Yahoo! Earnings Preview

Yahoo YHOO will report earnings after the bell on Tuesday, April 16 with a conference call scheduled for 5:00 pm EST.

The company, once seen as heading for irrelevance much like Microsoft MSFT, has seen a resurgence since CEO Marissa Mayer took the reins of the company.

Here’s what to expect when the company reports Tuesday after the bell.

Expectations

Yahoo is expected to report EPS of $0.24 and revenue of $1.1 billion. That’s 33 percent and nine percent lower than last quarter, respectively.

The Bull Case

JP Morgan analyst Doug Anmuth believed that Yahoo’s Alibaba stake is currently worth more than $14 billion and growing rapidly. This, after Yahoo agreed to sell 40 percent of its stake in the company in May. The company’s Asian assets are a little-known, yet lucrative contributor to its bottom line.

Google GOOG still reigns supreme in the world of search, but Yahoo and partner Microsoft are gaining ground. Search revenue is likely to show a seven percent increase in the first quarter.

The Bear Case

While Yahoo has gained ground on Google, display ad revenue has suffered over the past few years. Mayer unveiled a redesigned homepage that received mixed user reviews along with a revamped Yahoo Mail experience. Despite the changes, analysts believe that it’s too early to tell if the redesign will have an impact.

With display ads accounting for 40 percent of Yahoo’s revenue, expect this metric to be in the headline numbers. Investors want to see this number higher than the $520 million reported last quarter, but analysts are expecting a decline of seven percent. In total, sales and profit are only expected to show a two percent gain.

Technical Analysis

To a technical analyst, the Yahoo chart looks like something that belongs in a museum. Since basing throughout October, the stock has been on an upward trajectory forming a tight ascending channel with a healthy leg up, followed by a smaller unwinding only to make a higher high. This is classic Dow Theory chart action that allows the stock to continue higher without reaching drastically oversold conditions. Look no further than the current RSI of 60 to prove the point.

However, investors should note that since February, a wedge pattern has started to form where the stock is forming modestly lower highs and higher lows. If this action continues, the stock could see a technical correction taking it back to its 200 DMA, currently about eight percent lower.

Considerations

Much of the company’s 55 percent gain stems from the excitement of Marissa Mayer—not the improving fundamentals. It’s fast becoming a “show me the money stock” and that sets it up for a severe correction should the company surprise with worse than expected earnings.

Disclosure: At the time of this writing, Tim Parker had no position in the above mentioned equities.