Yahoo Earnings Preview: Second Quarter 2009

Yahoo [[YHOO]] is scheduled to report their second quarter 2009 results after the market closes on Tuesday, July 21. Based on our analysis, we at are expecting YHOO to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $1.16 billion and EPS of $.10. This would represent a 14% increase in revenues from last year’s $1.35 billion in the same period. The current analyst consensus estimates calls for revenues of $1.14 billion and EPS of $.08.


After several tepid quarters, Wall Street appears to be simply taking a wait-and-see approach with Yahoo these days. However, we expect that YHOO set an exceptionally low bar with their latest guidance projections and anticipate a clean beat this quarter. In addition, our check have shown the online advertising market improved noticeably over the first quarter of this year with pricing increasing and marketing budgets opening up.


Looking ahead it’s still hard to envision what a new Yahoo will look like. Clearly new CEO Carol Bartz is looking to make Yahoo a much leaner organization and is committed to selling-off Yahoo’s non-essential or underperforming assets. It also appears that any potential deal with Microsoft [[MSFT]] has likely been moved to the backburner for now. We would expect that Bartz’s cost cutting measures along with an improving economic environment will lift Yahoo’s shares regardless of any future Microsoft chatter.


Share Performance

Since the beginning of the year, Yahoo’s shares are up 24%. In 2008, YHOO’s shares fell 48% and badly underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 36x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. With an improving online advertising environment, we believe there is upside to Wall Street’s current 2010 estimates.


Recommendation: Buy with a $16 price target.


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