Yahoo (YHOO) reports Q1 2010 earnings after the close on today. We’ll be analysing the earnings live here starting at 4 PM EST.
The Bottom Line: Industry reports and Google’s Q110 strong search results should give investors some confidence that online advertising (search and display), turned the corner after Q409.
Still, the YHOO shares are up 25% since early-February lows (versus 16% for the NASDAQ) so much of the first quarter strength is likely priced into the stock.
There is likely limited downside to the YHOO shares in the near-term since signs so far point to continued strength in online advertising for the remainder of the year and Yahoo is largely a bellwether for display. However, we’re concerned about the company’s long-term prospects given increased competition from niche publishers and rapidly-growing social network sites.
Background: YHOO trades at about 6-times 2010E EBITDA so are inexpensive compared to the rest of the Internet group. The inexpensive valuation indicates limited downside this year, in our opinion, given an ad recovery. However, long-term the company is in a tough spot since it needs to generate stronger growth from its display business despite the fact that display is experience significant rate pressure from an influx of competing inventory. As a result, multiple expansion is going to be difficult.
Key Consensus Estimates:
- Net Revenue: $1.17 Billion
- Operating Income: $108 Million.
- GAAP EPS: $0.09.
- Key Items To Watch Out For: 2010 outlook, Microhoo search deal, mobile, any signs of innovation (leverage on BT campaigns, new products, leverage on engagement ad campaigns), and details about what the company plans to do with its nearly $5 Billion in cash.
Here is an excellent snapshot from Citi analyst Mark Mahaney (to enlarge, click here):
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