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Yahoo's Bartz Prepares To Meet The Street

Yahoo investors are preparing for the worst and hoping for the best, but those hopes are dim for any good news after the bell tonight when the company reports its fourth quarter earnings.

If anything, the Street will get another chance to ask new CEO Carol Bartz some tough questions about what happens next, and if she's had a chance to solidify any strategic priorities for the company.

Analysts expect Yahoo to report 12 cents a share on $1.37 billion in net revenue.

Guidance will also be important, given that Google doesn't offer any so its report last week was only marginally helpful as investors look out to the rest of 2009. The street is looking for Q1 revenue of $1.78 billion to $1.80 billion; and for the year, gross revenue of $7.3 billion to $7.6 billion. Mark Mahaney at Citigroup, for one, expects the company to come in at the high end of those ranges when it offers guidance tonight.

Other key areas to watch: display ad revenue which likely suffered a 5 percent, year-over-year decline during the fourth quarter, according to some analysts, but as much as a 10 percent slide, says Jefferies Youseff Squali. Mahaney echoes those pessimistic sentiments, writing that the "tough macro conditions" are deeply affecting the company, and "we see Yahoo's fundamentals deteriorating in Q4." A bright spot might be Search advertising, which may have seen continued momentum, up 16 percent during the fourth quarter, according to BernsteinResearch's Jeff Lindsay.

In fact, with display advertising continuing to slide, and Search advertising continuing to climb (it was up 17 percent during the third quarter), there's a growing thought on the Street that Yahoo may not be so eager to sell off the unit to Microsoft , which has been widely anticipated since the company pushed back from the table, taking its $33 a share, $47 billion offer with it.

That said, there's been increasing chatter these past couple of weeks that Microsoft, Yahoo and Time-Warner's AOL unit continue to discuss possible scenarios that has Yahoo selling its Search business to Microsoft, Microsoft spending a bunch of cash for it, and then helping to prop up a new, combined Yahoo/AOL entity.

So let's talk expectations and refer to Mahaney's handy-dandy "cheat sheet."

He's looking for $1.4 billion in revenue, though anything less than $1.37 billion would be a problem. As far as EBITDA is concerned, he's below the Street's $522 million, anticipating $515 million, but something below a half billion dollars would be considered negative. He's a penny ahead EPS consensus, but should the company miss, it'll take a toll on shares. Other key metrics: Owned and operated display advertising should decline by 1 percent; owned and operating gross Search advertising should be up 15 percent; affiliate sites net revenue should decline 6.5 percent, though anything more than a 9 percent decline would be an issue; and fees revenue should come in around $213 million, but something below $200 million would be a problem.

The bigger issue for Yahoo is what Bartz will talk about on the conference call.

No one really anticipates a comprehensive turnaround strategy since she's only been walking the campus for a couple of weeks. We broke the story last week on this blog that one of her first orders of business was to institute a pay-raise freeze for all the company's employees — the first freeze in Yahoo's history — even as she signed a compensation package deal that some say could be worth over $40 million.

Nonetheless, some analysts on the Street anticipate yet another deep workforce reduction that could exceed another 1,000 employees, following two big layoffs in 2008. Bartz has publicly been resistant to a Search deal with Microsoft, worried that such an arrangement would leave Yahoo without a key revenue generator that seems to be doing well. Without a deal, however, investors are wondering what, if anything, Yahoo can do to turn its fortunes around, and whether Bartz — or anyone — can come up with an effective plan.

I've spoken to a number of employees at Yahoo this past week, some of whom have had direct contact with Bartz. I'm told they appreciate her no-nonsense approach, that she's a good listener, that she seems very much entrenched in a fact-finding mission.

The question for investors is how long that process will take — and how patient the Street will be, as she formulates a plan.

She's been averse to a set period of time for financial recon at the company, but she knows the clock is ticking and the pressure's on. Yahoo's shares are teetering at the $11 level, at risk of falling into the $10 range for the first time in 6 years. And while she ponders, and recons, and fact-finds, and ruminates, and investigates, Google, based on last week's earnings, continues to widen the gap.

Tick tock. Tick tock.

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