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Yahoo's Q1 Earnings May Come In-Line, Strategic Plans Holds Key

 April 17, 2012 12:21 PM

(By R. Chandrasekaran) The struggling Internet information provider, Yahoo (Nasdaq: YHOO), will report its first quarter earnings number after the market closes on April 17. This is the first quarter of operations under the new CEO Scott Thomson. While there may not be any significant changes in the results for the first quarter, the expectation is that Thomson could throw more light on strategic initiatives. This revelation will tell the story of  where the company will be heading.

Just ahead of the first quarter results, Thomson unveiled plans of revamping the company and announced his intention to show exit doors to 14 percent of its workforce. The company has been losing its search engine share and has now been relegated to the third slot allowing Microsoft (Nasdaq: MSFT) to overtake it. Microsoft's March search engine share was 15.3 percent, whereas Yahoo's search engine share slipped to 13.7 percent in March from 14.1 percent in January and 14.5 percent in December.

[Related -Yahoo! Inc. (NASDAQ:YHOO): What Will Drive Future Revenue For Yahoo!?]

The recent workforce reduction plan will not have any bearing on the company's performance for the first quarter, but it can provide enough hints to provide guidance the rest of the year 2012. However, the CFO seems to have done a decent job in controlling expenses growth by exceeding the guided range.

[Related -What The Market Wants: Slow Market Growth Continues: Consider BCOR, JBLU, PRU]

Analysts' seems to be taking account of the fall in search engine share in their EPS estimations. Analyst Ross Sandler of RBC Capital Markets sees a four percent fall in net search revenue to $344 million, while predicting 3 percent year-over-year net display revenue upside to $484 million and other revenues remaining flat at $237 million. This makes the analyst's total estimated revenue for the first quarter to be $1.065 billion.

While net display revenue growth is seen at 4.8 percent year-over-year, proprietary data indicate strong sell through rates and mixed ad quality. Login page sell-through slipped to 88 percent in the first quarter from the fourth quarter's 99 percent. The  slight fall is a result of ad quality that is generally attached to seasonally weaker first quarter relative to the other quarters. The analyst estimates a $20 million and $9 million gross and net contribution from ICLK during the first quarter. Europe, Middle East and Africa face a stiffer comparison both year-on-year as well as the fourth quarter, whereas Asia Pacific region looks easier.

If at all there could be any upside, it can come from EBITDA as Yahoo exceeded RBC Capital Markets analyst estimate by minus 8 percent on average during the last three quarters. Currently EBITDA margin is predicted to be 34.1 percent, which is 3.8 percentage points down from 2011's first quarter.

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