Yahoo's 2Q Earnings Expected to Be Good–But Are Big Investors Getting Restless?
Suddenly–although not entirely unexpectedly–the major investors of Yahoo are getting restless.
If you talked to many of them in recent weeks, there has developed a confusion over the stock sitting stagnant in the mid-teens for far too long now, a vague disgruntlement that CEO Carol Bartz has not provided enough of a vision and innovation in her 18 months in charge to turn around the iconic but long-struggling Internet giant, a nagging worry about the continuing exodus of top execs and, perhaps most of all, vexation that Yahoo (YHOO) is just too big not to be, well, bigger than it is.
“It just feels like there is nothing going on to get any momentum going,” said one major shareholder, whose sentiment is more common than not among longtime stock owners of Yahoo. “And it is not clear if there is anything on the horizon to get it going.”
Many point to the value of Yahoo’s Asian holdings, especially its stake in China’s Alibaba Group, as its most promising set of assets, valuing them much more than management’s recent attempts to focus on its media properties while shedding search technology costs under its ongoing partnership with Microsoft (MSFT).
“A Yahoo shareholder has to have the patience of Job,” said another major stock owner, noting shares of the Silicon Valley company are down more than 10 percent compared to a year ago, in contrast to an 8.3 percent rise at Google (GOOG) and a 3.9 percent increase at Microsoft.
To be fair, for the year to date, all Yahoo shares have declined less than those of either of those two digital giants.
And analysts are expecting some sunshine from today’s second-quarter earnings results, which will be reported after the markets close.
The company is expected to report a strong gain in profits, even with revenues rising only slightly.
The consensus: Yahoo will earn 14 cents a share for the three months ended in June, on $1.16 billion in revenue. That compares to 10 cents on $1.14 billion in the same period a year ago.
Several analysts are raising their ratings on Yahoo, noting that Bartz’s efforts to cut costs and improve margins have not been fully appreciated by investors.
Reaction to Yahoo’s results will be interesting. Google’s earnings report earlier this week disappointed Wall Street, since its profit was less than expected, although U.S. revenue growth was promising.
“In particular, we believe that the robust and accelerating Google U.S. revenue results, based on both Search and Display growth, provide a broad positive market read-thru for Yahoo!,” wrote Citigroup analyst Mark Mahaney in his “cheat sheet” note ahead of earnings.
Mahaney reiterated his $22-a-share price target, pointing to display advertising recovery, margin expansion, search share stabilization, Yahoo’s recent stock buyback authorization and the eventual value of the Asian assets.
Yahoo shares closed yesterday at $15.10.