- Yahoo is set to report its Q1 2014 earnings after market close on Tuesday, April 15.
- Mobile and video ads will be under focus, apart from other operating metrics.
- The company has a strong earnings history with an average earnings surprise of 23% over the last two years.
- We reiterate our positive outlook on Yahoo, driven by value from its Asian investments Alibaba and Yahoo Japan.
Yahoo (NASDAQ:YHOO) is set to report its Q1 2014 earnings post the market hours on April 15th 2014. The Sunnyvale based company continued its acquisition spree into the quarter acquiring close to 10 start-ups in the quarter. The latest buzz in the tech world surrounds Yahoo’s potential acquisition of online video service NDN (News Distribution Network).
The interest in NDN is noteworthy as an acquisition could propel the combined video-service entity to the second spot in terms of unique video viewers. The move aims to take a direct shot at Google’s YouTube. It is no secret that video ad revenues are highly lucrative and the big technology companies (Google, Facebook, AOL) are all fighting for a bigger share of the pie. The addition of NDN would be a positive for Yahoo and this is something which will be actively followed over the coming days. We now take a look at the historical performance of Yahoo and Q1 2014 expectations as we head into Q1 2014 earnings season.
Yahoo: Cost cutting drives earnings growth even as topline stutters
Topline growth at Yahoo has been non-existent for close to three years. This is a direct impact of Yahoo losing the game in PC display and search advertising, which had previously been the bread and butter revenue stream at Yahoo. A look at the revenue growth over the last few quarters highlights the slowdown which has engulfed the company’s core business. The revenue has been on a decline for a greater part of the last two years.
The growth at the company has followed the popular assumption of a company given up for dead. However, the company’s focus on mobile over the last few quarters has put it in a good position to propel ahead in a world fast moving away from PC and onto smartphones/tablets. The number of mobile users on Yahoo properties has been growing rapidly, having crossed the 400 million mark in Q4 2013.
Marissa Mayer, the current yahoo CEO, has a clear goal to align the tech giant to the on-going mobile revolution and leverage this revolution to propel the company ahead. Yahoo’s clear focus on the mobile platform and personalization of its services is central to the top management’s strategy.
The focus on mobile has resulted in various cost cutting initiatives over the last two years, which has continued to boost the bottom line even as the topline growth has been slackening. The resultant impact has been seen in the company beating earnings estimates in each quarter for over three years now.
Earnings history and consensus estimate
The company has delivered earnings ahead of analyst consensus estimates in each quarter over the last three years. The table below summarizes the actual earnings v/s consensus estimates over the last few quarters.
|Quarter||Actual EPS ($)||Consensus ($)||Earning surprise|
As per streetinsider.com
The company has delivered average earnings surprise of 23% over the last two years. The current analyst consensus estimate for Q1 2014 is earnings of 37 cents on revenues of $1.08 billion.
The financial performance of the core business is yet to see any significant improvement. However, the improving user metrics, as given in our Q4 2013 earnings review, and the improving fundamentals have led to a stronger belief in the Yahoo turnaround story. The focus on mobile platform and video ads is critical for resurrection of Yahoo’s core operations, something which has been the central theme of the Marisa Mayer led management. The user metrics like number of paid clicks, rate per click and number of mobile viewers will be of key importance in the Q1 2014 earnings report. Inspite of the current fundamental weaknesses surrounding Yahoo’s core businesses, we reiterate our positive outlook and see significant upside potential to Yahoo stock driven by the value of its Asian investments in Alibaba and Yahoo Japan.
To see the current stock price of Yahoo click here: (NASDAQ:YHOO)