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Yahoo! Inc. Earnings Preview: Sale Of Core Assets In Focus, Not The Numbers

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Yahoo is scheduled to release its first quarter earnings report after closing bell on Tuesday, and we can expect that most of the focus and analyst commentary will be on any updates from management regarding what to do about the core business rather than the actual results. The company has been struggling and pulling out all the stops to try to spur growth, but so far none of management’s strategies have worked. This has led to cries to sell the core business, with activist investment firm Starboard Value, which is run by Jeffrey Smith, leading the charge.

What to expect in Yahoo’s earnings results

Cantor Fitzgerald analyst Youssef Squali and team said in their April 12 report that they’re expecting Yahoo’s earnings results to be in line with expectations, although why all of Wall Street says this about companies, I’ll never understand. Why have expectations if you don’t think they’re right? At any rate, perhaps it’s better to say that no surprises are expected.

Squali projects net revenue of $837.9 million and EBITDA of $125.7 million, both of which he said are in line with the Street’s estimates. Management guided for $820 million to $860 million in revenue and $199 million to million in EBITDA. Cantor Fitzgerald is behind consensus on non-GAAP earnings at 6 cents per share, compared to the Street’s 8 cents.

The firm’s analysts believe Yahoo is still losing share in Display ads and Search as they expect a 7.2% decline in Display revenue, excluding traffic acquisition costs. They’re looking for a 19.3% decline in Search revenue, excluding TAC. They add that Mavens continues to see “good traction” as those revenues climbed 26% in the fourth quarter. However, they note that growth continues to decelerate and that legacy PC revenue declines are more than offsetting the gains.

Core Yahoo sale expected

Squali and team remind us that more and more media reports point to a sale of Yahoo’s core business. Verizon has said more than once that it wants to make a bid, and the Daily Mail has also expressed interest. Other names that have been floated as prospective suitors include Microsoft and Google. The Cantor Fitzgerald team points out that about 40 different names have expressed interest in buying Yahoo’s core business, including some private-equity firms. Monday is the deadline for offers.

The firm’s Buy rating and $51 per share price target on Yahoo assumes that the company’s core is sold, fully taxable, but its Asian assets are not. Their price target assumes a value of $33 per share for the company’s Alibaba stake.

Yahoo shares climbed by as much as 1.47% to $37.20 in afternoon trading today.

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