Yahoo Earnings Q3 2015 Preview

  • Yahoo earnings Q3 2015 are expected to be announced next week (Oct 20).
  • Focus is on the Alibaba spin-off and core business progress.
  • Investors are waiting for Yahoo to prove that it has more to offer than its Alibaba stake.
  • Consensus and guidance reflect a YoY decline in revenues Ex-TAC.

Internet giant Yahoo (NASDAQ:YHOO) is expected to report its Q3’15 results next week and attract a lot of attention from the tech industry and financial sector. In the recent weeks, Yahoo has been heavily involved in managing the long-awaited Alibaba (NYSE:BABA) spin-off that is expected to take place during the fourth quarter of 2015. Yahoo plans to spin off its holdings in Alibaba together with its small businesses division into a new publicly traded company named Aabaco. Yahoo is trying to complete this spin-off as a tax-free transaction and has requested for the IRS to provide a preliminary ruling in that matter. However, the IRS’s refusal pulled Yahoo’s stock into a rollercoaster mode and attracted too much attention from the company’s executives until the company officially announced that it is proceeding with the tax-free spin-off based on a piece of Skadden Arps advice.

The developments in the Alibaba spin-off received most of the attention from investors and the financial sector; however, Yahoo also has a lot to prove in its core business performance after the disappointing results of Q2. In Q2, Yahoo reported revenues Ex-TAC of $1.04B, which was $10M below estimates, and $0.16 EPS, which was $0.02 below estimates. Moreover, Yahoo provided a disappointing guidance of $1.02B, which was lower than the consensus analysts’ expectations of $1.07B. On the spending side, Yahoo presented a disappointing 4x increase in Traffic Acquisition Costs YoY to a quarterly amount of $200M, which was expected to grow up to $250M in Q3’15, according to Yahoo’s guidance.

As shown in Chart 1 below, Yahoo’s revenues are declining and this is expected to slow down and start changing course in Q3’15. If a successful tax-free spin-off is Yahoo’s biggest challenge in its non-core business, executing better than expected results with a significant turnaround is Yahoo’s largest challenge within its core business.

YHOO_Chart 1_101415

Yahoo’s stock is currently trading 40% below analysts' average target price of $44, mainly due to the uncertainty around the Alibaba spin-off and the disappointing core business performance. As the company has already addressed the Alibaba spin-off successfully, the second challenge will receive higher importance in the upcoming Yahoo earnings release.

Within the core business, investors will be looking at Yahoo's progress in the search and display ads revenue as well as any positive developments in Yahoo’s mobile and social portfolio. In the non-core business, the Yahoo Japan stake will probably attract attention as in the previous conference call, as investors wonder louder than before if Yahoo’s strategy regarding the Yahoo Japan stake is not clear.

These are Yahoo’s comparable figures to watch in this earnings:

Q315 Guidance Q3’15 Consensus Q314
Revenues $1,250 $1,260 $1,148
Revenues Ex-TAC $1,020 $1,030 $1,094
Adjusted EBITDA $220 N/A $306
Non-GAAP Operating Income $70 N/A $42
EPS N/A $0.17 $0.52

Source: Yahoo IR, Yahoo Finance, WSJ


Yahoo is stepping into the earnings season with its focus on the Alibaba spin-off. However, analysts and investors expect a decent improvement in core businesses regardless of the non-core developments in Alibaba and Yahoo Japan. The market sentiment is negative towards Yahoo after the infamous Barron’s article, the struggle to complete the Alibaba spin-off, and the declining core revenues. Investors are worried that once Alibaba is spun-off, Yahoo’s core business will not generate much revenue nor create value for shareholders. In this earnings event, just before the Alibaba spin-off, Yahoo and CEO Mayer have their biggest test: to prove that the market sentiment is wrong.

Lior Ronen Lior Ronen   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and stock

Do share this awesome post