Yahoo! Inc. (NASDAQ:YHOO) reports its fourth quarter earnings tonight, and many analysts agree that the company’s financial situation is hanging on the thread of its stake in Alibaba. So what can we expect when the search giant reports? Trefis analysts (writing on Forbes) aren’t expecting much in terms of Yahoo’s core business.


Yahoo shares outperformed in 2013

The Trefis team notes that in spite of Yahoo! Inc. (NASDAQ:YHOO) stock’s outperformance in 2013, its core advertising revenue has continue to decline. For example, in the third quarter, its display ad revenue fell 7% year over year, while search ad revenue fell 8%.

Meanwhile, Yahoo! Inc. (NASDAQ:YHOO) is still launching new advertising and content products and redesigning its offerings with the goal of improving the experiences of users and increasing the number of unique visitors its pages get. However, the company’s efforts have largely failed, for the most part. Tonight’s earnings report will be especially important because investors and analysts will be looking for signs that Yahoo’s core business is recovering.

Valuing Yahoo’s advertising businesses

According to Trefis’ model, Yahoo! Inc. (NASDAQ:YHOO)’s display ads make up 13% of its value, while its search ads make up 14%. Both of those businesses have declined, but Yahoo is trying to counteract those declines by enhancing its mobile platform. ZenithOptimedia estimates that the mobile ad business will grow to $33 billion over the next couple of years and make up more than a quarter of all Internet spending.

In the third quarter, Yahoo! Inc. (NASDAQ:YHOO) reported about 390 million unique users for its mobile platform. That growth was especially important as the company tries to increase the number of page views it receives across its Web properties. Investors and analysts will be looking at this number for signs of growth, and Trefis analysts say they want to see what kind of impact Yahoo’s mobile search growth will have on the company’s revenue per search.

They note that Yahoo! Inc. (NASDAQ:YHO) signed a deal with Starcom which provides Starcom exclusive access to the search giant’s first-party visitor data and content. The goal of this deal was to enable Yahoo to offer targeted video ads. The Trefis team expects monetization in this area to improve as well, pushing revenue per page view higher

Examining Yahoo’s “associate companies”

And of course Yahoo! Inc. (NASDAQ:YHOO)’s investments in Alibaba and Yahoo! Japan are also expected to play a major role in tonight’s report. The main reason investors have been so enthusiastic about Yahoo over the last year or so has been because of Alibaba’s excellent performance. During the second quarter of last year, Alibaba generated revenues of $1.7 billion in revenues. Yahoo! Japan was also a key asset for the search giant, generating $920 million in revenues during that quarter.

The Trefis team expects that these trends will continue in tonight’s report and positively impact Yahoo! Inc. (NASDAQ:YHOO)’s financials and stock. However, they still value the search giant at $31.17 per share, which is lower than the current share price.