Zacks Analyst Blog Highlights: Yahoo, Google, Microsoft, Baker Hughes and AutoNation

For Immediate Release

Chicago, IL – August 25, 2010 – Zacks.com Analyst Blog features: Yahoo (YHOO - Analyst Report), Google Inc. (GOOG - Analyst Report), Microsoft (MSFT - Analyst Report), Baker Hughes Inc. (BHI - Analyst Report) and AutoNation Inc. (AN - Analyst Report).

Here are highlights from Tuesday’s Analyst Blog:

Yahoo Grabs Search Market Share

Yahoo's (YHOO - Analyst Report) share in the Web-search market grew nearly half a percentage point in July, but Google Inc. (GOOG - Analyst Report), despite losing the ground to Yahoo, maintained its dominance in the U.S. search engine market, as shown by figures released by Internet market research company comScore Inc.

Search engines make money when users click on the text ads placed beside search results. Web queries are an important element in helping search engine optimization and web advertising firms decide where to put their money. New York-based eMarketer estimates that the U.S. search advertising market will expand 16% in 2010. This year, the overall online advertising market is expected to grow 11%, eMarketer estimates.

Yahoo, which saw its search advertising revenue fall 8% in the most recent quarter, has been working on increasing the interactive elements in its search results in order to attract traffic. Although the share gain is encouraging, the company’s ability to grow traffic even as its search business goes through a transition could be challenging for Yahoo going forward.

Yahoo, with nearly 17.1% of the “explicit” web searches in July, versus June’s 16.7% share, grabbed the 0.4% advance from Google, which saw its share of searches dipping to 65.8% in July from June’s 66.2%. Bing, owned by Microsoft (MSFT - Analyst Report), maintained its perch at the No. 3 spot with 11% of all searches in the U.S., unchanged from June. In all, there were 15.6 billion searches in July, comScore said.

After a controversy over how it defines web searches, comScore changed the way it measures monthly search engine figures and introduced the concept of “explicit core searches” alongside the contextual searches that include slide show searches and artificial pop ups that may not be of users’ perceived interests. Explicit core searches exclude slide show features and reflect intent on part of the users to conduct a search.

To challenge Google’s dominance of the online search market, Yahoo and Microsoft had announced a ten-year Internet search partnership agreement in July 2009 that would give Yahoo 88% of the revenue from web search ads appearing on its network of both owned and operated as well as its affiliated sites. Microsoft had said it would provide its Bing search engine to power searches on Yahoo sites.

Continuing that relationship, Yahoo and Microsoft announced recently that they would begin gradually transitioning searches conducted by users on Yahoo’s site to Microsoft’s Bing. The companies said users in the U.S. and Canada would see a “Powered by Bing” tag at the bottom of the Yahoo search page. However, it remains to be seen if a pre-holiday transition is possible.

We have a Zacks #3 Rank (short-term Hold recommendation) on Yahoo’s shares.

Rig Count Hits Another Yearly High

In its weekly release, Houston-based oilfield services company Baker Baker Hughes Inc. (BHI - Analyst Report) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country), reflecting an increase in the land rig count.

Rigs exploring and producing in the U.S. totaled 1,651 for the week ended August 20, 2010. This is up by 11 from the previous week’s rig count and represents the highest level achieved this year. The current nation-wide rig count is 88% higher from the 2009 low of 876 (set in the week ended June 12, 2009) and significantly exceeds the prior-year level of 985. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.

Rigs engaged in land operations climbed by 8 to 1,616, inland waters activity increased by 2 to 14, while offshore drilling expanded by one to 21 rigs.

Natural Gas Rig Count

The natural gas rig count decreased for just the second time in the last 8 weeks to 985 (a loss of 7 from the previous week). Last week, the number of gas-directed rigs hit 992, an 18-month high. The U.S. gas drilling rig count has rebounded strongly after bottoming out to a 7-year low of 665 on July 17, 2009. Still, the rig count remains 39% lower than its peak of 1,606 in late summer 2008. In the year-ago period, there were 695 active natural gas rigs.

Oil Rig Count

The oil rig count was up by 19 to 655, the fifth consecutive weekly rise and the highest level since December 14, 1990. The current tally is considerably higher than the previous year’s rig count of 280. It has recovered nicely from a low of 179 in June 2009, nearly quadrupling in number.

AutoNation Upgraded to Outperform

We have upgraded our long-term recommendation (6+ months) on the shares of AutoNation Inc. (AN - Analyst Report) from Neutral to Outperform. This is based on its improved results and recent acquisitions.

In the second quarter of 2010, AutoNation posted a 36% increase in profits (adjusted) to $62 million or 38 cents per share from $50 million or 28 cents per share in the prior-year quarter. With this, the automotive retailer has inched past the Zacks Consensus Estimate of 36 cents per share.

Revenues in the quarter escalated 19% to $3.1 billion, driven by a marked 25% improvement in the new and used vehicle revenues. It was close to the Zacks Consensus Estimate of $3 billion. Operating income increased to $125.9 million from $100.9 million a year ago.

The company continues to surpass the industry in terms of growth in new vehicle unit sales. The increase in new vehicle unit sales was higher than the industry sales increase by 4 percentage points and 8 percentage points in the first quarter and second quarter of the year, respectively.

We appreciate the company’s aggressive share repurchase policy. In 2009, the company repurchased 7.7 million shares for $136.1 million, up from $54.1 million worth of shares repurchased in the prior year.

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