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In The Batter’s Box: Yahoo To Report Tomorrow

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You could plausibly argue that Yahoo (NSDQ: YHOO) will release the quarterly report of its corporate existence tomorrow. Without a strong showing, it would be nigh-impossible to argue that it deserves something higher than what Microsoft (NSDQ: MSFT) has offered — either way, it could already be too late. But since the board hasn’t rapidly moved to hammer out a favorable deal with Microsoft, people are applying some old fashioned deductive logic and assuming that the quarter will be decent. The general consensus is for the company to report revenue of around $1.33 billion, representing some 12 percent year-over-year growth (Google’s revenue was up 30 percent YOY), and earnings of $.09 per share.

For Yahoo, guidance is always a big deal (because the present is usually nothing to get too excited over), but this time it may be less so. That’s because the time has run out to talk about the future. Either they’re executing now or they’re not. One thing investors definitely will want to hear: some detail on the company’s ad partnership with Google (NSDQ: GOOG). The two-week trial ends later this week, but given that Yahoo will have the world’s ear tomorrow, it would make sense to trumpet any good numbers with the report. Gains of 30-40 percent in revenue per search is supposedly what would constitute a success. Expect operators to have their hands full queuing up callers on tomorrow’s call.

Some commentary from analysts:

Jeff Lindsay, Bernstein: “We expect management to have pulled out all the stops to drive up Q1 performance, maximize their value, and make life generally as difficult/expensive for Microsoft as they can… With the three-week ultimatum from Microsoft rapidly looming (effectively April 26th), we think Yahoo! management will have focused hard on the current quarter. We also think it likely that a deal with either AOL (NYSE: TWX) or Google or both will be announced ahead of the Microsoft deadline, and see this as a positive for shareholders.” Ultimately, Lindsay, like everyone else, thinks that the Microsoft deal will be the final outcome.

Ross Sandler, RBC: “We are expecting better-than-consensus results out of Yahoo tomorrow night. Four factors that give us confidence are: 1) Management has reiterated 1Q results two times intra-quarter, 2) YHOO provided initial guidance after seeing January’s trajectory, which was likely the weakest month of 1Q, 3) the mid-point of revenue guidance calls for 12% y/y growth – which, normalizing for broadband deals and acquisitions, only requires low-double-digit-organic growth, and 4) YHOO has shown a good track record of beating the mid-point of guidance over the past five quarters (the forward guidance has been the disappointment).” Ultimately, for Yahoo to make the case to Microsoft, Sandler believes it needs to exceed $1.32 billion, while putting in a solid raise.

Mark Mahaney, Citi: So that investors can instantly recognize a “good” quarter from an “okay” or a “bad” quarter, Mark Mahaney has put out a cheat sheet for tomorrow’s report. So what would good look like? The company needs revenue of more than $1.32 billion, with guidance for the coming quarter of more than $1.37 billion. Anything just in the $1.3-$1.32 billion range would be neutral. He too is looking for some mention of the Google deal.

Mark May, Needham: “We believe in-line results and either a maintaining or increasing of CY08 guidance will provide Yahoo! mgmt with further proof that it is executing toward its three-year financial plan, and will tilt the negotiating power in the MSFT take-over bid toward Yahoo!, in our view. Despite Yahoo!’s value as a take-over candidate and the potential for a raised MSFT bid, we are maintaining our Hold rating as i) we believe the company currently trades at or above its stand-alone fundamental value, and ii) we believe there is as much as a 50% chance that the MSFT transaction does not take place.”