Yahoo! to Report Quarterly Earnings Tomorrow

With Microsoft's three-week ultimatum coming due in five days (April 26) and AOL and Google in the mix, Yahoo's first quarter earnings release tomorrow could be one of their most important. With the economy slowing, one could hypothesize that earnings for Yahoo could be down, however because Yahoo is in no rush to work out a deal with Microsoft, most people believe that things are looking up for Yahoo. Industry analysts predict revenues of approximately $1.33 billion, which translates into 12% year-on-year growth and $.09 earnings per share.

Another major point of interest that people are eagerly anticipating is the result of Yahoo's two-week trail ad partnership with Google. A successful partnership would fall in the range of at least a 30% - 40% increase in revenue per search.

Tomorrow's announcements will most likely determine how much bargaining power Yahoo will have in a possible Microsoft take over. While analysts opinions are split on whether or not the deal will actually happen and at what price, all analysts agree that Yahoo has been and still is a strong company. Bernstein analyst Jeff Lindsay says:

We expect management to have pulled out all the stops to drive up Q1 performance, maximize their value, and make life generally as difficult/expensive for Microsoft as they can… We also think it likely that a deal with either AOL (NYSE: TWX) or Google or both will be announced ahead of the Microsoft deadline, and see this as a positive for shareholders.

While Needham analyst Mark May states:

We believe in-line results and either a maintaining or increasing of CY08 guidance will provide Yahoo! mgmt with further proof that it is executing toward its three-year financial plan, and will tilt the negotiating power in the MSFT take-over bid toward Yahoo!, in our view. Despite Yahoo!’s value as a take-over candidate and the potential for a raised MSFT bid, we are maintaining our Hold rating as i) we believe the company currently trades at or above its stand-alone fundamental value, and ii) we believe there is as much as a 50% chance that the MSFT transaction does not take place.

In the end the market seems to feel that Microsoft will eventually take over Yahoo, however key variables such as the Google ad partnership outcomes and how positive Yahoo's Q1 earnings have been will help determine how good of a deal Yahoo will be able to negotiate.

Sources: Paidcontent.org