The Crowd Expects Yahoo To Underwhelm Today

Yahoo! Inc. YHOO Information Technology - Internet Software & Services | Reports February 2, After Market Closes.

Key Takeaway

• The Estimize consensus is calling for EPS of $0.13 and revenue of $953.20 million, slightly higher than Wall Street's estimates
• Yahoo has failed to transform its core business at the expense of current and future earnings
• Activist investors, Starboard Value, have called for drastic change with threats to overthrow board

In the lead up to its fourth quarter earnings call, Yahoo (YHOO) has made headlines for all the wrong reasons. Under the leadership of of Marissa Mayer, the company has failed to regain the growth it once had. This quarter the Estimize consensus is calling for EPS of $0.12 and revenue of $953.20 million, in-line with Wall Street on the bottom-line, but $5B ahead on the top-line. Compared to Q4 2014, this represents a projected YoY contraction in EPS and revenue of 60% and 19%, respectively. Estimates have been falling ahead of the report as well, with earnings expectations declining 25% since the last quarterly report, and revenue estimates down 15%. With another disappointing quarter on the horizon, investors have feverishly called for changes in Yahoo's core business.

After a tumultuous 2015, investors are eagerly awaiting Yahoo's next steps to stimulate growth.  What was once a leader in web search and advertising, Yahoo has now slipped to the fifth position in display ad market share behind Google,Facebook, Baidu and Twitter. Yahoo generates a majority of its revenue from search and advertising and when those struggle so does Yahoo. In fact, the company has reported negative earnings surprises each of the past three quarters and could potentially do the same this Monday. In the area of search, Yahoo has shown slight improvements thanks to a favorable partnership with Microsoft. That said, they have failed to move the needle when it comes to market position, where Google has a stranglehold on the domain. Similarly, Yahoo has been unable to penetrate the mobile search market, which is developing into the fastest growing segment in search. At the moment, all Android and iOS devices come preinstalled with Google Search, leaving little room for Yahoo to make its mark.

As Marissa Mayer's touted 3 year goal comes to an end, with mixed results, Yahoo has taken an aggressive approach to revitalize growth. In that time the company invested heavily in talent acquisition, improving product development and increasing its capabilities in mobile and video. Yahoo also flirted with the idea of spinning off its core business or even selling its web business. With little progress and job cuts looming, activist investor, Starboard Value recently threatened a proxy fight against Yahoo unless strategic changes are made. On the bright side, Yahoo's assets are beginning to generate income. The crown jewel in Yahoo's portfolio, Alibaba, just beat earnings expectations causing a small spike in Yahoo shares. That said, until Yahoo is acquired or changes are made, there may be little hope for the company to bounce back.

Photo Credit:Satyendra Kumar