Yahoo Earnings Preview: Fourth Quarter 2008

Yahoo [[YHOO]] is scheduled to report fourth quarter 2008 results after the market closes on Tuesday, January 27. Based on our analysis, we at are expecting YHOO to report disappointing results that fail to meet Wall Street’s expectations.


Analyst Expectations

We are forecasting revenues of $1.33 billion and EPS of $.15. This would represent a 5% decline in revenues from last year’s $1.4 billion in the same period. The current analyst consensus calls for revenues of $1.38 billion and $.17 EPS.


While we expect Yahoo to report disappointing Q4 results based on the challenging economic environment, the real story will be in the company’s 2009 guidance and strategy for the future. We expect 2009 guidance could be lower than Wall Street is currently estimating as advertising budgets are being cut drastically as the economic headwinds intensify.


Yahoo will probably be given a pass regardless of what Q4 results are as Wall Street is more concerned now with what actions Carol Bartz will take to reinvigorate the company. Most importantly of course is whether any deal with Microsoft is in the foreseeable future.


Weak consumer demand coupled with a deteriorating advertising environment will make for a challenging 2009. However, we continue to believe that there is tremendous value in Yahoo’s assets and expect that new management may be able to leverage those assets more effectively. In addition, we would expect a search deal with Microsoft to be consummated in the first half of 2009 which should provide a boost to the share price.


Share Performance

Yahoo’s shares are up 7% since the beginning of the year. In 2008, Yahoo shares fell 48% poorly underperforming the Dow Jones index’s 34% decline.



Shares are now trading at 25x consensus 2009 EPS estimates. This is a premium to the relative valuations of their peer group. While we believe there is a lot of untapped value in Yahoo’s assets, we expect that the shares may sell off further following the quarterly results.     


Recommendation: Hold with a $12 price target.


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