Yahoo! Inc.
(
YHOO
) is scheduled to announce its fourth-quarter 2011 results on
January 24, 2012. We witness limited movements in analyst estimates
in the build-up to the release.
Prior-Quarter Synopsis
Yahoo's third-quarter non-GAAP earnings were up 17.8%
sequentially and 38.0% year over year, which was encouraging and
much better than what most investors were expecting. The primary
reasons for the earnings growth were lower-than-expected operating
expenses, a lower tax rate and lower share count.
Revenue was down 1.0% sequentially and 24.0% year over year to
$1.22 billion, due to lower-than-expected Display and Search
revenue. However, gross margin was up 67 basis points (bps)
sequentially and 1,299 bps year over year to 70.5%. Besides, lower
cost of sales from both the previous and year-ago quarters and
solid cost control measures supported the gross margin in the last
quarter.
Fourth Quarter Guidance
Yahoo expects revenue (ex-TAC) of $1.14 billion, or up 16.2%
sequentially. TAC is expected to be $150-160 million and other
costs are anticipated to be $925-975 million. This is expected to
generate operating income of $200-260 million.
(Detailed earnings results can be viewed in the blog titled:
Yahoo Results Better Than Expected
Agreement of Analysts
Out of the 24 analysts providing estimates for the fourth
quarter, one analyst made an upward revision in the last 30 days.
Over the same period, 2 analysts made upward revisions while one
made a downward revision for fiscal 2011.
A handful of analysts expect a decent fourth quarter, with
revenue coming in line with the Street Consensus Estimate of $1,193
million. They also expect strong margins due to solid cost control
and restructuring initiatives taken by management.
On the contrary, the majority expect Yahoo to report below
consensus fourth-quarter results due to share losses in its core
business lines, display and search, and poor execution. They expect
continued turmoil in Display ad sales due to the changing
leadership and believe that the recent change in selling strategy,
which denies access of certain Yahoo! class 2 inventory to
resellers, might lead to a revenue shortfall in the near term.
Additionally, the analysts believe that Yahoo! will continue to
lose share in the paid search market to its competitors,
Google Inc.
(
GOOG
) and
Microsoft Corp.
(
MSFT
).
Magnitude of Estimate Revisions
In the past 30 days, there was no change in the Zacks Consensus
Estimate for the fourth quarter and fiscal year 2011.
Over the 90-day period, the Zacks Consensus Estimate increased a
penny to 24 cents for the fourth quarter but remained unchanged at
80 cents for fiscal 2012.
Our Recommendation
Though Yahoo remains one of the biggest Internet names and also
has a position in online search, we remain uncertain about Yahoo!'s
strategic direction. Further, the Microsoft Search transition
is not going smoothly andYHOO's Display segment is also facing
significant competition.
As the search-related issues are likely to continue for a few
more quarters, we are unlikely to see very strong revenue growth in
the near term. Though gross margin numbers could improve due to
solid cost control measures, continued investment in the business
(particularly product development and sales), is likely to be a
pressure on operating margins.
With the new CEO Scott Thompson, we believeYHOO will be a
wait-and-see turn-around story. Though Thompson's appointment has
potentially sealed the door for any further sale of the company as
a whole, we are now more optimistic about the possibility of Yahoo!
divesting its stake in Alibaba as well as a sizeable share in Yahoo
Japan after the departure of Jerry Yang. We believe that Yahoo's
shareholder meeting on February 24 and the liquidation of its Asia
assets could be near-term catalysts for the shares.
Yahoo shares carry a Zacks #3 Rank, implying a Hold rating in
the near term (1-3 months).
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
YAHOO! INC (
YHOO
): Free Stock Analysis Report
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