Yahoo! (YHOO) To Report Q2 Earnings: What To Expect?

Yahoo! Inc. YHOO is set to report second-quarter 2015 results on July 21. Last quarter, it posted in-line results. Let’s see how things are shaping up for this announcement.

Factors at Play

Yahoo’s first-quarter adjusted earnings came in line with the Zacks Consensus Estimate. GAAP revenues were down 2.2% sequentially but up 8.2% year over year. Though key areas like mobile, video, native and social were strong, Yahoo’s core business remained weak.

Yahoo’s search business is recovering and its focus on boosting profits is commendable. Recently, the company announced a three-year partnership with one of the largest enterprise-grade database, middleware and application software providers, Oracle, to improve its search business. Yahoo is striving to ramp up the search business, search engine market share and advertising business which should positively impact second-quarter revenues.

However, increased costs related to management’s focus areas are trending up even as total headcount declined significantly, which could affect results in the to-be-reported quarter.

For the second quarter, Yahoo! expects revenues on a GAAP basis within $1.21–$1.25 billion, revenues on an ex-TAC basis in the $1.01–$1.05 billion range, EBITDA to range within $240–$260 million and non-GAAP operating income (excluding SBC of $110–$120 million) in the range of $90–$110 million.

Earnings Whispers

Our proven model does not conclusively show that Yahoo! will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP 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: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 5 cents. Therefore, the Earnings ESP for the stock is 0.00%.

Zacks Rank: Yahoo! has a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

You can consider the following stocks with a favorable combination of a positive Earnings ESP and Zacks Rank #1, 2 or 3:

FTI Consulting, Inc. FCN, with an Earnings ESP of +2.17% and a Zacks Rank #1 (Strong Buy).

ITT Corporation ITT, with an Earnings ESP of +3.39% and a Zacks Rank #1.

Ferro Corporation FOE, with an Earnings ESP of +8.00% and a Zacks Rank #1.