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Earnings Preview: Yahoo! Inc.

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Yahoo! Inc. is set to report first quarter 2013 results on Apr 16. Last quarter it posted an 18% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Yahoo’s fourth quarter 2012 revenues were up 12.0% sequentially and 1.6% year over year. Display revenues (ex-TAC) increased 15.2% sequentially while declining 4.6% from the comparable quarter of 2011. Management attributed the year-over-year decline to declining engagement on key properties, primarily webmail.

Yahoo’s display business was under pressure given the growing success of archrival Google and Facebook. Yahoo was steadily losing its market share.

However, under its new CEO Marissa Meyer, Yahoo has been active on the acquisition front. It acquired 5 start ups mainly in the mobile space. The acquisitions are part of a strategy to broaden and strengthen Yahoo’s expertise in the mobile segment as adoption of mobile devices such as smartphones and tablets continue to accelerate. 

With these acquisitions, Yahoo is picking up a whole lot of engineering talent as well as key technologies and products at a cheaper rate. Yahoo also expects that these acquisitions will enable it to enter the emerging social marketing segment, where its rivals have already established themselves.

Earnings Whispers?

Our proven model does not conclusively show that Yahoo is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%.

Zacks Rank #1 (Strong Buy): Yahoo’s Zacks Rank #1 (Strong Buy) increases the predictive power of ESP and the Zacks Rank #1 when combined with an ESP of 0.00% indicates the possibility of a positive surprise. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:  

Sandisk Corp. , with an ESP of +9.09% and a Zacks Rank #1 (Strong Buy).

Webcom Group Inc., with an ESP of +5.13% and a Zacks Rank #2 (Buy).

Aol Inc., with an ESP of +3.03% and a Zacks Rank #3 (Hold).

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