Cantor's Youssef Squali: Current Yahoo Price Assigns Negative Valuation To Core Business, We're Still Long

In a report published Wednesday, Cantor Fitzgerald analyst Youssef Squali maintained a Buy rating on Yahoo! Inc. YHOO, while raising the price target from $60 to $62, based on the higher valuations for Alibaba Group Holding Ltd. BABA and YAHOO JAPAN CORP. YAHOY, gradual but modest improvement in the core business and share buybacks worth $2.7 billion. The company reported its 2Q15 results more or less in-line with the muted expectations, with GAAP revenue growth increasing to 15 percent, year on year, to the highest level seen in the past nine years. However, the ex-TAC revenue continued to be challenged, coming in at 0.3 percent, year on year. The analyst expects this trend to continue in 2H15, driven by higher investments and tougher comps. "GAAP revenue growth of 15 percent is an encouraging sign and could lead to improved exTAC revenue growth over time," analyst Squali stated, adding, "A strong Americas performance, continued Mavens growth, and improved PC revenue from sales realignment contributed to this performance." The company's investments in Alibaba and Yahoo! Japan continue to support the stock valuation, contributing $38/share to the share price at present. However, this also implies negative valuation for core Yahoo!. In addition, the management has issued disappointing guidance for 3Q15, with revenue and EBITDA below the consensus forecasts. The management also expects sequential revenue headwinds during 3Q and 4Q, associated with lower Alibaba and patent license fees.