Yahoo Earnings Preview: Third Quarter 2009

Yahoo (YHOO: 16.82 -0.36%) is scheduled to report their third quarter 2009 results after the market closes on Tuesday, October 20. Based on our analysis, we at EarningsPreviews.com are expecting YHOO to report better than expected quarterly results that will exceed Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $1.14 billion and EPS of $.08. This would represent a 14% decline in revenues from last year’s $1.33 billion in the same period. The current analyst consensus estimates calls for revenues of $1.12 billion and EPS of $.07. On July 21, the company provided GAAP revenue guidance of $1.45 - $1.55 billion.

There is increasing evidence that the online advertising market is beginning to recover which should help lift Yahoo’s third quarter performance. CEO Carol Bartz has clearly been trying to focus the company on being the leading online portal and has been trying to shed non-core assets. We would not be surprised if Yahoo announced the sale of some of these non-core businesses in conjunction with their earnings release.

Aside from the potential M&A activity, we expect the focus of earnings call will be on Yahoo’s new homepage which launched three months ago. The new homepage has garnered mixed reviews from the user community, but Wall Street will be most interested in discovering if the new homepage has led to increased monetization opportunities.

Share Performance

Since the beginning of the year, Yahoo’s shares have jumped 43%. In 2008, YHOO’s shares fell nearly 48% and underperformed the 34% decline in the Dow Jones industrial average.

Valuation

Shares are now trading at 43x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. While an improving advertising environment will clearly be beneficial to Yahoo, it is perplexing to see so many Yahoo insiders dumping the stock.

Recommendation: Hold with a $16 price target

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