Analysts at RBC Capital Markets believe that Yahoo! Inc. (NASDAQ:YHOO)’s management took the right steps in refocusing its product design. According to them, the company’s initiative could lead to early product win. However, they speculated that the potential turnaround of Yahoo!’s core business could take one to two years.

Yahoo! Inc. (YHOO) Q1 Earnings Preview

Yahoo! Inc (NASDAQ:YHOO) is scheduled to report its first quarter earnings result today. RBC Capital Markets analysts anticipate that the company’s net revenue (ex TAC) will be slightly below consensus at approximately $1.08 billion. The consensus estimate was $1.10 billion. They expect the company to post $353 million EBITDA and $0.22 non-GAAP EPS, lower than the $0.24 EPS consensus estimate.

According to the analysts, the consensus estimate for Yahoo! Inc (NASDAQ:YHOO) is reasonable based on their intra-quarter data points, channel checks, and model sensitivity work.

The analysts believe that the company’s desktop search query share in the United States is still declining. Based on data from comScore, Yahoo!’s search query share in January and February dropped by 17bps and 49bps month-over-month, respectively. They also said that Yahoo! demonstrated negative comScore engagement trends for both page views/visitor and minutes. The analysts noticed that the number of Yahoo! visitors declined by 17 percent in the U.S. and 13 percent globally.

Based on RBC Capital Market’s proprietary DAM report, Yahoo! Inc. (NASDAQ:YHOO)’s showed improvement in sell-through rates on some important ad verticals in the first quarter, however, advertiser quality was reduced. They said that Yahoo! News returned to 100 percent sell through rate from 94 percent, and Yahoo! Sports improved from 96 percent to 100 percent.

However, its low CPM advertisers increased from 4 percent to 33 percent on Yahoo! Homepage, which represents deterioration compared with the previous quarter. They also noted the series of acquisitions initiated by its CEO Marissa Mayer, which aims to bring new talent and technology.

During its earnings report, the analysts said investors should focus on any evidence of additional product wins for Yahoo! Inc. (NASDAQ:YHOO). They emphasized that any improvements in individual products will be very useful.  The analysts added that it would be the first time for the company’s new CFO, Ken Goldman to provide guidance. They said, Yahoo!’s performance vs. guidance may start a precedent for the level of conservatism that we can expect going forward.

RBC Capital Markets analysts reiterated their outperform rating for Yahoo! Inc. (NASDAQ:YHOO) with $24 price target. The analysts explained.  “Our price target of $24 is based on the sum of the parts analysis and uses a 5x EV/EBITDA multiple on our 2014 estimates for the core Yahoo business. We would note the discrepancy of our outperform rating, the current stock price, and our $24PT. We will adjust our rating/and our PT as appropriate post EPS print.”