Earnings Preview: Yahoo

| About: Yahoo! Inc. (YHOO)

Yahoo (NASDAQ:YHOO) is expected to report Q2 earnings after the market close on Tuesday, July 20, with a conference call scheduled for 5:00 pm ET.


The consensus estimate is 14c for EPS and $1.16B for revenue, according to First Call. Shares of Yahoo! are down 18.3% since its Q1 earnings call on April 20 when the company reported revenues below the midpoint of guidance and consensus, although profitability was slightly better. The Q2 guidance offered a lower revenue outlook and slightly higher profit outlook than Street estimates at that time.

Analyst Views

Jefferies believes that strong Display results and less weak Search operations should allow Yahoo! to report in-line/slightly better than expected Q2 results. The firm recently raised its Yahoo! estimates to reflect stronger demand in U.S. Display advertising, and maintained its Buy rating on a compelling valuation, an improving ad market and near-term margin expansion potential. Jefferies now expects Q2 "owned & operated", or O&O, to grow by 20% vs. +15%, previously. This and other tweaks got the firm to Q2 net revenues and EPS of $1.17B and $0.15. Search to remain challenged says Jefferies, though the transition to migrate its organic search to Microsoft's (NASDAQ:MSFT) Bing in Aug./Sept., and sponsored search by the holidays is on schedule. Adjusting for contextual searches, Yahoo's search share was down ~20bps quarter-over-quarter vs. 70bps and 150bps in 1Q10 and 4Q09, respectively. Jefferies expects Yahoo's O&O Search revenues to decline by ~5% year-over-year in Q2. Looking forward: Q3 guidance will likely be in-line. For Q3, current consensus for revenue, EPS and EBITDA stands at $1.16B, 16c and $407M, respectively. Jefferies expects management to guide to Q3 only, and that such guidance will be in-line with Street expectations.