Yahoo Inc. (NASDAQ:YHOO) is due to announce its Q4 2013 results on Tuesday, Jan 28 2014 after market hours. We today provide a preview of the company’s Q4 results based on the historic performance and happenings over the last quarter.
Important events in Q4 2013
Yahoo has been a very active name over the last quarter. The company has been in the news for various reasons and a number of occasions ranging from the Alibaba stake valuation to the company’s various acquisitions to CEO Marissa Mayer unveiling a number of new products in the recently concluded international CES show in Las Vegas. Another important event, which we had mentioned in our earlier coverage on Yahoo, was Yahoo going past Google in the number of unique visitors to their online properties. According to a comScore report, Yahoo sites, at 194 million, had the highest number of monthly unique visitors in the month of November, going marginally ahead of Google properties at 192 million. This could be the first signs of a coming turnaround in the company’s core operations of online advertising.
The current strategy at Yahoo seems to be one of personalization, if we consider the various acquisitions the company has made over the last few months. This strategy of personalization will eventually help the company to get a better understanding of the users which is a key to better targeted ads on their online properties, which will enable the company to draw better ad revenues in the future.
Yahoo: A look at Core Business and Revenue Growth
The core business has been on a decline for most of the last two years. Let’s take a look at the revenue and revenue growth of the company’s core business over the last eight quarters before we look into the future.
The company reported a revenue $1.14 billion in Q3 2013, registering a decline of 60 million over Q3 2012. The company has reported a Y/Y fall in revenues in 6 out of the last eight quarters, a confirmation of the fact that the core business is headed south. The chart below shows the company’s revenue growth over the last eight quarters.
It is clearly seen that Yahoo’s revenue has shrunk in most of the last eight quarters. However, this is exactly where Yahoo’s current strategy to be a personalization strategy could correct the falling trend by driving up the revenue over the coming quarters. On the positive note, the business has maintained a healthy average free cash flow margin of over 18% during the first three quarters of 2013. We expect Q4 results to provide a better view on the turnaround in the core business as the various acquisitions over the last 18 months or so begin to give results.
Other important numbers in the Q4 2013 numbers will be the latest update on the performance of Alibaba, the golden egg in Yahoo’s basket of investments. Our last valuation of Yahoo put the company’s intrinsic value at $48.25, largely consisting of value derived out of the stakes in Alibaba and Yahoo Japan.
Q4 2013: Guidance and surprise history
The company has given a revenue guidance range of $1.18-$1.22 billion. At its midpoint of $1.20 billion the guidance represents a Y/Y decline of 10% over Q4 2012 and a sequential increase of 5.4% over Q3 2013.
According to Streetinsider.com, Yahoo has a strong earnings surprise history, beating analyst’s earnings estimates in 8 out of the last 10 quarters with an surprise percentage as high as 58% in Q1 2013.
We expect to see some signs of improvement in the core business of advertising and possible signs of a turnaround over the coming quarters. On a positive note we expect the growth of Alibaba and Yahoo Japan investments will continue to fuel Yahoo’s stock price, as is suggested by our current intrinsic value of the company’s stock. The company’s stock could go either way post the Q4 2014 earnings call based on the battle of actuals v/s estimates. However, we believe that any pullback in the stock price will be an attractive opportunity to enter the markets as we value the intrinsic value of the Yahoo at $48, which represents a 26% upside over the closing price on Jan 24, 2014.
To see the current stock price of Yahoo click here: (NASDAQ:YHOO)