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Yahoo Beats Slightly, We Await Guidance

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Amid the Beltway tumult stealing the thunder from Q3 earnings season, Yahoo! has posted earnings after the bell Tuesday afternoon. The Internet-based household name brought in earnings per share (EPS) of 28 cents (subtracting 6 cents per share accounting for stock-based compensation) on revenues of $1.089 billion in the September-ended quarter. Translation: a modest beat, on both top and bottom lines.

The Zacks consensus estimate of 27 cents per share was bested by a penny, which matched exactly the Zacks ESP number of +3.7%. Yahoo brought in about $10 million more in sales than we had expected, with ad sales generally in-line overall, item by item. Paid clicks were up 21% while price-per-click was down 4%. Ads sold rose a percentage point, which is the first time in a long time Yahoo has managed to gain ground in quarterly ads sold.

So with ads worth their weight in gold (well, maybe not gold anymore -- let me think about that) for a company like Yahoo -- especially mobile ads, which are growing at 10x the rate of other online advertisement -- showing progress here is yet another feather in the cap for CEO Marissa Mayer. We won't find out about Q4 guidance, when ads will take on more importance for Yahoo and be of higher quality overall, until the conference call at the top of the hour. Interestingly, the Q&A session will be open to the public, where investors will have brought their questions front and center via email or Twitter.

Thus, Q4 guidance will really tell the tale here. As it stands in the after-market now, shares popped initially before coming down to basically erase the slight losses in Tuesday's regular trading session. The sell-off in the regular market in general looks to have resulted from stalled talks on Capitol Hill regarding a debt-ceiling negotiation. (Tick-tock, folks. Just sayin'.)

Elsewhere for Yahoo, the future of China's largest online retailer Alibaba should be of great interest to investors. Yahoo still owns a 24% stake in the company, which has been talking about a U.S. IPO sometime in the (near?) future. This could bring in tens of billions of dollars in revenue to Yahoo, which it might then spend on further share buybacks or more acquisitions of smaller, mobile app-centric companies. Yahoo has been in acquisition mode for much of 2013; implementation of these various resources will also be key to Yahoo's growth.

Analyst have been mixed overall during the past quarter, though estimates for this fiscal year and next have shown more upward estimate revisions, thus resulting in Yahoo's Zacks Rank #2 (Buy), currently. Our longer-term Zacks recommendation is Neutral.

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