Kara Swisher

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Yahoo Earnings Preview: Cheat Sheets

Yahoo will announce its first-quarter earnings after the markets close today and have a call with Wall Street analysts at 2 pm PT.

BoomTown will be liveblogging the proceedings, of course.

Until then, here are preview reports about Yahoo (YHOO) from a pair of sharp analysts: Imran Khan of J.P. Morgan (JPM) and Mark Mahaney of Citigroup (C).

Overall take: Recovery mode for the Internet giant, due to an upswing in display advertising online, which has been a good thing for the stock. It has risen smartly to prices above $18 in recent weeks, closing yesterday at $18.39.


Yahoo Inc: 1Q’10 Earnings Preview: Expect Display Ad Recovery to Continue


We are modeling Yahoo! 1Q revenue to be flat on a Y/Y basis (down 8% Q/Q) to $1.16B, slightly below consensus of $1.17B. We expect Yahoo! to achieve 1Q pro forma EPS of $0.14 vs. consensus of $0.13. Given macro-economic improvements as well as company specific changes, we feel that there may be upside to guidance of gross revenue of $1.58B to $1.68B and our estimate of $1.63B.

Display advertising should recover. We are modeling 7% Y/Y growth (down 21% Q/Q) on O&O display revenue. This would be an acceleration from last quarter’s down 1% Y/Y performance. We feel confident in our estimate and think there could potentially be upside as the ad environment improved throughout the quarter and we see guaranteed inventory showing the largest improvement. We note that page views on the homepage, Yahoo! sports, and Yahoo! finance were up 5% Y/Y, 24% Y/Y, and 2% Y/Y during the quarter, according to comScore data.

Search market share shows signs of stabilization. However, despite this positive data point in March, we continue to expect 1Q search revenue growth to underperform Google due to modest market share loss earlier in the quarter, and as advertisers are moving ad dollars from the Yahoo! Platform in anticipation of the migration to the Microsoft Platform. We are modeling 1Q O&O search revenue to decline 10% Y/Y (3% sequentially), as comScore data suggests US queries declined 10% Y/Y.

Margins should continue to improve. We feel good about our EBITDA estimate of $370M, roughly in-line with consensus of $372M. Our EBITDA margin est. of 32.1% implies a 370 bp Y/Y decline as we expect increased marketing spend. However, we think there may be upside to this number.

Key things to look for on the call. We are hoping to attain more insight into Microsoft synergies, the ramp-down of search related expenditures and the outlook on search RPS.

Reiterating our OW rating. Yahoo! trades at 6x our F’10 EV/EBITDA vs. the large cap peer group ave. of 12x. We think this discount is unjustified and reiterate our OW rating and $21 price target.


From: “Mahaney, Mark “
Date: Mon, 19 Apr 2010 11:18:10 -0400
To: Undisclosed recipients
Subject: Flash: YHOO: YHOO Q1:10 “Cheat Sheet”

Yahoo! is expected to report Q1 earnings on April 20th, after the close. For the March quarter, we are looking for Gross Revenue of $1.63B, Net Revenue of $1.16B, EBIT of $100MM and GAAP EPS of $0.09 vs. consensus estimates of Gross Revenue of approximately $1.63B, Net Revenue of $1.17B, EBIT of $108MM, and GAAP EPS of $0.09. Based on intra-quarter channel checks and our model sensitivity work, we believe Street Q1 estimates are reasonable, with no material signs of upwards or downwards variance. We do note that YHOO will give additional detail on one-time payments and cost savings from the YHOO-MSFT Search deal, which received regulatory approval in Q1.

Read-Thru From Google’s Q1 Results–We believe GOOG’s Q1 results provided a modestly positive read-thru for YHOO’s Q1 EPS results. Google’s U.S. revenue growth showed Y/Y acceleration (even after we adjusted for its Nexus One sales), and Google noted that it saw strength in every vertical, including Retail, Travel, Entertainment, Finance and CPG. Google also noted that Q1 showed a resurgence among large advertisers. We note that Yahoo!’s business is heavily weighted towards the U.S., and that its key verticals include Finance, CPG, Autos, and Entertainment. Finally, YHOO has a strong focus on large, branded advertisers, so we believe Google’s Q1 results should provide a positive outlook for YHOO Q1.

Our YHOO Q1 “Cheat Sheet” [see embedded below]–On page 2, we provide a one-page grid of what we would view as Positive, Neutral & Negative results for YHOO on Key Q1 P&L Items, Key Q1 Underlying Metrics, and Q2 Guidance. This Cheat Sheet will hopefully provide a guide to interpreting YHOO’s results.

We reiterate our Buy & $22 PT–Our Long Thesis: 1) YHOO will participate in an Ad recovery that is already showing real traction on the ‘Net; 2) New management focus significantly increases odds of sustained operating margin expansion; 3) YHOO has highly attractive Asian Internet portfolio & 4) @ 6X ’10 EV/EBITDA, YHOO shares don’t fully reflect 1, 2, 3… We view YHOO as the Large Cap Internet Turnaround/Value Play.

Link to our full note: https://www.citigroupgeo.com/pdf/SNA54039.pdf


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