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DiClemente Says Yahoo! Inc (YHOO) Is Still A ‘Buy’. Mayer Is Taking The Company In A Profitable Direction

When you look at Yahoo! Inc. (NASDAQ:YHOO)‘s performance as compared to some its peers, the rusty old tech giant has not been able to keep up. Some investors argue that Marissa Mayer, the CEO of the company has been taking wrong steps, due to which Yahoo! Inc. is not performing at near the rate that some of its competitors are. It has not been able to transform the parts of its business that are perceived to be old and tired to mobile, social, and cloud. CNBC talked to Anthony DiClemente, Managing Director of Nomura about the fairness of these questions. DiClemente’s Nomura holds a ‘Buy’ rating on Yahoo with a price target of $54.

Yahoo! Inc. (NASDAQ:YHOO)

“The stock is less than $44 and I look at it as a sum of the parts. So, we know Alibaba, is $32 of Yahoo stock. We know Yahoo Japan is $8. That’s $40. And net cash is $6. So basically, the core stub is trading at negative value. I think there is a lot of emphasis on the fact that search is down modestly or display revenue is right now down modestly but I thought EBITDA guidance to Q2 was fine. It was right in line with estimates. This is still a company that is generating at the stub over a billion dollars of EBITDA. This is not a negative valuation here. Even if we only ascribe a four or five times multiple you’re still gaining $6, $7, or $8 dollars for core Yahoo,” DiClemente said.

DiClemente also seems satisfied with Marissa Mayer as Yahoo! Inc. (NASDAQ:YHOO)’s CEO. What could another CEO have done differently? Perhaps not much. He thinks that Marissa has been dealt a tough hand and she is doing the best that she can.

“She is being a good steward in terms of all those things that create value. The spin of BABA. They talked about hiring advisers on Yahoo Japan. They are doing the buyback. They are doing the cost cuts Wall Street always wants, things that are going to boost stock in the short term. They want things that are going to basically provide them a near term return,” DiClemente said.

He mentions that Yahoo! Inc. (NASDAQ:YHOO) is already looking for more creative partnerships. The opportunity of working with Google Inc (NASDAQ:GOOGL) is cause for optimism. The non-exclusivity of search deal with Microsoft Corporation (NASDAQ:MSFT) and the search deal with Mozilla last quarter are both going to prove profitable. DiClemente thinks that Mayer has the difficult task of balancing Wall Street’s preferences with the needs of growing the company over the longer term. However she is fully aware of shareholders, who are very active in terms of what they want her to do and she is aware of how she can monetize things for the purpose of creating value for those shareholders. DiClemente is keeping a ‘Buy’ rating on Yahoo! Inc. stock because he is convinced his math is legitimate.

Disclosure: None

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