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Yahoo! (YHOO) Set to Report Q3, But Investors Want Answers On a Possible Takeover and Alibaba Stake

Shares of Yahoo! (Nasdaq: YHOO) are trading lower ahead of the company's third quarter earnings report, expected out after the market closes today. Shares are down1.48% to $15.69 in early trading.

The company is expected to report an EPS of $0.15 on revs of $1.13 billion. Last quarter, Yahoo! posted an EPS of $0.15 on revs of $1.6 billion, both topping views. Last year, the company had a Q309 EPS of $0.15, $1.58 billion, which blew out the Street consensus.

Shares of the company have traded just about flat through the quarter, finishing about 0.6% higher at the end of September. The stock is currently down 8.2% on the year.

For a simple valuation, shares of Yahoo are trading at a forward P/E of 20.9x FY11 EPS estimates, compared to 14x for AOL LLC ( AOL ), and 19.5x for Google (Nasdaq: GOOG).

Data from Bloomberg shows that 15 analysts have a Buy rating on the shares, 21 have a Hold, and one suggests to Sell. The analyst price target consensus is $18.10, with a high of $21.00 and a low of $13.25.

Analyst Ratings Through the Quarter

In early July, Needham & Company pasted a Buy rating on the shares, with a $20 price target. The move boosted shares above $15 on the day.

ThinkEquity also upgraded the shares from Hold to Buy in July.

In August, Well Fargo started the shares with a Market Perform rating an $15 - $16 valuation range.

Southridge Research started the company with a Market Perform rating and $15 price target.

Also in August, Wedbush started the shares are Underperform, with a $13.25 price target. Notably, they referred to the company as YaWho? They see Yahoo! reporting an EPS of $0.15 on $1.12 billion in revs.

Finally, at the end of September, Gleacher & Co. started Yahoo! at Neutral. The stock has an attractive valuation , said Gleacher, but they were on the sidelines until more demonstrable signs of execution surface.


BGC Partners sees Yahoo! posting an EPS of $0.16 on revs of $1.6 billion. Their revenue estimate is based on 1.5% Y/Y growth. They are confident that Yahoo! will produce earnings growth, based on tighter controls and reduced costs with Microsoft (Nasdaq: MSFT) powering their search business. Display revs should show a modest sequential growth of 1.5%, and a Y/Y increase of 19%. They see third quarter search revs of $300 million, as revs in the segment have been slowly declining from $399 million in Q210 to $331 million last quarter. BGC has a Hold rating on the shares with a price target of $16.25.

According to a note Monday , Needham & Company is maintaining their Buy rating on Yahoo!, with a $20 price target, and are expecting an encouraging earnings report. Gains should be driven by recent search market share gains, recent strengthening in the display ad market, continued margin expansion, and share repurchases.

Citi is looking for Yahoo to post an EPS of $0.17 on revs of $1.6 billion. Citi believes that revenue estimates are reasonable following channel checks, with no big variations expected.

Some big moves were made for the company over the last few months as well, with a $3 billion stock buyback plan kicking off the quarter, a partnership formed with Gannett ( GCI ) to localize advertising, and their HotJobs! Segment was sold to Monster ( MWW ) for $225 million, while Yahoo! retained Monster as its exclusive provider of career and job content on the Yahoo! homepage in the U.S. and Canada.

With Apple, Google, and IBM (among others) have all beat expectations handily this quarter, investors may now be expecting a great quarter from the company, as good may just not be good enough.

While it will be important for Yahoo! to post solid results, there will be two big topics investors will be clamoring for info on. One is the recent reports suggesting that AOL ( AOL ) is teaming with private equity firms to buy Yahoo!. The other is its 39 percent Alibaba stake. Analysts have said the stake could be worth up to $11 billion, are see the company monetizing it although the CEO denied recent sale speculation.

Yahoo! Inc. is expected to release their Q310 earnings on Tuesday, October 19, 2010, at approximately 4:00pm EDT.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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