Nomura Lowers Yahoo Price Target, But Maintains Buy Rating

Nomura on Thursday reiterated its buy rating on Yahoo Inc. but lowered its price target, citing the recent selloff in shares of Alibaba Group Holding Inc. , in which Yahoo holds a stake. The brokerage recently hosted a conference call on monetization trends at Alibaba, with Xi Liao, chief executive of Fan Xi Tech, which advises companies on prioritizing spending on e-commerce platforms. The conversation proved insightful with respect to key trends at Alibaba; however, we are lowering our Yahoo price target to $55 from $62 in light of the recent sell-off in Alibaba shares," Nomura analyst Anthony DiClemente wrote in a note. Alibaba has the ability to make more money as return on investment and conversion rates are higher on mobile platforms, which supports increased spend, said Liao. On desktops, the company can increase ad inventory on search pages, he said. Yahoo is unlikely to disrupt the user experience by adding more ads to search results, but its scale is a key advantage over rivals, said DiClemente. "Ad ROIs tend to be higher on competing e-commerce sites, but these sites lack the reach necessary to move the same amount of merchandise as BABA," he wrote. Nomura remains positive on Yahoo and its Alibaba stake with a new sum-of-the-parts cacluation implying 24% upside, assuming Alibaba is worth $33 a share in a tax-free spinoff, said the analyst. The company could also spin off its Yahoo Japan stake, he said. Yahoo shares were slightly higher in early trade, but are down 14.5% in the last three months, while the S&P 500 has gained about 2%.

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