The beleaguered search engine provider Yahoo! Inc (NASDAQ: YHOO), which entered into an agreement to sell itself to Verizon (VZ) in July 2016, reported fiscal 2016 fourth-quarter results that surpassed analysts’ estimates. At the outset it looks as if the company has seen a growth in its top line on a y-o-y basis. However, it is not the case as explained below. Furthermore, there are concerns related to the deal with Verizon as well. Thus, we forecast a decline in the share price in the days to come.
The Sunnyvale, California-based company reported fiscal 2016 fourth-quarter revenue of $1.47 billion, up from $1.27 billion in the prior year’s corresponding quarter. The Wall Street analysts had expected revenues of $1.38 billion.
For the quarter ended December 2016, the company reported net profit of $162 million or $0.17 per share, compared with a net loss of $4.44 billion or $4.70 per share in the fourth-quarter last year. Excluding charges, the 4Q16 non-GAAP net earnings increased to $0.25 per share, from non-GAAP net earnings of $0.13 per share in 4Q15 and above analysts’ estimates of $0.21 per share.
The main reason for the impressive performance is the change in the manner in which the company has reported the numbers for the December quarter. Without a change in the accounting methodology, Yahoo would have reported an 8% decline in the revenue. Even the “Mavens” (mobile, video, and social advertising) business would have reported a decline of about 5% without a change in the accounting practices.
The acquisition of Yahoo by Verizon was earlier slated to complete in the first quarter of 2017. However, Yahoo’s CEO Marissa Mayer stated that due to the “pending works”, the deal would get closed only in the second-quarter of 2017. The investors are more concerned with the closure of the deal than the performance of the company.
Analysts believe that Verizon would be more concerned about hacking related issues than the performance of the company in the recent quarter. Thus, considering the change in the accounting methodology which was primarily responsible for the company to beat estimates and pending acquisition deal, fundamentally, the stock would remain weak in the current quarter.
Technically, the resistance at the level of 45 continues to put downward pressure on the stock of Yahoo. The stock is trading above the August 2016 high. On the other hand the money flow index is still below the August high. This indicates that investors are not enthusiastic to make further investments in the stock.
So, a binary trader can purchase a put option contract to benefit from the probable downtrend of the stock. The contract can be bought from a binary broker when the stock of Yahoo changes hands at a price greater than $43.50 in major stock exchanges. The put option or its equivalent should remain valid for one week.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
