Yahoo's first quarter: Everything but the numbers
Yahoo will unveil its first quarter earnings on Tuesday and there plenty of sideshows to distract observers from the actual financial figures.
To wit:
- Yahoo CEO Carol Bartz reportedly has a restructuring planned to make things more efficient. For Yahoo, it's the third round of layoffs in 14 months.
- How have Bartz's first 100 days in office gone?
- Yahoo tendered its stake in Gmarket to eBay for a tidy gain of $121 million or so. Does this mean Yahoo will cash in on its other international holdings?
- And that never-ending item: What's Bartz's take on her powwow with Microsoft CEO Steve Ballmer. Is there a search outsourcing deal in the works?
Aside from the few quips from Bartz ,those questions will likely go unanswered. Nevertheless, the detours can easily deflect from a first quarter that's expected to be a bit ho-hum (which in Yahoo's case isn't a bad thing).
Yahoo is expected to report earnings of 8 cents a share on revenue of $1.2 billion, according to Thomson Reuters. Few Wall Street analysts expect Yahoo to beat or miss those totals by much. Simply put, Yahoo is in the middle of a slow turnaround.
That state leaves the sideshows.
For instance, Stifel Nicholas analyst George Askew raises the questions about Yahoo's international portfolio.
We have long argued that Yahoo! should take steps to more aggressively monetize the considerable value of its portfolio of Asian Internet assets given the limited financial benefit of the holdings to Yahoo! shareholders. We would prefer to see the company exit these holdings in a tax-friendly manner and repurchase perhaps 20% of Yahoo! shares with the proceeds.
That's not a bad idea. A dividend might be better though.
Wunderlich Securities analyst Martin Pyykkonen is honing in on Bartz's master plan, which should be focused on a Microsoft deal, monetizing its portfolio and becoming more social.
We expect at least more clues about Yahoo!'s action plans this year under Bartz. It's time for the company to deliver on its recent claims of dealing from a position of strength regarding a search and/or display partnership with Microsoft (MSFT: NR). Divesting the Asia/Pacific assets (ex: Alibaba, Yahoo! Japan) could unlock shareholder value. Leveraging social networking trends is needed for Yahoo! to regenerate revenue growth.
And then there's the elephant in the room: Microsoft. (Did it ever leave?)
Clearly Wall Street types are for a deal with Microsoft. Jeffries analyst Youssef Squali writes:
We believe that Yahoo!'s CPM business will rebound once the economy recovers. In the meantime, Yahoo could further strengthen its display lead by consolidating Microsoft's inventory. Moreover, Yahoo could improve the display CPMs for the combined premium and remnant inventory through a) gaining scale and becoming the largest display network on the Web, b) leveraging its existing sales force, its entrenched relationships with media buyers, and its display monetization platform APT, and c) targeting display ads based on search data for better ROI.
Meanwhile, the math adds up for a Yahoo-Microsoft partnership. A 50/50 revenue share in a deal where Yahoo served display ads on Microsoft sites would yield $600 million to $800 million in incremental revenue.
As you can see all of those aforementioned items are a lot more important than how Yahoo did this quarter. It's more of the same for Yahoo and that's not exactly good. Pyykkonen sums up the consensus view:
Our bias on Yahoo!'s stock is negative based on recent performance and our near-term outlook. At a minimum, we would need to see RPS (Revenue per Search) rebound to double digit y/y growth, positive affiliate fee revenue growth (vs. past eight quarters of y/y declines) and improved demand for Yahoo!'s premium display inventory to be more positive on the stock.