Earnings Preview: Yahoo Seen Adding Profit But New CEO’s Plan Is Key
By David Zielenziger | Oct 22, 2012 03:25 PM EDT
When Yahoo (Nasdaq: YHOO), the No. 3 search engine, reports third-quarter results late Monday, investors may be looking more for clues to new CEO Marissa Mayer’s strategy than the expected modest boost in earnings.
Mayer, 37, quit as a VP of Google (Nasdaq: GOOG), the No. 1 search engine, only on July 16 for the troubled Sunnyvale, Calif., company, as its fifth CEO since September 2011. Besides taking over Yahoo, Mayer also gave birth to her first child, a son, on Sept. 30.
Under pressure from New York hedge fund Third Point Capital, which won three seats on Yahoo’s board of directors in May, the company’s been trying to grow eyeballs and advertising as well as deal with valuable overseas assets, especially in China’s Alibaba Group and Yahoo Japan (Tokyo: 4689), which were acquired under prior CEO Carol Bartz.
Yahoo agreed to sell half its stake in Alibaba for $7.1 billion in cash as well as another 10 percent when the Chinese Internet site completes an initial public offering. At the time of the deal, that additional stake was valued around $3.5 billion.
The Alibaba partial sale was completed last month. At the end of the second quarter, Yahoo reported holding cash and investments of $2.4 billion.
What’s Mayer going to do with the money?
There’ll be pressure from Third Point to reward shareholders, perhaps through payment of a special dividend. But perhaps Yahoo will use some for acquisitions. Speculation has included bids for sites such as OpenTable Inc. (Nasdaq: OPEN), the San Francisco-based restaurant reservation system that competes against Google’s Zagat system and other sites.
That’s sent Open Table shares up more than 7 percent in Monday trading, with shares trading at $46.53, up $2.94, at midday, valuing the company around $1 billion.
Analysts surveyed by Thomson Reuters expect Yahoo to report net income gains around 5 percent, or $309.43 million, or 25.7 cents a share, compared with year-earlier net income of $293.3 million, or 23 cents a share, on essentially flat revenue of $1.078 billion.
But last week’s mediocre report by Google chilled the atmosphere. After Google’s earnings missed analyst estimates, its shares tumbled 10 percent on Thursday and anotehr 2 percent Friday, although analysts attributed many of Google’s problems to its acquisition of Motorola, which reported major losses in the third quarter, its first full period under Google management.
Google shares fell $8.59 to $673.20 in Monday midday activity, a far cry from their seven-year high of $774.83 set only on Oct. 5.
‘It’s hard for investors to understand where Yahoo fits into the broader online advertising market,” said Jefferies analyst Brian Pitz. Despite all its recent turmoil, “Yahoo has some very valuable assets that are being largely under-monetized.”
In that respect, Pitz recalls the long letters written to the old Yahoo board by Third Point CEO Daniel S. Loeb, after he started buying into the company, arguing that sites like Yahoo Sports and Yahoo News weren’t being properly managed for growth.
Loeb is now a Yahoo director.
Other news awaited from Mayer is how she will deploy some of her new hires to Yahoo, including Henrique de Castro, new COO starting in January, another Google veteran, and Kathy Savitt, the chief marketing officer since Sept. 14, who was CEO of private Lockerz with prior experience at Amazon.com Inc. (Nasdaq: AMZN), the No. 1 e-retailer, and American Eagle Outfitters (NYSE: AEO0.
Yahoo shares fell 4 cents to $15.80 in afternoon trading, valuing the company at $18.7 billion. They’ve fallen 2 percent this year, the same as their 52-week decline.
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