Why Wall Street isn't giving up on Yahoo yet

Marissa Mayer
Jason Alden | Bloomberg | Getty Images

Yahoo will report earnings after the bell Tuesday against a backdrop of departing top talent and a yearlong decline in its stock.

But at least some Wall Streeters are holding out hope for the company, and rather than watching for fallout among executives, some analysts will look for signs on how smoothly Yahoo's spinoffs and acquisitions will go.

"With a new management team and a renewed focus on products, we think YHOO has the potential to become a classic 'Net turnaround story," analyst Mark Mahaney of RBC Capital Markets wrote in a research note Friday.

That potential turnaround could be a multiyear effort, though, given slipping shares of the search and display markets and a slew of recent acquisitions like fashion site Polyvore and blogging site Tumblr, Mahaney wrote.

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Then there's Yahoo's brain drain. Chief development officer Jacqueline Reses, who is leaving Yahoo for Square, is the latest of Yahoo executives to depart under CEO Marissa Mayer, Re/code reported.

"[Mayer] hasn't reignited growth in the company," S&P Capital IQ analyst Scott Kessler said Monday on CNBC's "Closing Bell." "She got people very excited about the new executives that she was going to attract to build a new Yahoo and frankly, a lot of those folks have left."

Not everyone agrees with Kessler's assessment. Analyst Youssef Squali of Cantor Fitzgerald called Mayer's tenure a "honeymoon period."

"Overall Yahoo! remains challenged to keep up with growth in an industry that's innovating faster," Squali wrote. "We've seen progress in company culture, product improvement, and user engagement over the last three years, but meaningful pick-up in monetization and revenue growth has been lacking."

Colin Sebastian, Internet analyst at Robert W. Baird & Co., said Yahoo has simply been hit especially hard in the competition for top talent in Silicon Valley.

"Well, I think there's always a temptation in the Valley to pursue some of the more interesting, pre-IPO companies, and especially with technology talent that's always a pressure point," Sebastian said. "And I think Yahoo has suffered more than any other company when it comes to that. ... With Yahoo, the case is still left to explore where they will fit."

Kessler's other big concern is the fate of the Alibaba spinoff. Indeed, Mahaney's "upside scenario" counts on Yahoo being able to sell its stake in Alibaba tax free.

Squali wrote that clarity on the Alibaba spinoff is likely to overshadow Yahoo's otherwise lukewarm revenue disclosures, which are expected to increase 15 percent to $1.26 billion, with earnings per share declining to 17 cents per share, according to Thomson Reuters.

Other keys in Yahoo's quarterly report include search metrics like paid clicks, display data like price-per-ad, and traditional measures like unique visitors and shares of search queries, Mahaney said.

Yahoo sites trail Google and Microsoft for search queries, with a 12.7 percent share of searches in July and August. Unique visitors to Yahoo sites declined 4 percent in September, Mahaney said.

But items like price-per-click are on the rise and could be a good indication of the health of the search business, he added.