Yahoo Earnings Preview: First Quarter 2009

Yahoo [[YHOO]] is scheduled to report their first quarter 2009 results after the market closes on Tuesday, April 21. Based on our analysis, we at are expecting YHOO to report inline results that meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $1.18 billion and EPS of $.08. This would represent a 13% decline in revenues from last year’s $1.35 billion in the same period. The current analyst consensus estimates calls for revenues of $1.20 billion and $.08 EPS.


Recently released comScore data shows that Yahoo’s U.S. search queries grew 25% in the first quarter. That’s below Google’s 43% growth, but Yahoo’s search market share appears to have stabilized at 20.5%.


Of course the real story of the earnings conference call will be the latest negotiations between Yahoo and Microsoft [[MSFT]]. The Wall Street Journal recently reported that both companies have re-opened conversations. The latest rumor in this ongoing saga has Yahoo outsourcing their search business to Microsoft in exchange for the right to serve display ads on Microsoft’s web properties.


We believe that a Microsoft-Yahoo deal will eventually take place, and believe that it will likely be a positive development for Yahoo. However, the reality is that Yahoo is facing one of the worst advertising environments in decades. We would expect CPM’s to continue to fall as businesses reduce their advertising spend and see little likelihood of improvement for the rest of 2009.


Share Performance

Yahoo’s shares are up over 14% since the beginning of the year. In 2008, Yahoo’s shares fell almost 48%, as it underperformed the 34% decline in the Dow Jones index.



Shares are now trading at 32x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. It appears that the market is still valuing Yahoo based on a potential Microsoft deal. Given the risk surrounding those conversations and the intense competitive environment that Yahoo now faces, we would avoid their stock until we see an improvement in the economy.


Recommendation: Hold with a $12 price target.


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