Yahoo! Inc.
(
YHOO
) is scheduled to announce its second-quarter 2012 results on July
17, 2012. We witness a single upward movement in analyst estimates
in the build-up to the release.
Prior-Quarter Synopsis
Yahoo's first-quarter non-GAAP earnings were up 22.3% sequentially,
better than what most investors were expecting. The primary reasons
for the earnings growth were a lower tax rate and lower share
count.
GAAP revenue for the quarter was down 7.8% sequentially and up 0.6%
year over year at $1.22 billion. The sequential decline was due to
lower-than-expected display revenue in the quarter. The gross
margin was down 278 basis points (bps) sequentially and 151 bps
year over year at 67.4%. The operating margin also shrunk in the
quarter due to significantly higher S&M expenses.
Second Quarter Guidance
Yahoo expects revenue (ex-TAC) of $1.08 billion, down 11.2%
sequentially. TAC is expected to be $140-$150 million and other
costs $915-$945 million. This is expected to generate operating
income of $115-$195 million.
(Detailed earnings results can be viewed in the blog titled:
Yahoo Tops, But Guides in Line )
Agreement of Analysts
Out of the 23 analysts providing estimates, none revised the
estimate for the second quarter, in the last 30 days. Over the same
period, 1 analyst made an upward revision for fiscal 2012.
The majority of analysts expect a decent second quarter, with
revenue coming in line with management guidance. Though they do not
expect any upside to the display estimates in the second quarter,
they believe that the display business can return to double-digit
growth in the third quarter. The analysts believe that the
company's restructuring initiatives will better align cost with
revenue, thereby improving the margin profile.
A few analysts remain optimistic about Yahoo shares as the company
sells up to half of its stake in Alibaba, or approximately 20% of
its shares, back to the Chinese e-commerce company for about $7.1
billion. The company intends to distribute all its after-tax cash
proceeds from the deal to shareholders, most likely in the form of
stock buybacks.
However, a bunch of analysts remain cautious about the headwinds
that Yahoo! Continues to see in its core display and search
businesses. They remain concerned about search volumes and believe
that the organizational turmoil will cause the company to grow at a
slower pace in the near term than it might otherwise have done.
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
). Hence, they do not expect strong second-quarter results.
Magnitude of Estimate Revisions
In the past 30 days, there was no change in the Zacks Consensus
Estimate for the second quarter as well as for fiscal 2012.
Over the 90-day period, the Zacks Consensus Estimate was up by a
penny to 20 cents for the second quarter and by 12 cents to 94
cents for fiscal 2012.
Our Recommendation
Though Yahoo remains one of the biggest Internet names and has a
position in online search, it has been up against strong
competition in search from archrival Google for some time now.
Though in the first quarter, search revenue increased sequentially,
we expect search market share to deteriorate further and
search-related issues to continue for a few more quarters.
The interim CEO Ross Levinsohn is working on areas other than its
search business to drive revenue. We believe that the company is
focusing on improving its content and looking to protect its share
in the display and video ad market. Last month, the company signed
content sharing deals with Spotify and Clear Channel to boost its
online user base. Others include agreements with CNBC and
Walt Disney's
(
DIS
) ABC Television Group.
Very recently, Yahoo signed a new advertising partnership with
Facebook
Inc. (
FB
), settling all their pending patent lawsuits. This is a big
positive for Yahoo as it was spared from a long-drawn legal
dispute.
Though Ross Levinsohn has been trying to grab all possible
opportunities, we still don't see a turnaround in the business. To
make matters worse, the management turmoil continues following the
dismissal of its third CEO Scott Thompson in just three years. We
expect the company to formally announce Ross Levinsohn as its new
CEO during its second-quarter earnings announcement, which should
eliminate the uncertainty around its management team.
In the upcoming second quarter, we are unlikely to see robust
revenue numbers due to weakness in both the display and search
businesses. However, gross margin figures could come above
expectations due to cost control measures taken by management.
Yahoo shares carry a Zacks #2 Rank, implying a Buy rating in the
near term (1-3 months).
DISNEY WALT (DIS): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
MICROSOFT CORP (MSFT): Free Stock Analysis
Report
YAHOO! INC (YHOO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research