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Yahoo! Earnings Preview: Boom Or Bust?

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Yahoo! Inc. (NASDAQ:YHOO) is due to reveal its earnings for the second quarter of 2013 on Tuesday July 16 after the market closes. The market is optimistic given the surprise that the company recorded when it last announced earnings in April.

Yahoo! Earnings Preview: Boom Or Bust?

For the three months through June, analysts are looking for earnings of 30 cents per share from Yahoo! Inc. (NASDAQ:YHOO) on revenues of $1.1 billion. In the same three months of 2012, Yahoo earned 27 cents on revenue of $1.1 billion. Business appears to be looking good for Yahoo as the company cuts costs and changes its strategy.

Yahoo! shareholders see a surge

So far in 2013 Yahoo! Inc. (NASDAQ:YHOO) shareholders have seen their investment gain more than 35 percent. After years of poor performance form the once great search firm, optimism surrounds the company once again, though it may not last for all that long if the company can’t show real change.

The only meaningful changes at Yahoo! Inc. (NASDAQ:YHOO) for some time have been costs. Employees have been let go and extraneous programs have been amputated. Revenue has been flat for several quarters in a row, and it is expected to stay that way in the coming earnings report. Despite some interesting acquisitions, there has been little meaningful change at the company, unless you count atmosphere and spirit that is.

The installation of former Google Inc (NASDAQ:GOOG) executive Marissa Mayer as the Yahoo! Inc. (NASDAQ:YHOO) CEO has been the cause of serious optimism. Investors believe in her plan to save the company, but they’ve been waiting a long time.

Valuation problems

Yahoo! Inc. (NASDAQ:YHOO) is not valued highly. According to the company’s P/E ratio, which stands at around 8 for 2012, there is little expectation of growth. Investors, according to that number, would be happy if the company continued to demonstrate the ability to hang on. Google Inc (NASDAQ:GOOG) trades at a P/E of over 27.

Yahoo is not a growth bet for investors, Yahoo is a bet on survival. Mayer has done a good job of boosting earnings, but revenues are flat. Yahoo is not really growing, and that’s what the company needs to bring it back from the dead.

If Yahoo can show it meaningfully boosted revenue year on year in tomorrow’s earnings report, the price will more than likely pop. If it shows higher EPs, prices will likely rise, but not massively. Misses on either could be deeply harmful to the company’s value.

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