Yahoo Earnings Preview: Improving Business Outlook

Yahoo [[YHOO]] is scheduled to report their fourth quarter 2009 results after the market closes on Tuesday, January 26th. Based on analysis from EarningsPreviews.com, Yahoo is expected to report better than expected quarterly results that will exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $1.24 billion and EPS of $.14. This would represent a 10% decline in revenues from last year’s $1.38 billion in the same period. The current analyst consensus estimates calls for revenues of $1.23billion and EPS of $.11.

 

Earnings Analysis

Yahoo likely benefited from a surge in ad spending as retailers moved aggressively to capitalize on the 2009 holiday season. While Yahoo continues to be pinched by their declining search market share, their leading display business is already benefitting from stabilization in the economic environment. Even Yahoo’s controversial new homepage design appears to be slowly increasing user engagement levels.

 

Economic headwinds should subside for CEO Carol Bartz in 2010 compared to the struggles she has faced in her first year on the job. Display advertising appears set for a legitimate rebound in 2010 and we expect Yahoo to continue to shed its non-core assets like HotJobs. Increasing consumer confidence and a stronger business outlook could result in net revenues growing 5% in 2010 ahead of Wall Street’s current consensus forecast of only 3.8% growth.

 

Stock Performance

Yahoo stock gained an impressive 37% in 2009 and outperformed the Dow Jones industrial average’s 19% increase.

 

Valuation

Yahoo’s stock is now trading at 35x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. Strong fourth quarter results and an improving business environment is likely to lift Yahoo’s shares again in 2010.

 

Recommendation: Buy with an $18 price target

 

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