Week In Review: AOL, Google, Yahoo

Internet stocks traded down for the week, in conjunction with the broader market NASDAQ Internet Index (NASDAQ:QNET), which ended roughly flat for the week with a decline of 0.03%. In this report, we discuss some of the key events from the past week for America Online (NASDAQ:AOL), Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO).

AOL

America Online (NASDAQ:AOL) has been focusing on its content and ad business in order to reduce its dependence on the internet subscription and content business. During the week, the company’s stocks grew by 0.8%. The company reiterated its commitment to video content as it acquired Vidible for $50 million to make it easier for publishers to get their video on other people’s websites. ^[1] We believe that AOL is well positioned to capture share in the growing video online ads in the U.S. in coming years.  Our valuation of $41.97 per share (market cap of$3.3 billion) for the company is 10% below the current market price of $46.55 per share (market cap of $3.6 billion). We expect AOL to report revenue of around $2.40 billion and net income of $220 million for 2014. We forecast non-GAAP diluted EPS of $2.86, which is inline with the market consensus of $2.83 (Reuters).

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Google

During the week, Google launched consolidated partner program to boost sales of its app (Google Docs, Calendar, Drive, Hangout etc) to enterprise clients. The new partner program combines Google’s existing programs around Apps, Chrome, Cloud Platform, Maps and Search, and offers higher commission to resellers and partners. ^[2] For the week, Google’s stock declined by 2%, more than the 0.03% market selloff. Our valuation of $547 (market cap of $371 billion) for the company is 3% higher than the current market price (market cap of $359 billion). We expect Google to report revenue of around $53 billion (excluding Traffic acquisition cost and revenues from Motorola) and net income of $15.7 billion for 2014. We forecast non-GAAP diluted EPS of $19.30, which is below the market consensus.

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Yahoo

Yahoo’s stock underperformed the market as it declined by 0.7%, and traded in the $50-$51 range, despite the steady performance in broader market indices. During the week, Yahoo appointed Kathy Kayse, formerly Executive Vice President of advertising sales at Oprah Winfrey Network (OWN), as its new Vice President, Sales Strategy and Solutions to improve the monetization rate for its properties. Currently, we value Yahoo at $47.29 per share (market cap of $47 billion), which is 7% below the current market price (market cap of $50.6 billion). 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).

[trefis_slideshow ticker=”YHOO” rhs=”3″]

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Notes:

1. AOL Adds More Video Help by Buying Content Syndicator Vidible for Around $50 Million, December 1 2014 [↩]
2. Google Just Made Another Smart Move In Its War With Microsoft, December 4 2014 [↩]