Wednesday, April 19, 2006

Yahoo! 2006 1st quarter results

Yahoo! reported its 2006 1st quarter results yesterday. The stock did well today by jumping up 7%. In this article, we will look at the different parts of the quarterly report. In the part segments we looked at Yahoo! vs Google and the tale of three stocks.

The revenues increased year over year by 34% for the quarter. On a quarter over quarter basis, the revenue slightly declined. The last quarter of the year is typically the strongest quarter for many companies so this is not entirely unexpected.

The expenses in the quarter increased primarily related to stock expense related expenses. The operating income margin is currently 12.87% in the first quarter of 2006. This declined from 21% margins from 2005. The decline is primarily attributed to stock option expensing per the new accounting rules. The earnings per share declined to 11 cents per share from 14 cents a share from the year before. The decline in earnings is approximately 22%. The stock dilution year over year is very reasonable at 1%. If the earnings per share decline at the same rate through out the year, the EPS at the end of the year for Yahoo! is going to be $1=00. If the price stays at the same level for 2006 or if it appreciates by another 3-4 dollars per share, the P/E ratio will be around 35 or 37. If the revenue growth rate remains in the 30-35% range, this might be a reasonable price.

The cash flow from operations increased this quarter to about 343 million dollars from 317.5 million dollars though the company got a boost of 40 million dollars from stock based compensation. The stock holder equity also declined this quarter by about 100 million dollars compared to the end of last year. The book value per share is about 6 dollars per share. If one discounts the current book value from the stock price, the price seems fairly reasonable for the current growth rate. In other words, the stock is fairly valued and has potential for some upside if the company does well.


J. Collins said...

You should also include YHOO's 30% ownership of Yahoo! Japan and 40% in Yahoo! China and Alibaba, all of which are separate corporate entities.

When you do this, the current YHOO (US) price becomes even more attractive.

Japan is the seccond largest economy in the world. Yahoo! japan dominates that market in all internet segments (think of it as the total of eBay, Google, and Yahoo! for that country).

Then consider how much dough did the Baidu IPO bring to early investors.

I roughly estimate these two big holdings as another $10 of value in addition to the $6 book value mentioned in the blog.

-- JC

Anonymous said...

wonder how you came up with $1.00 earning, it is roughly $0.55 at the end of the year and corresponding to a 70 ish PE