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Yahoo: Brace Yourself, It's Going To Be Ugly

by: Eric Savitz October 15, 2008 | about stocks: GOOG / TWX / YHOO    

Eric Savitz

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Yahoo (YHOO) reports Q3 results next Tuesday. Brace yourself for something ugly.

Late Tuesday, Bernstein Research analyst Jeffrey Lindsay provided a pre-announcement update on the prospects for the quarter, and he is not optimistic. Lindsay is looking for revenue of $1.39 billion and pro forma profits of 7 cents a share; that is a bit above the consensus at the top line, but two cents below the Street at the bottom line.

He notes that the Interactive Advertising Bureau last week released data that showed paid search grew 24% in Q2, compared to 17% for display ads, while classifieds and sponsorships fell 6%, and overall ad spending rose 13%. Lindsay thinks Yahoo’s Q3 display ad growth will fall far short of the industry average in Q2, likely in the low single digit range. He notes that key brand advertisers in autos, financial services, travel and elsewhere are pulling out of traditional CPM ad contracts.

Anticipating lower growth, he trimmed his 2009 EPS estimate to 47 cents from 49 cents; he now sees revenue growth of 13%, down from 14% previously. Lindsay also cut his price target for the stock to $18 from $21; he maintains a Market Perform rating on the shares.

Meanwhile, Lindsay expects the company’s ad outsourcing deal with Google (GOOG) to be significantly delayed by regulators - and ultimately disallowed. “We think paid search is due for a review from regulators, whom we think are keen to exert authority in the space,” he writes. “Even if U.S. regulators permit the deal which - given that the FTC has retained the services of Mr. Sanford Litvak - seems unlikely, we think the EU will take a hard look at the deal.”

He also sees a currency hit to Yahoo given the strengthening of the dollar; he expects currency to trim the company’s growth rate by about 3%.

As for the possibility that Yahoo might buy AOL from Time Warner (TWX), he says reports of such a deal “are unwarranted,” and that an acquisition of AOL is unlikely.

On Tuesday, Yahoo shares fell 84 cents, or 6.2%, to $12.65. They've lost another 27 cents, or 2.15%, so far today.

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This article has 2 comments:

  •  
    Oct 15 11:52 AM
    so you think we should short yahoo?
    Reply
  •  
    Oct 15 06:36 PM
    Great Eric i read all you posts! think you can get a broke college student a subscriptions to barrons???
    Reply
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