Investors will pay close attention to possible signs of growth in Yahoo's core business as well as its revenue and profit from Alibaba Group Holding—which it has a large stake in—when the company reports earnings after the bell on Tuesday.
While Yahoo's stock has climbed over the last two years, its growth has been driven by its 24 percent stake in Alibaba and its 35 percent stake in Yahoo Japan, said Youssef Squali, an analyst at the equity research firm Cantor Fitzgerald, in a recent note to clients. Squali has a $40 price target for the stock with a "buy" rating.
Alibaba, a Chinese e-commerce giant, is planning a mammoth IPO this year, and Yahoo's earnings may provide a clue as to how Alibaba will be valued when it goes public.
Alibaba, which has experienced revenue growth of 60 percent since last year according to Squali's estimates, should remain a positive catalyst for Yahoo's stock as Alibaba's IPO approaches. The Chinese company currently accounts for a whopping $21 per share of Yahoo's stock and will continue to drive growth in the near term, according Pivotal Research's estimates published in a recent note.
But Yahoo can't depend on Alibaba forever.
Yahoo is required to sell about half its stake in the Chinese company when it goes public. Alibaba's valuation is likely to hit more than $100 billion when it holds its IPO, which means big gains for Yahoo, but also could mean a potential tax headache, said Brian Wieser, a senior research analyst at Pivotal Research, in a recent note to clients. Wieser has a $36 price target for the stock and a "hold" rating.
"Beyond the valuation that Alibaba will actually realize, big questions remain on how Yahoo will minimize its tax bill on capital gains when a partial disposition occurs at the time of the IPO," Wieser said in the note. "Further, the company's preferences in terms of how it will actually use the capital it raises will come increasingly to the forefront as the year progresses."
Despite Yahoo's strong push last year to improve products and services, growth in its core businesses of display advertising and search are still below industry rates, Squali said in his note.
Display revenue ex-tac (traffic acquisition costs) decreased 2.6 percent year over year last quarter to $391.7 million and search ex-tac rose 4.7 percent to $427.7 million, according to Cantor Fitzgerald's estimates. These rates pale in comparison with its competitors, Squali said in the note.
The clock is now ticking for the company to start monetizing its investments.
"While 2013 represented a year of right-sizing, investment and acquisition, we think 2014 should be the year where monetization efforts drive a resumption in top-line growth, starting with 1Q:14," Squali said in the note.
"In the meantime, prospects for the highly anticipated Alibaba IPO this year, continued cost containment efforts, a recent stock pullback and a buyback make for an attractive valuation, in our view."
The tech company is expected to report earnings of 37 cents per share on revenue of $1.08 billion, according to analysts surveyed by Thomson Reuters. Last year the company reported earnings of 38 cents per share on revenue of $1.07 billion.
Yahoo's Japan assets and a lower tax rate helped Yahoo post a 20 percent earnings surprise last quarter when it reported earnings of 46 cents per share, beating analysts' average estimate of 38 cents per share.
Yahoo's own forecast is expecting revenue within $1.12 billion to $1.16 billion, with EBITDA in the $290 million to $330 million range. The company didn't respond to a request for comment.
—By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.