Article from Forbes.com this morning. Anyone care to discuss?
Burlingame, Calif. -
All eyes will be on Yahoo! on Tuesday afternoon as it reports second-quarter earnings. The struggling Web portal needs to post strong results to use as leverage in its continuing deal talks with Microsoft and corporate raider Carl Icahn.
But analysts aren’t optimistic that Yahoo! (nasdaq: YHOO - news - people ) will pull off a super second quarter--many are forecasting that the company’s earnings will come in at or below the consensus estimate of $1.38 billion, or 10 cents per share.
Jeffries & Co. analyst Youssef Squali said Yahoo!’s display advertising business, which accounts for an estimated 40% of the company’s total revenues, likely grew more slowly this past quarter than it did in the first few months of the year due to shrinking advertising budgets in sectors such as autos, financial services, consumer products and pharmaceuticals.
Advertisers are "favoring direct response mediums such as search at the expense of display," Squali wrote in a recent research note. Still, he added, the likely slowdown in Yahoo!’s display ad business is "surprising given that the Internet platform remains an attractive medium price-wise when compared to traditional mediums such as TV and radio."
Squali, who expects Yahoo!’s earnings to hit the consensus estimate of 10 cents per share, warned that a weak second quarter would make the company’s three-year growth plan "virtually unattainable."
Citigroup analyst Mark Mahaney predicts that Yahoo! will report net income of 8 cents per share. "We view Yahoo!’s overall fundamentals as deteriorating," he wrote in a recent research note.
Both Squali and Mahaney still think Microsoft (nasdaq: MSFT - news - people ) might try to acquire all of Yahoo! again. An offer of $28 to $32 a share for the Web portal isn’t out of the question especially if second-quarter results are weak, Squali wrote. Since February, Microsoft has been pursuing Yahoo! and initially offered $31 per share and raised its bid to $34 in May. But the Web portal has rejected all the software giant’s offers, including those to buy only Yahoo!’s search business.
Corporate raider and shareholder activist Carl Icahn thinks Yahoo! should sell to Microsoft and has assembled a proxy board to unseat the Web portal’s current members at the company’s annual meeting on Aug. 1. If Icahn’s slate wins, it would negotiate a deal with Microsoft. Icahn and Yahoo! were said to have had talks over the weekend to come to a compromise in which Yahoo! gives four of its 10 board seats to Icahn’s group in exchange for remaining an independent company.
Yahoo! is playing all the angles though. It posted a purple button on its home page Friday that links to a page that decries Icahn’s plan and urges shareholders to cast their votes online to keep the current board members.
Yahoo!’s board also won support Friday from one of its biggest shareholders: Legg Mason (nyse: LM - news - people ), which owns 4.4% of the company’s shares. Legg Mason Chairman Bill Miller said in a statement that the Web portal "acted with care and diligence when evaluating Microsoft’s offers." Previously, Miller had expressed disappointment with Yahoo! after it rejected Microsoft’s second offer of $34 per share.
Expect other proxy solicitation firms to weigh in this week on what Yahoo!, Microsoft and Icahn should do. The noise likely will grow louder until the Aug. 1 showdown.
