Yahoo (YHOO) Q2 Preview: Lukewarm, Squishy, Mixed

Yahoo (YHOO) reports Q2 this afternoon after the close. We'll be covering the results and conference call live here, beginning at 4PM. Press release probably out around 4:15/1:15. Call starts at 5PM/2PM. Details and webcast here.

Preview

We expect Yahoo's results to be...mixed. Why? In part because Yahoo slices and dices its results in so many different ways that, by the end of the call, we'll be groping for the brevity of a single adjective. And in part because we expect the results to be, well, mixed: uninspiring revenue, okay bottom line (thanks to those firings), uninspiring guidance.

Specifically:

Gross Revenue: $1.73-$1.93 billion guidance
Net Revenue: $1.37 billion consensus
Operating Income: $135-$155 guidance
EBITDA: $425-$455 guidance, consensus higher ($450ish)
EPS: $0.12 consensus
Outlook:

2008: Net Revenue $5.72 billion, EPS $0.48 (Gross Revenue guidance: $7.2-$8 billion
2009: Net Revenue $6.47 billion, EPS $0.61

Lehman's Doug Anmuth has the details:

We look for gross revenue to be in the lower half of guidance and likely below our estimates given overall macro-headwinds and display in particular, but we expect EBITDA to fare somewhat better given recent headcount reductions and cost containment efforts.

For the quarter we project net revenue of $1.38 billion (+11.3% Y/Y), EBITDA of $460 million (-2.9% Y/Y, 33.2% margin), and GAAP EPS of $0.10. Our estimates are essentially in line with consensus for net revenue of $1.37 billion (+10.4% Y/Y), EBITDA of $457 million (-3.5% Y/Y, 33.3% margin), and GAAP EPS of $0.10. We believe this morning’s settlement between Yahoo! and Carl Icahn—in which Mr. Icahn and two of his nominees will be appointed to the Yahoo! Board—likely takes some of the edge off of 2Q results and reduces the significance of Yahoo!’s annual meeting on August 1.

We believe much of the focus on the call will be on Yahoo!’s display business given the weakening macro backdrop and recently evident impact on companies such as Microsoft, Valueclick, and Bankrate. While we expect Yahoo!’s gross display revenue to grow 25% Y/Y to $509 million, this number will be helped by Yahoo!’s newer premium display partners such as eBay, Comcast, and WebMD, as well as the acquisitions of Right Media and Blue Lithium. We think Yahoo!’s O&O display growth is a better proxy for the core business, especially as its third-party ad management platform is just beginning to ramp up. For the quarter, we project O&O display to grow 16% Y/Y to $462 million, but this projection is likely too optimistic given signs of a softening display market and Yahoo!’s large exposure as the industry leader.

Turning to search, Yahoo! gained modest share in May and June off of its all-time low of 20.4% share in April (comScore), and Marketplace Reserve Pricing—which went into effect in mid-April—could boost monetization, but tougher comps (2Q07 was the first full quarter of Panama) and a continued focus on the quality of affiliates are likely to impact overall growth. We project search gross revenue of $1.03 billion (+3.2% Y/Y), of which we believe O&O search net revenue will grow 13% Y/Y to $447 million. We look for Yahoo! to provide more detail on the early effects of Marketplace Reserve Pricing, Search Monkey, and potentially any update to the status of the search partnership with Google.

Thanks, Doug. If we still had to go into that level of detail, we'd shoot ourselves.