Morgan Stanley Yahoo! Inc. should reduce its employees to earn profit

Morgan Stanley Reports 55 Percent Increase in Quarterly Profits

Morgan Stanley analysts reiterated an Overweight rating for Yahoo stock, as they believe the company can have an upside potential if they slash their workforce.

Morgan Stanley analysts have reiterated rating of Overweight to the stock of Yahoo! Inc. and sustained $55 target price, as they think that company’s ownership in Alibaba Group Holding Ltd is underrated. Moreover, the latest fall in headcount of more than 11% can add around $3.90 each share.

According to analysts at Morgan Stanley, the search engine company has a huge number of staff, in contrast with their revenue base. Currently, they are classified at number 11th in the market of fourteen players on revenue and employee metric. At the moment, Yahoo is 74% below Facebook that makes around $370 in revenue over a single employee. However, Yahoo has 1.4 times more employees than social media giant Facebook.

Analysts be certain of that the search engine giant company should cut its operating expense by nearly $290 million in order to get flat “earnings before interest, taxes, depreciation and amortization”, which signify almost 11% cut in the headcount. Earlier, Morgan Stanley analysts impose the similar model on AOL Inc. that manages to surge its revenue over employee by more than $77,000 in 5years by reducing its headcount over 2.2K.

Analysts also emphasized on one of the major factor that can work as a positive catalyst for the company’s stock. As per the investment bank, Yahoo’s present ownership in Chinese e-commerce giant company is possibly undervalued and has the ability to escalate the price of the stock. The company also mentioned that after the spinoff of its stake in Alibaba, the main business of Yahoo Inc. is valued at six times fiscal year 2016 EBITDA which is similar to that of AOL.

The investment bank still thinks that the main operation of the company is still overestimated at $1.50 per share. Although, it can be improved if the multinational internet corp. provides any news related to its improvement in long term.  Almost 43 analysts, who were polled by Bloomberg, twenty nine assigned Buy rating to the Yahoo stock, thirteen suggested Hold rating, only one gave Sell rating. The twelve month consensus price objective is $56.94. The stock of the company has plunged roughly 11% in the current year.

Yahoo stock is down by 0.99% and trading at $45.18 at market close on Friday. The company has 52 week low and high stock price of $32.15 and $52.62, respectively. The Santa Clara based company has $42.29 billion of market capitalization and 6.06x price to earnings ratio.

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