Yahoo! Inc. (YHOO) Earnings Preview: Alibaba

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Yahoo! Inc. (NASDAQ:YHOO) is set to report its earnings in a live web-streamed call once the market closes. While no earnings report from Yahoo is complete without the mention of its large stake in Ltd. (OTCMKTS:ALBIY) (HKG:1688) which will line Yahoo’s coffers when the company goes public with an IPO valued in around $70 billion; today’s report will give the Street another look at how CEO Marissa Mayer is faring with her turnaround of the long-struggling company.

Yahoo! Inc. (YHOO) Earnings Preview: Alibaba

Expectations for Yahoo

When Yahoo! Inc. (NASDAQ:YHOO) last reported, its earnings were up 46 percent though there were key areas that showed the challenges the company still faces as revenue fell off in a number of important areas. For the third quarter, Wall Street expects Yahoo to report earnings of 33 cents a share, down slightly from 35 cents a share a year earlier. Revenue is expected to come in at $1.08 billion, about flat with a year ago. For the next quarter, the consensus is calling for 41 cents per share while Yahoo is expected to report earnings of $1.47 for the fiscal year. Revenue is expected to be virtually unchanged from a year ago and the consensus estimates for this quarter haven’t moved in the last three months.

One question the Street will be asking is how is ad revenue holding up? The acquisitions of Rockmelt, Xobni, Summly, Tumblr, and 20 other companies cost the company a pretty penny. However, through the near two dozen deals that Yahoo! Inc. (NASDAQ:YHOO) has inked since Marissa Mayer took over, the company has acquired some top talent. The question will be whether or not this talent shopping binge equates to real dollars. Last quarter, ad numbers were less than stellar with display ad revenue down 12 percent. Display ad revenue represents 40 percent of Yahoo’s sales. Search-ad revenue was also down though it was a single digit decline of nine percent. One bright spot was that revenue from e-commerce partners was up for the last quarter.

Yahoo’s ad revenue

What makes these numbers even more downbeat is the fact that Yahoo’s ad revenue was down while the domestic online ad market is growing. That means that Google Inc (NASDAQ:GOOG), Twitter, Inc. (TWTR), and Facebook Inc (NASDAQ:FB) were enjoying growth while Yahoo was watching on the sidelines as the revenue went elsewhere. This quarter should provide a glimpse into whether the refreshing of Yahoo! Inc. (NASDAQ:YHOO)’s core services is driving people to, or back to, Yahoo.

Mayer has made mobile a priority, and its time to see if the addition of hundreds of engineers working on mobile services is starting to come to fruition.

Onstage at the TechCrunch Disrupt conference in September, Mayer said Yahoo traffic exceeded 800 million monthly active users world-wide, a 20% increase since July 2012. She attributed the bulk of the growth to mobile traffic — about 350 million monthly users come from mobile gadgets.

Yahoo’s stake in Alibaba

Yahoo’s 23 percent stake in Ltd. (OTCMKTS:ALBIY) (HKG:1688) and its position in Yahoo Japan account for nearly half of Yahoo! Inc. (NASDAQ:YHOO)’s market valuation. Alibaba recently posted impressive numbers showing a $669 million profit in the second quarter. That represents a tripling of income, however numerous analysts including Colin Gillis at BGC Financial have cautioned that the data from Alibaba is incomplete.

Today’s numbers are far from “make or break” for Yahoo! Inc. (NASDAQ:YHOO), but they will go a long ways towards determining the strength of the company’s turnaround.

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