Yahoo! Earnings Preview... Beyond the Numbers (YHOO, GOOG, MSFT)

Yahoo! Inc. (NASDAQ: YHOO) is set to report earnings after the closing bell.   While the distant number-two search player is still in the midst of a turnaround, the report is unlikely to have many secondary or tertiary reactions from the likes of Google Inc. (NASDAQ: GOOG) nor in Microsoft Corp. (NASDAQ: MSFT).  Thomson Reuters has estimates pegged at $0.11 EPS and $1.23 billion in revenues.  As a reminder, those revenues will be higher on the headline data as these are ex-TAC revenue projections.

Last quarter the company had some $4.5 billion in cash and equivalents.  Guidance for the existing report was offered as follows:

• GAAP revenue for the fourth quarter of 2009 is expected to be in the range of $1.6 to $1.7 billion.
• Non-GAAP operating income before depreciation, amortization, and stock-based compensation expense in a range of $400 to $450 million.
• Income from operations in the range of $135 million to $155 million.

Thomson Reuters has estimates for next quarter at $0.10 EPS and $1.16 billion in revenues.  It seems unlikely that Yahoo! would make any bold predictions for the full fiscal-2010 ahead, but if it does the Thomson Reuters estimates there are $0.47 EPS and $4.84 billion in revenues.  For a  comparison, that would imply over 8% earnings growth and 4% revenue growth.

The 52-week trading range is $10.81 to $18.02, but that is dwarfed by the near-$30 handles seen after Microsoft’s buyout offer was botched so badly by Jerry Yang.  The stock has effectively not traded under $15 for a 4-month period now.  But $17.20 or so  has been some pretty strong resistance all of January and $18.00 had been some extreme resistance back in October.

Analysts have an average price target north of $19.00 today.  What is interesting here is that the 50-day moving average is $16.07 and the 200-day moving average is $15.74.  That leaves the stock in a wedge right here with shares two pennies above $16.00.  The FEB2010 stock options still have significant time value of about four weeks, but it appears as though options traders are braced for a move of up to 4% in either direction.

Yahoo! has effectively been unable to keep its old hold from slipping gradually.  The good news is that the loss has been very gradual in the last year and the focus from Carol Bartz on the turnaround seems to be keeping the losses from happening.  It is hard to know what the real goals for overall share are with Google dominating so much of the search market.  But Yahoo! has its own site-owned content and it seems as though Carol Bartz wants the focus on that rather than just on the percentage of search market share.  The new site design was also meant to be more specific with more focus rather than every aspect of the content world.  The layoffs in 2009 and mandatory time-off also yields credibility that Bartz really does want to focus more on absolute earnings.

A wild card will be if the company decided to address more monetization of its international assets and if certain non-core operations are going to be sold or closed.  The company effectively has yet to see a penny from the Microsoft pact, but that has now at least been finalized.  Many will try to say that Yahoo! is still a sector mover, but unless the company shows that it is getting back much its lost mojo then we won’t buy into that notion.

JON C. OGG