Week In Review: Google, Yahoo, AOL, Yelp

September 19th, 2014 by Trefis Team
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Internet stocks were off a bit on the first day of the trading week ending on 19th September. As a result the, NASDAQ Internet Index (NASDAQ:QNET) traded near a one-month low, as investors sold some of the bull market’s best performing shares. However, the Internet stock and Index recovered during the week the market geared up for Alibaba’s ADR listing on Friday. In this report, we discuss some of the key events from the past week for Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Yelp(NASDAQ:YELP) and America Online (NASDAQ:AOL).

Google

Google announced launch of the Android One platform in India this week. With a price point of ~$100, the smart phone family is intended to foster adoption among new users with an affordable, feature-rich, reliable system positioned above some notably lower cost alternatives.  Accordingly, Google plans to strengthen its Android ecosystem in emerging markets as well as boost its revenues from the sale of digital content to users at the lower spectrum of smartphone user base. [1] In other news, Google is looking to develop more Web programming for its online video property-YouTube. The company hopes to up its ante in the face of competition from digital upstarts such as Netflix Inc and Hulu LLC. [2]

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Google’s stock traded close to $590 last week. Our valuation of $544 (market cap of $340 billion) for the company is 10% lower than the current market price (market cap of $398 billion). We expect Google to report revenue of around $63 billion and net income of $15.7 billion for 2014. We forecast non-GAAP diluted EPS of $19.41, which is below the market consensus.

Yahoo

Yahoo’s stock traded between $41 and  $44 per share last week, outperforming the broader internet index. The primary reason for this the upward revision in the offer price of its associate company Alibaba, which is made its debut on the NASDAQ on Friday. [3]

Currently, we value Yahoo at $34.68 (market cap of $34.7 billion), which is 18% lower than the current market price (market cap of $42.7 billion). However, this valuation is prospective based on the initial F-1/A fillings, and the overall valuation of Yahoo is subject to the demand for Alibaba’s stock once it trades in the very near future. Therefore, we will adjust the model once we value Alibaba post its IPO. We expect Yahoo to report revenue of around $4.46 billion and net income of $430 million for 2014. We forecast non-GAAP diluted EPS of $1.32, which is slightly below the market consensus of 1.41 (Reuters).

AOL

America Online (NASDAQ:AOL) has been focusing on its ad business in order to reduce its dependence on the internet subscription and content business. However, the company’s stocks soared unexpectedly on Thursday on speculation that Yahoo might look to acquire it once Alibaba, Yahoo’s associate, is through with its ADR listing. AOL’s stock traded close to $44 last week. Our valuation of $38.52 (market cap of $3 billion) for the company is slightly lower than the current market price of $43 (market cap of $3.4 billion). We expect AOL to report revenue of around $2.38 billion and net income of $220 million for 2014. We forecast non-GAAP diluted EPS of $2.82, which is inline with the market consensus of $2.83 (Reuters).

Yelp

Yelp’s stock traded between a narrow range of $76-$77 through out the week. However, the highlight of the week was news that the company paid $450,000 to settle a U.S. regulator’s lawsuit accusing it of collecting names and email addresses from children as young as 9 without the consent of their guardians. [4] Our valuation of $60.44 (market cap of $4.4 billion) for the company is 20% lower than the current market price (market cap of $5.5 billion). We expect Yelp to report revenue of around $362 million and net income of $15.7 billion for 2014. We forecast non-GAAP diluted EPS of $0.21, which is below the market consensus of 0.40 (Reuters).

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Notes:
  1. Read Google’s Android One Platform About More Than Just Phones for more on this [↩]
  2. Investing in creativity, Thursday 18th 2014 [↩]
  3. Read more about it here [↩]
  4. Yelp settles with the FTC over claims it collected personal info from kids, September 17 2014 [↩]