Earnings preview: Yahoo 3Q likely to extend slump

By MICHAEL LIEDTKE

posted: 36 DAYS 2 HOURS AGO

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SAN FRANCISCO -Internet pioneer Yahoo Inc. is scheduled to report its third-quarter results after the stock market closes Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: These results will probably serve as an another reminder why Yahoo Chief Executive Carol Bartz hates it when her company is compared with Internet search leader Google Inc.

The comparisons usually make Yahoo look bad, and the third quarter isn't expected to be any different. If anything, the contrasting results almost certainly will show the already- huge gap separating Yahoo from Google has widened.

While Google's revenue growth accelerated for the first time since the U.S. recession started in December 2007, Yahoo is struggling to emerge from a financial slump that has been tormenting the Sunnyvale-based company since early 2006.

If Internet analysts are right, this will be the fourth consecutive quarter in which Yahoo's net revenue fell below the preceding quarter.

The main reason Google is doing so much better than Yahoo and most other companies is because it dominates Internet search — an activity that has turned into a highly effective marketing vehicle.

Advertisers aren't as hesitant to spend on commercial messages tied to search requests because they usually only cost money when a consumer clicks on a link. The requests also make it easier to figure out which people might be interested in buying a specific product or service.

Although it runs the second largest search engine, Yahoo specializes in online billboards and other visual forms of advertising that typically run as part of more expensive marketing campaigns. That type of advertising probably won't rebound until the still-shaky economy becomes more stable.

Yahoo recently launched its own $100 million advertising blitz as part of Bartz's attempt to polish the company's image and ultimately bring in more revenue.

In her biggest move since Yahoo hired her nine months ago, Bartz finally brought Yahoo together with Microsoft Corp. in July after years of recurring talks between the two rivals. The proposed alliance, which still requires regulatory approval, calls for Microsoft to provide the search technology for Yahoo in the United States beginning next year.

BY THE NUMBERS: Analysts polled by Thomson Reuters, on average, predicted that Yahoo will earn 7 cents per share on revenue of $1.12 billion after subtracting commissions paid to advertising partners.

ANALYST TAKE: Brigantine Advisors analyst Colin Gillis thinks Yahoo's earnings will be slightly above estimates, partly because he suspects Bartz deliberately set a low target when the company gave its third-quarter guidance in July. He also thinks Yahoo's recently hired chief financial officer, cost-cutting specialist Tim Morse, may have already weeded out some expenses to help boost profit.

The direction of Yahoo's revenue will reveal more about the company's health, Gillis wrote in an Oct. 16 research note.

WHAT'S AHEAD: Yahoo is trying to sell its help-wanted service, HotJobs, although the timing of getting a deal done remains unclear.

The company also is preparing to spend an entire day giving analysts an overview of its strategy for the first time in 3 1/2 years. The so-called "analyst day" is scheduled for Oct. 28.

STOCK PERFORMANCE: Yahoo shares rose 14 percent in the quarter.

2009-10-19 06:34:20