Yahoo Inc. (NASDAQ:YHOO) is set to report FQ1 2014 earnings after the market closes on Tuesday, April 15th. At this point in time, the story of Yahoo revolves entirely around the company's stake in Chinese e-commerce website Alibaba (ABABA). Yahoo holds a 21% stake in Alibaba, which is expected to IPO this year, and fetch a valuation potentially higher than $100 billion. CEO Marissa Mayer continues to put pieces in place to capitalize on the windfall of cash Yahoo is expected to have after Alibaba goes public. Since joining Yahoo, CEO Marissa Mayer has increased profitability but some analysts are still skeptical about the company's sluggish revenue growth. Here's what investors expect from Yahoo on Tuesday.
The current Wall Street consensus expectation is for Yahoo to report 37 cents EPS and $1.076B revenue while the current Estimize.com consensus from 51 Buy Side and Independent contributing analysts is 41 cents EPS and $1.085B in revenue. This quarter, the buy-side as represented by the Estimize.com community is expecting Yahoo to beat the Wall Street consensus on EPS by a comfortable margin and surpass revenue expectations by a small differential.
Over the past 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting YHOO's EPS and revenue 5 times and once respectively. 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 more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations.
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 larger differential between the two groups' EPS expectations and a small difference in revenue forecasts.
The distribution of estimates published by analysts on the Estimize.com platform range from 34 cents to 51 cents EPS and from $1.063B to $1.150B in revenues. This quarter we're seeing a wider distribution of estimates on Yahoo, especially on EPS.
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 wider distribution of estimates signaling less agreement in the market could mean greater volatility post earnings. (click to enlarge)
Over the past 4 months, the Wall Street EPS consensus fell from 41 cents to 37 cents while the Estimize.com consensus declined from 43 cents to 41 cents. Meanwhile, the Wall Street revenue consensus receded from $1.090B to $1.076B while the Estimize forecast gradually slipped from $1.101B to $1.085B. Timeliness is correlated with accuracy and downward analyst revenue revisions at the end of the quarter are often a bearish indicator. However, expectations have been mostly flat going into the report.
The analyst with the highest estimate confidence rating this quarter is TechStockRadar who projects 38 cents EPS and $1.082B in revenue. TechStockRadar is ranked 16th overall among over 4,000 contributing analysts. Over the past two years TechStockRadar has been more accurate than Wall Street in forecasting EPS and revenue an impressive 66% and 64% of the time, respectively, throughout 392 estimates. 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, TechStockRadar is expecting Yahoo to beat Wall Street's estimates but fail to live up to the consensus of the Estimize community.
While investors will be watching Tuesday's earnings report, all eyes will be on Yahoo when Alibaba finally goes public. CEO Marissa Mayer has been demonstrative about her strategy of focusing on everyday and mobile engagement with a wide base of Yahoo users. Some analysts have begun to make predictions on our mergers and acquisitions platform Mergerize about how Mayer might spend the cash. So far the most popular prediction is that Yahoo might buy restaurant rating and review site Yelp.com for over $8 billion. Contributing analysts on the Estimize.com platform expect Yahoo to report 7.9% growth in year over year EPS but only a 1% gain in yoy revenue.