Implications for Google from Yahoo's Earnings (GOOG, YHOO)

Includes: GOOG, YHOO
by: Mark Mahaney

Mark Mahaney Smith Barney CitigroupCitigroup analyst Mark Mahaney on Yahoo's (YHOO) earnings Tuesday night, from his note to clients:

What do Yahoo!’s results imply for Google? We viewed Yahoo!’s search results last quarter (December) as a modest negative for Google. It’s the reverse this time. Or at least, the Yahoo! results give us more conviction in our Google estimates -- $1,474MM revenue and $1.98 proforma EPS.

We imagine that there will be a temptation on the part of some to extrapolate from Yahoo!’s results and materially increase GOOG estimates for the quarter. We’d be cautious about doing so. We compare below the Q/Q growth rates between Yahoo!’s reported TAC (traffic acquisition costs) and Google’s reported gross revenue. While the gap between these growth rates has materially widened the past two quarters, we’d point out that material one-timeish monetization improvements at Google and material weakness at Yahoo! Japan (one of Yahoo!’s largest affiliates) may have been major factors.