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Intel Touches 'Em All, BABA Bails Out Yahoo

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Our first "two-fer" Tuesday in Q2 earnings season brings back computer solutions giant Intel Corp. (INTC - Free Report) and Internet services major Yahoo, Inc. reporting after the bell, and what we've got is A Tale of Two Techs: Intel easily topped earnings and revenue estimates and also guided higher for Q3 and fiscal 2014, whereas Yahoo just met earnings estimates on lower-than-expected revenues, but was once again buoyed by Alibaba news.

Intel a Winner Across the Board

Intel's transition to mobile-based solutions has obviously been a successful one. And aside from its Data Center, Software/Services and Internet of Things segments, Intel's PC Client business improved to $18.7 billion in the quarter, higher than expectations. This good news followed upwardly revised guidance earlier in the quarter on both sales and gross margins -- both of which also guided higher in this afternoon's earnings report:

Earnings per share of 55 cents beat the 52 cents expected. Revenues of $13.83 billion surpassed the $13.72 billion our consensus had expected. Gross margins for Q2, which had guided up to 64% (from 61% at the end of Q1) hit 64.5%. Gross margins and revenues for Q3 are now expected to hit 66% and $14.4 billion, respectively -- also more than earlier anticipated.

While business PC demand has improved, Intel's focus on mobile devices is clearly paying off. The company has recently agreed to form a strategic partnership with Rockchip to provide solutions for tablets. Speaking of paying off, Intel also announced a $4 billion share buyback program in Q3.

In other words, the company is hitting on all cylinders. Intel has a Zacks Rank #1 (Strong Buy), and has since raising guidance earlier in the quarter when 19 upward estimate revisions were logged for Q2 and 22 for fiscal 2014. Now with further upgrades in guidance, we expect to see more analyst revisions going forward. Shares on INTC are up 3.9% in the after-market.

Yahoo: Who's Your BABA?

Unfortunately for Yahoo, their sluggish earnings performance of the past couple quarters remains: Earnings per share of 30 cents (including 4-cents per share in charges and accounting for stock-based compensation) were in-line with the Zacks consensus, but sales of $1.04 billion was lower than the $1.09 billion we had expected. Front and center was the opening comment from CEO Marissa Mayer, which reads, "Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results."

Revenue excluding traffic acquisition costs (ex-TAC) fell 3% year over year, and display ad revenues ex-TAC is down 7% from Q2 2013. Ex-TAC guidance was lowered to a range of $1.02-1.06 billion, down from the $1.1 billion expected. Price per ad fell 24% from a year ago. In fact, nearly every metric we looked at was down from the June 2013 quarter.

That said, YHOO shares are trading less than a percentage point lower in the late trading session. This can be attributed to the announcement that Chinese search giant Alibaba has lowered the amount Yahoo will be required to sell upon the company's IPO, scheduled for August, from 208 million to 140 million shares. This is good news for Yahoo, as the IPO for Alibaba (BABA) is expected to be the biggest of the entire year.

Once the windfall of cash hits Yahoo's coffers, it is widely expected acquisitions will help grow the company in ways organic methods have proven lackluster at best. But in the earnings report, CFO Ken Goldman said, "...[W]e are committed to return at least half of the after-tax IPO proceeds to shareholders..." We expect Yahoo's fortunes will change once this major event takes place; until then, Yahoo has a Zacks Rank #4 (Sell).

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