Investors are tremendously excited about Yahoo's potential, but the
company has to soon show results to justify the enthusiasm. Shares of
Yahoo are up 22% so far this year and 55% since Marissa Mayer took
over as CEO last July. Shareholders aren't just giddy about Mayer,
however. Yahoo is sitting on an increasingly lucrative 24% stake of
Chinese e-commerce company Alibaba, an improving search business, and
a strong crop of newly redesigned products. When Yahoo reports its
first quarter financials Tuesday afternoon, Wall Street analysts
expect the Internet giant to say that its Asian assets, which include
Alibaba, contributed nicely to its bottom line. Doug Anmuth, a
JPMorgan analyst, said he believes Yahoo's Alibaba stake is now worth
about $14 billion -- and that it is rapidly growing. Yahoo's search
business, which represents about 40% of Yahoo's overall sales, should
also help the company. Although Yahoo and search partner Microsoft
still trail industry leader Google by a wide margin, the good news for
Yahoo is that the amount of advertising revenue it gets per search
likely increased in the first quarter. Colin Gillis, an analyst with
BGC Partners, said he expects Yahoo's search revenue to have grown 7%
in the first quarter. Yahoo also needs a boost beyond search though.
The company has long stressed the importance of being among the
largest Internet properties in the world. But page views haven't
always translated into financial success. Revenue from display
advertising -- banners and videos -- has suffered during the past few
years. Mayer has recently taken steps to address this. Yahoo unveiled
a new homepage, a redesigned Yahoo Mail and a refreshed Flickr
service. All were designed to increase user engagement, but analysts
aren't convinced the design tweaks were enough to boost display
advertising yet. Sales in that business, which represents another 40%
of Yahoo's revenue, are expected to have declined 7% last quarter. So
that would wipe out any gains from search. Overall, analysts surveyed
by Thomson Reuters expect sales and profit to have grown 2% in the
first quarter. Yahoo has generated a significant amount of buzz
lately, backed by rumors that it is negotiating an expanded
relationship with Apple and thinking about dropping Microsoft as a
search partner. If Yahoo's Microsoft Bing partnership doesn't reach a
certain sales threshold -- one the companies are very close to missing
-- then Yahoo has an out clause that it could utilize. Mayer's
well-publicized cultural changes at the company have also given
shareholders reason to believe in Yahoo once again -- even though her
ban on telecommuting may make her less popular with some Yahoo
employees. But with Yahoo's stock nearing five-year highs, the company
needs to prove that all the excitement is well founded.
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