Yahoo Earnings Preview: It is Not all About Marissa Mayer

Yahoo Earnings Preview: It is Not all About Marissa Mayer
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Yahoo! Inc. (NASDAQ:YHOO) reports third quarter results on Monday October 22nd  after the market close. All eyes will be on the new CEO, Marissa Mayers. BGC Partners, is even out with a report titled; YAHOO EARNINGS PREVIEW: WHAT WILL BE DIFFERENT UNDER MARISSA ? However, investors will be focusing on many other things, besides the CEO. But first we will focus a bit

New COO: Yahoo! Inc. (NASDAQ:YHOO) recently announced Henrique de Castro as its new Chief Operating Officer, who will be responsible for Yahoo’s worldwide operations, sales, media, and business development.

Yahoo Earnings Preview: It is Not all About Marissa Mayer

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In her first opportunity to address analysts/investors, Marissa Mayer is likely to broadly outline her strategy without being too specific. We note that the CFO’s official start date is Oct. 22, while the COO’s is supposedly mid-November. From her all-hands meetings with employees, however, it seems that Ms. Mayer is intent on reigniting growth by trying to grow users, usage, advertisers and talent, by focusing on personalization, mobile, and speed. This strategic thinking is not too dissimilar from that of her predecessors, so execution remains key, and that will take time to unfold.

Cantor Fitzgerald states, “with a CFO on the job for a day, we suspect that management will refrain from providing guidance but may speak to the magnitude of the restructuring likely to take place over the next several quarters”.

BAML notes, on the call, new CEO Marissa Mayer will likely outline some high-level thoughts on her vision for the company, but they expect details to remain limited and the financial outlook to be on hold, until new CFO Ken Goldman can add his input.

Partnership with Google?

Stifel thinks a partnership between the two tech giants is a possibility.  They predict that Yahoo’s EBITDA is likely to fall after the quarter, particularly if Microsoft does not guarantee Yahoo!’s revenue per search (RPS) past March 2013.

One potential upside: Stifel imagines that Yahoo! Inc. (NASDAQ:YHOO) is trying to figure out a way to work with Google on monetizing its search traffic, the volume of which appears to be declining steadily. It is unclear whether the DoJ would allow this cooperation to happen now — after Yahoo has exited the search monetization platform business. The DoJ resisted allowing Google Inc (NASDAQ:GOOG) to work with Yahoo before, in part because it would add to Google’s near-monopoly in search.


I imagine Yahoo is disappointed with the stock reaction (on 9/18) to the Limited (HKG:1688) sale valuation and announcement that cash would be returned to shareholders. Investors believe that Yahoo will clarify its plans for the cash, and lean toward a buyback vs dividend. We estimate that Yahoo could buy back 187.5mn shares with $3bn in cash from the deal, representing 15% of stock outstanding.

GAAP Revenue

Flat y/y and down 1% q/q. Yahoo did not guide 3Q due to CEO transition, but did suggest trends in 3Q would be similar to 2Q with a possible benefit from the Olympics and Elections, offset by currency and possible macro pressure.

Yahoo’s SEC Filing

Yahoo filed a very interesting  statement with the SEC several days ago.

It states:

Yahoo! Inc. (NASDAQ:YHOO) submitted an application under Rule 24b-2 requesting confidential treatment for information it excluded from the Exhibits to a Form 10-Q filed on August 9, 2012. We will be looking at more information on what was with-held from the last quarterly filling.

Wells Fargo Sums it up

Wells Fargo & Company (NYSE:WFC) Analysts believe the challenge for Mayer is not to simply leap-frog competitors in the race to capitalize on mobile, for instance. They see an exercise in current product triage (e.g. continue to ramp video and other premium ad sales), as well as investing aggressively behind next generation consumer products. Beyond setting investment priorities, we believe Mayer will need to make difficult decisions regarding the scope of Yahoo!’s current offering and whether the company’s employee count could be significantly reduced, while new product initiatives are being pursued. Though Yahoo!’s challenges are numerous, we continue to believe the company’s scale, brand safe content, substantial user data, and potential for pivoting toward fast-growing video/mobile platforms offer opportunities for Yahoo! Inc. (NASDAQ:YHOO) to tap a rising tide of brand-oriented dollars that they believe represents the next leg of growth for display.

Monetization of mobile will especially be a big issue after concerns about Google’s earnings declining to due mobile devices. Facebook Inc (NASDAQ:FB) is also facing similar issues.

Disclosure: No position

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