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Yahoo! Inc. (Nasdaq: YHOO) Earnings Preview: "I'm Expecting Trouble"

Analysts have underestimated Yahoo!'s (Nasdaq: YHOO) earnings the past four quarters straight - every quarter since Chief Executive Office Marissa Mayer took the reins in 2012. The post Yahoo! Inc. (Nasdaq: YHOO) Earnings Preview: "I'm Expecting Trouble" appeared first on Money Morning - Only the News You Can Profit From .

nasdaq: yhooYahoo! Inc. (Nasdaq: YHOO) will report first-quarter 2014 earnings results after closing bell today (Tuesday). Analysts have underestimated the digital media giant's earnings in the past four quarters straight - every quarter since Chief Executive Officer Marissa Mayer took the reins in 2012.

In the most recent report from Q4 2013, earnings per share (EPS) came out to $0.46, shattering analysts' expectations of $0.38 by $0.08 per share. The digital media giant has additionally beaten its per-share profit projections in each of the past eight quarters.

For today's Q1 2014 report, individual EPS estimates range from $0.25 to $0.28, with a Wall Street consensus forecast of $0.37 per share according to analysts polled by Thomson Reuters. The prediction puts EPS slightly down year over year from $0.38 per share.

Q1 revenue is expected to total $1.077 billion - very close to the $1.074 billion revenue seen the same quarter a year ago.

Analyst expectations aren't high this quarter, for good reason.

"I'm expecting trouble," Money Morning Capital Wave Strategist Shah Gilani said Tuesday. "I am not optimistic that Yahoo had any revenue gains, not optimistic that it had any profit gain, and the Street is expecting a penny less than a year ago. And worst of all, I don't think Yahoo's $1.1 billion acquisition of Tumblr is doing anything than tumbling down itself."

Mayer has been vocal about her goal of jump-starting the company, which was notoriously sluggish from the end of 2008 through most of 2012. Since September 2012, YHOO stock has skyrocketed over 128%.

Stay tuned to Money Morning after market close today to see whether Mayer beat the Street once again.

In the meantime, there are two main factors that have been driving Yahoo's success - they are the numbers to watch in Tuesday's earnings release...

Two Keys to Yahoo's Earnings Today

A large part of the company's recent success has come from its refocus on the mobile platform. By the end of last year, Mayer's team managed to boost the number of unique monthly mobile users by 150 million in 14 months, up to around 400 million.

Triumph on mobile counteracts the decline Yahoo has seen over the years in revenue from the display ads and search ads divisions. That's because growth in mobile increases page views, and an increase in traffic means more content consumption for the website - and greater success with ads.

"With the average smartphone user tracking their phone more than 150 times a day, and the expected 2.7 billion smartphones in existence by 2017, our strategy is to proactively benefit from the platform shift to mobile," Mayer said in a January conference call.

"Revenue is critical. If it's flat or worse, if it fell in the quarter, it's going to be a struggle for the stock to go anywhere," Gilani said. "Whatever Mayer has to do to wring profits out of Yahoo's slim bag of tricks, she had better be doing it. Monthly users will be important, most especially for their mobile component."

Today, watch to see if there's continued growth in unique mobile users.

The second key in today's YHOO earnings will make or break YHOO growth...

Mayer's greatest strength is said to be in her ability to make quality acquisitions. In fact, the company enjoyed more acquisitions in its year and a half with Mayer than the previous 10 years combined.

In the last quarter report, Mayer insisted her approach will eventually pay off:

"I'm very pleased with our execution, especially as we've continued to invest in and strengthen our core business," Mayer said in Q4 2014 earnings release on Jan. 28. "In Q3, we launched new user experiences across many of our digital daily habits - Yahoo Screen, My Yahoo, Fantasy Sports, and more. Now with more than 800 million monthly users on Yahoo - up 20 percent over the past 15 months - we're achieving meaningful increases in user engagement and traffic."

As 2014 ticks on, YHOO stock investors should key in on the health and monetization of the acquisitions Yahoo is now leaning on to boost traffic and advertising.

Yahoo's 24% stake in the Chinese e-commerce giant Alibaba Group Holding Ltd. could be responsible for more than 50% of Yahoo stock value.

Alibaba is expected to make its public debut this year, but there's still no official date set. However, that hasn't stopped analysts and investors from speculating about the size of the company's initial public offering (IPO).

According to a February Reuters report, polled analysts estimated Alibaba could reach a valuation of more than $140 million - some four times the size of Yahoo itself - and is growing rapidly. That would value Yahoo's 24% stake at approximately $35 billion.

In Q2 2013, Alibaba generated $1.7 billion in revenue, $856 million in operating income, and $717 million in net income for Yahoo.

"Yahoo is banking on the Alibaba IPO to boost its price, and it should get a boost in November, if that's when the IPO is launched. In the meantime, all eyes will be on Alibaba's growth rate," Gilani said.

Another big acquisition to watch is Yahoo's 35% stake in Yahoo! Japan. The company is worth an increase of $7 per share to its American counterpart, according to Victor Anthony, managing director for Internet media at Topeka Capital markets, in an interview with The New York Times.

Yahoo! Japan generated $920 million in revenue and $480 million in operating income in Q3.

YHOO stock has remained relatively flat today ahead of earnings, down 1% to $33 per share as of 12 p.m. EDT.

Next: Not all bears are bad news. This map will help investors turn market fear into profits...

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The post Yahoo! Inc. (Nasdaq: YHOO) Earnings Preview: "I'm Expecting Trouble" appeared first on Money Morning - Only the News You Can Profit From.

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