With Low Expectations for Q3, Wall Street Hoping for New Yahoo CEO Mayer to Shine a Light at End of Tunnel
Later today, new Yahoo CEO and latest savior Marissa Mayer is expected to debut in her first major turn as a public company CEO, as the company reports its third-quarter earnings.
Unfortunately, her initial script recounting the last three months is likely to be rather lackluster, with Wall Street anticipating yet another nothing-to-write-home-about financial performance from the Silicon Valley Internet giant.
Investors are expecting $1.08 billion in revenue and 25 cents in net income per share in a report that is likely to show more of the same kind of weakness Yahoo has had for far too long. The main reasons this time: Worrisome growth in search and display advertising, especially compared to robust worldwide trends.
Such concerns have kept Yahoo’s stock pretty much flatlined at about $16 a share since she arrived in July.
And that is not likely to change until Wall Street hears more specifics about Mayer’s future plans. Yahoo has previously said she would outline more about her direction on the call with investors later today, after the financial results are released.
Thus, it’s basically a wait-and-see attitude, until Mayer does that, and perhaps until after there is some actual traction.
As noted by Cantor Fitzgerald’s Youssef Squali:
“1) We’ve seen this movie before (this new CEO is the fifth in as many years) and 2) it will take some time before any of the yet-to-be-announced changes yield any meaningful P&L results. Until then, we see Yahoo! shares remain cheap with limited downside, but no clear catalyst to drive them higher short/medium-term.”
Among the highlights that investors hope will be covered by Mayer and also by new CFO Ken Goldman:
A cogent strategy to turbocharge the business, which — as ATD has reported many times — will focus on tech and product solutions; what acquisition arenas are in the pipeline; plans for new talent recruitment and perhaps layoffs of less-than-stellar employees at the bottom 20 percent of Yahoo; the status of talks to sell off its stake in Yahoo Japan; and, perhaps most of all, what are the plans to return cash to shareholders from its recent sale of its partial stake in China’s Alibaba Group.
That might already be in the works via stock buybacks that Yahoo has been engaged in, but it will be interesting to see if Mayer will provide more specifics.
Investors will also look for some details around mobile growth, and perhaps an update of how Yahoo is fixing its search monetization problems with its partner, Microsoft.
One development that some expect is that Mayer will drop future expectations, in a classic take-out-the-trash move.
As J.P. Morgan’s Doug Anmuth noted:
“Similar to what AOL CEO Tim Armstrong did when he stepped in a few years ago, we believe Mayer is likely to remove low quality ad units and over-monetization throughout the site. Despite the near-term monetization impact, we think this would be a good thing, as it would improve the user experience and de-clutter the site. Additionally, we think it’s likely new management would simply want to start off with a low bar.”
And, if she makes it low enough, anything Mayer will do going forward is likely to look pretty good.