Yahoo earnings: Has the upturn begun?
Wall Street remains optimistic about Yahoo, despite the Net company's struggles to compete with Google and other online tech giants.
Yahoo (YHOO) reports second quarter earnings after the market closes Tuesday. Analysts are expecting revenue of $1.032 billion on earnings per share of 18 cents, according to FactSet.
That is in line with the company's own revenue forecast of $1.01 billion to $1.05 billion, after adjusting for the payments that Yahoo makes to other firms to direct traffic to them. Last quarter those traffic acquisition costs rose nearly 300% to $183.1 million, contributing to the firm's $87 million operating loss.
Over the last three months, Yahoo shares have fallen 11% to $39.55. Since July 8, however, Yahoo stock has risen more than $2 per share.
That day, Yahoo launched a new fantasy sports app with one-week contests for cash against friends and others in larger online tournaments. The new feature, the company said, will increase visibility of its business partners to fantasy sports players, an audience that has grown 40% over the last year.
And last week, Yahoo filed to spin off its stake in Chinese tech giant Alibaba Group. The new firm Aabaco Holdings will own about 384 million shares, representing an ownership interest of approximately 15% in Alibaba Group, Yahoo said in its filing with the Securities and Exchange Commission. Also included: Aabacoa Small Business, which supplies cloud services to small firms. The spinoff, announced in January, is expected to happen in the fourth quarter.
The "significant value" of that Alibaba investment, and Yahoo Japan, led S&P Capital IQ equity analyst Scott Kessler to increase his firm's 12-month target price to $52. "CEO Marissa Mayer has been focusing on improving (Yahoo's) offerings, the 'user experience' and innovation," he said in a note earlier this month that considered Yahoo a "strong buy."
Similarly, BGC Financial senior technology analyst Colin Gillis considers Yahoo a "buy," too, with a target price of $49, and earnings expectations of $1.04 billion and 19 cents, comparable to consensus. The company's stake in Alibaba is valued at nearly $31 billion. "Our view is that the company is going to be able to monetize the stake in Alibaba in a tax efficient manner," he wrote in a note last week.
Not all analysts agree that Yahoo will be able to spin off its Alibaba stake tax free. Yahoo shares dove in May after an IRS official suggested the agency could reconsider a rule related to corporate spinoffs that could complicate or delay its Alibaba stake spinoff. A taxed transaction could cost Yahoo as much as $12 billion, according to Rosenblatt Securities.
Meanwhile, CEO Marissa Mayer, who left Google to take the helm of the company three years ago, has stressed mobile as the future of Yahoo's core business. She noted that during the first quarter of 2015, the company had more than 600 million monthly active users on mobile, up 20% over last year.
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