Yahoo Earnings Preview: Earnings Beat Expected

We see potential for a nice earnings beat when Yahoo [[YHOO]] reports their first quarter 2010 results after the market closes on Tuesday, April 20.


Yahoo has been limping along for the last few quarters after famously spurning Microsoft’s [[MSFT]] premium takeover offer. However, there are signs of improvement in Sunnyvale these days.   


In the first quarter, Yahoo continued streamlining their business by divesting HotJobs for $225 million to Monster Worldwide [[MWW]] and selling Zimbra for an undisclosed amount. Yahoo has also benefited from strengthening in display advertising as marketing budgets are expanding in 2010.


In February, Yahoo CEO Carol Bartz appeared on CNBC and emphasized that Yahoo is “marching forward” and that she will prove it. EVP Hilary Schneider then indicated at the Goldman Sachs technology conference that due to quicker-than-expected regulatory approval on the Microsoft deal, Yahoo now will receive some “unexpected benefits” in the first quarter. These “unexpected” reimbursements are not currently included in the consensus expectations and are likely to provide upside to Yahoo’s first quarter results.


In 2009, Yahoo’s shares gained over 37%, but significantly lagged the amazing performances of their internet peers like Google (up 101%), Priceline (up 197%) and Amazon (up 162%). This year, Yahoo has been moving in sequence with the Nasdaq and their stock is up nearly 10%.


On January 26, Yahoo provided first quarter gross revenue guidance of $1.575 – $1.675 billion and operating income of $90 – $110 million. The current Wall Street consensus estimates are for revenues of $1.17 billion and EPS of $.09. We at are forecasting slightly better revenue of $1.19 billion and $.11 EPS.




Yahoo is now trading at 30x consensus 2011 EPS estimates. This is above the relative valuations of their peer group. While Yahoo’s shares may see a small lift from the positive earnings surprise, but there is probably limited upside given the current valuation levels.


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