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Analysts Disappointed By Yahoo’s Q3, Low Expectations For The Future

imageYahoo’s struggles are nothing new, and yesterday’s Q3 reconfirmed that the tough times will only continue. Aside from plans to lay off 10 percent of its workforce, Yahoo reported anemic 1 percent growth in revenue — $1.786 billion — and a 19.6 drop in net income to $153 million. Also, affiliate revs continued their series of quarterly declines, dropping 10 percent over last year; and while O&O display was up 3 percent, it represented a significant slowdown in growth. As for how some of the analysts who follow Yahoo saw it, most continue to believe that the company’s stock, which was trading around $12.60 — less than a third of where it was back in June when Microsoft (NSDQ: MSFT) was trying to acquire it — is still worth holding. But most remain skeptical about a turnaround before the end of 2009.

Bernstein finds positives, but not ’til ’09: Despite the poor performance this past quarter, Jeffrey Lindsay, a Bernstein Research senior analyst, feels that the cost-savings from the roughly 1,500 layoffs could start to turn things around at Yahoo (NSDQ: YHOO). “If management follows through with its promise to reduce headcount by 10 percent by the end of 2008, we could see a possible 300 bps improvement in margins by the end of 2009.” But for right now, Bernstein is lowering its revenue forecast for Yahoo and reducing its price target from $18 to $16. Lindsay’s full report is here. Other analysts’ views after the jump.

UBS’ six reasons to like Yahoo: In addition to the $400 million in expected cost savings, UBS internet analyst Ben Schachter cities five other factors that make Yahoo’s stock attractive: Yahoo’s sites are still heavily visited by users; the display strategy, if not the execution, is solid — especially considering the promises of the ad targeting and delivery platform APT; the Microsoft acquisition remains a possibility; other potential partnerships between rivals like Google (NSDQ: GOOG) and AOL (NYSE: TWX) could give the company a boost; and lastly, Yahoo’s cash and short-term investments, plus its share of its Asian investments, are worth approximately $7 per share.

JP Morgan’s dubious: Yahoo’s plan to rein in costs sounds good, but JP Morgan internet analyst Imran Khan doesn’t sound convinced that the company will get this right. “The company needs to be careful that cost containment does not slow investment in its core platform as we think this could lead to further market share and relevancy loss in the internet advertising space.” JP Morgan also believes that Yahoo is losing display market share to niche sites, suggesting that it aggressively develops its categories to combat audience fragmentation. Lastly, the analyst doubts that Yahoo’s search pact with Google will pass regulatory muster.

Needham remains cautious: Given the challenging environment Yahoo finds itself in, Mark May, Needham’s internet analyst, also doesn’t think the cost containment measures will amount to much, at least in the near term. Needham thinks the 2009 estimates for Yahoo are too optimistic and the analyst is lowering their expectations below consensus forecasts. They will maintain a cautious hold rating on Yahoo’s stock. Needham’s report is here (PDF).