3 Points To Consider Before Yahoo Releases Earnings

by Laurie Sullivan, Apr 16, 2012, 12:43 PM

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Forrester Research estimates that brands will increase search marketing, display advertising, mobile marketing, and email marketing, and social media budgets will near $77 billion and represent 26% of all advertising by 2016. For Yahoo to capitalize on this growth, it will need to reinvent services -- and that's what CEO Scott Thompson had in mind with the layoff of about 2,000 employees and reorganization into three divisions focused on users, advertisers and technology.

1) Yahoo's reorganization takes effect May 1, with the consumer group taking over the company's search business and products like email and instant messaging. Ross Levinsohn will head the Media group; Shashi Seth will head Connections, and it's not clear who will lead the Commerce group.

Seth, who led Yahoo search, told MediaPost in February about several data-related services in the works, including the ability to start a query on one device and continue it on another -- for example, searching for a local store on a desktop PC, finding a location and saving the search to continue it on a mobile device, such as iPad or smartphone. This cross-platform approach would include advertising, along with search, and support.

Among the benefits, Forrester Analyst Shar VanBoskirk expects that the growth in marketing spend during the next few years will assist brands in turning consumer electronics into audience-targeting tools. Yahoo also has begun building a content index, instead of a Web index, for every HTML page that exists across the Internet, helping it identify a variety of content.

2) Yahoo will report Q1 earnings Tuesday, April 16, after the stock market closes. Citi Analyst Mark Mahaney expects net revenue of $1.08 billion, operating income of $142 million, and GAAP EPS of $0.19. Published in an earnings report, Mahaney expects net revenue to rise 2% year-on-year vs. Q4's 3% year-on-year decline, partly driven by modest growth in search. "With new CEO Scott Thompson, we believe YHOO will be another wait-and-see turn-around story," he wrote.

Google announced lower cost per clicks last week during its earnings call, but Mahaney does not expect that to impact those at Yahoo, attributing a significant part of Google's decline to its ad quality change. With limited exposure to mobile, Yahoo will likely not see negative CPC pressure from that channel, he wrote.

3) Yahoo will focus on data and targeting under CEO Thompson, J.P. Morgan Analyst Doug Anmuth reminds us. He expects continued softness in display advertising, partly based on checks into autos, telecommunications, and finance categories that suggest a strong 1Q for those categories, but weaker pharmaceutical and consumer products groups. Anmuth believes that login page ads are gaining "better traction," and modeling assumes a 0.4% year-on-year growth in display net revenue to $473 million in Q4.

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