Yahoo! Inc. (YHOO) is set to report FQ4 2013 earnings after the market closes on Tuesday, January 28th. In 2005, Yahoo purchased a $1billion stake in Alibaba, a privately traded group of Chinese e-commerce websites. This deal has turned out to be one of the best moves that Yahoo has ever made. In 2012, Yahoo sold 40% of its stake for $7.6billion. This year Alibaba is set to IPO, and with current valuations between $100-190 billion, Yahoo will likely find itself with a mountain of cash.
Since new CEO Marissa Mayer took over in July 2012, Yahoo stock has more than doubled, largely thanks to the growth and increasing valuation of Alibaba. When Alibaba goes public, Yahoo will be forced to sell 208 million of its 523.6 million shares, a number that Yahoo recently had lowered hinting they probably want to retain some shares to accumulate more profit from Alibaba's high rate of growth. Alibaba has disrupted e-commerce by managing a network of online shopping websites where businesses can sell products directly to consumers, and Alibaba makes money through advertising.
Over the past couple of years, Mayer has not necessarily focused on growing Yahoo's revenue. Instead her self proclaimed strategy has been to focus on creating engaging products that users touch every day. Yahoo now touts over 400 million monthly users excluding Tumblr. At Consumer Electronic Show earlier this month Mayer unveiled Yahoo's acquisition of Aviate, a mobile app which modifies users' homescreens contextually based on where they are and what they're doing. This acquisition is further demonstration of Yahoo's commitment to everyday user engagement. While Yahoo is doing well in terms of growing its user base, year-over-year revenue is expected to fall this quarter. The internet giant may look to spend cash from the Alibaba IPO to get its own revenue growth back on track. Here's how the buy-side is expecting Yahoo to perform this quarter.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for Yahoo to report 38c EPS and $1.203B revenue while the current Estimize.com consensus from 46 Buy Side and Independent contributing analysts is 39c EPS and $1.210B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Yahoo to beat Wall Street expectations on both profit and revenue.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the 2 groups' forecasts.
Over the previous 2 years, Yahoo has established a great track record of beating Wall Street expectations on profit. Yahoo has beaten the bottom line forecast 8 quarters in a row and analysts on the Estimize.com platform are expecting them to do it again Tuesday. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The distribution of estimates published by analysts on Estimize range from 33c to 42c EPS and $1.199B to $1.245B in revenues. This quarter we're seeing a moderate distribution of estimates compared to previous quarters.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A larger distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.
The Wall Street EPS consensus dropped throughout the quarter from a starting point of 41c to 38c. The Wall Street revenue also fell lower throughout the quarter, from $1.248B to $1.203B. The Estimize EPS consensus also dipped from 40c to 39c while the Estimize revenue consensus sank from $1.228B to $1.210B. Timeliness is correlated with accuracy and at the very end of the quarter we saw the revenue consensus from both Estimize and Wall Street tail off.
The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects 40c EPS and $1.210B in revenue. In the Winter 2014 season, WallStreetBean is currently ranked as the 17th best analyst and is ranked 9th overall among over 3,500 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, the highest rated estimate is forecasting Yahoo to beat both Wall Street and Estimize on profit but report between the two groups on revenue.
This quarter analysts on the Estimize.com platform are expecting Yahoo to beat the Street on both profit and revenue. Since Marissa Mayer took over as CEO, Yahoo has beaten the Wall Street consensus on profit in each quarter. Revenue has been less predictable and this quarter analysts from both Estimize and Wall Street are expecting a small year-over-year decline.
Disclosure: No positions