Earnings Preview: Yahoo's Time Might Have Arrived

Yahoo will report its first quarter earnings tonight and as the company's stock teeters anew near a 52-week high, investors have to be wondering whether the time has finally come for this company. Well, kind of.

Yahoo Earnings
Yahoo Earnings

The company should report 9 cents a share on net revenue, excluding traffic acquisition costs of $1.16 billion. The numbers are mere shells of what rival Google reported just a week ago, but if Yahoo reports in line with expectations, it'll represent the first real revenue growth this company has seen since the first quarter of 2008.

And that's a big deal. The media and investors constantly harp on Yahoo's seeming inability to mount any kind of effective competitive challenge against Google, but you can't discount the fact that Yahoo appears to be turning the corner. Slowly, but turning nonetheless.

And that's worth more than a mere mention. Publicly, firebrand CEO Carol Bartz will tell you in no uncertain terms that (1) Google is NOT Yahoo's competition and (2) Yahoo will beat Google. The fact is, Yahoo doesn't necessarily need to beat Google. There's something to be said for being a solid Number 2 when it comes to operating in markets that Google owns. The trouble for Yahoo historically had been a loss of brand, no sense of self, and the real worry that the company would not be able to continue as a going concern.

In large measure, Bartz has been able to dissipate that entire list. The company's future, thanks in some measure to its new partnership with Microsoft, seems infinitely more solid than it did just a year ago, and while it will never eclipse Google, I think the market and the media have come to terms with the idea that it doesn't need to.

Google's earnings last week offered a nice glimpse into the key trends that will benefit Yahoo as well in 2010. Google beat the Street handily on both the top and bottom lines, and yet the stock got creamed because expectations were so high.

In Yahoo, "lofty" and "expectations" are like the financial world's CNBC and Fox Business: They just don't go together. So maybe those same trends that helped Google, will help Yahoo too, and unlike Google, maybe Yahoo's shares will accelerate accordingly.

To wit, Citi's Mark Mahaney offers his useful "cheat sheet" when it comes to tonight's earnings report expectations.

Here are some of the categories I'll be focused on, beyond EPS and net revenue: Owned and operated Display ad revenue growth should be between 10 and 13 percent with Mahaney expecting 13 percent; Owned and operated gross search ad revenue growth should decline between 10 and 15 percent; Listings revenue should be flat; Affiliates sites net revenue growth should increase by 8 and 12 percent; and Fees revenue should be flat or down slightly.

For some context, Mahaney has a "buy" on Yahoo shares with a $22 a target. His long thesis certainly resonates: Yahoo will participate in an ad recovery that is "already showing real traction on the net," he writes. There's a very healthy focus on margin expansion, and the company's Asian net portfolio continues to add enormous value.

Then of course we'll get to focus on the company's guidance. The mid-point of the gross revenue range should be $1.64 billion and operating income should come in around $150 million. Mahaney says anything below $1.64 billion would be negative; anything above $1.68 billion would be positive. On operating income, anything below $130 million would be bad; anything above $150 million good.

Yahoo's in an intriguing place right now. Momentum is certainly swinging its way. In the old days, when key executives left it was viewed as a big, big problem. Today, it seems execs come and go, and there's plenty of available talent itching to fill the vacancies. Ari Balogh's departure, had it come a year ago, would've been seen as a serious negative.

But this week, after weeks of speculation, when he left and was replaced by former Microsoftexec Blake Irving as Yahoo's new Chief Product Officer, it was almost a non-event. That speaks volumes. There's something to be said for "stability" and "flexibility." Yahoo seems to be developing both. Add "revenue expansion" to that list of ingredients, and for the first time in a long time Yahoo might finally have something going.

One quarter of growth certainly does not make a "turnaround." We'll see what guidance holds to see whether Yahoo is really on track, or still sputtering. Right now, it seems like "on track" is a good way to characterize this company.

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