereas the board of directors along with the Yahoo CEO Marissa Mayer are exploring additional strategic alternatives to make things work out. According to the CEO, she believes that with the new restructuring plan and the news targets, Yahoo can revive its business and can achieve its goal.
Yahoo is also unsure about its Asian assets i.e. stakes in Yahoo Japan and Alibaba Group Holding. According to the analyst, there are higher chances for a spin off of Yahoo’s core internet business and its stakes in Yahoo Japan which is 30 percent. This is said to be the most latest plan which the management came up with to proceed with. Furthermore, Mark May said that the outlook of the stock may prove too conservative if Alibaba shares trade higher as Yahoo has nearly $30 billion stake in the Chinese e-commerce giant.
Mark May stated, “At current levels for both Yahoo! shares and Alibaba shares (which comprise the majority of Yahoo!’s underlying value) we believe investors are paying a fair price for the potential value creation from a sale or spin of the core business. Absent a large change in the price of Alibaba stock, we see little opportunity for significant upside or downside to shares at the current price.”
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