Yahoo's Q2 earnings are about everything but earnings
Yahoo’s second-quarter earnings per share missed expectations, while its revenue beat expectations—but none of it matters much.
Analysts expected Yahoo to report earnings of 10 cents per share, down from 16 cents a year ago. Instead, it reported 9 cents. For revenue, analysts predicted $1.08 billion, which would have been a 13% drop—instead, revenue came in at $1.31 billion.
All eyes have been on the company leading up to this earnings report, but not because of earnings. The only story that matters to the market right now is the potential sale of the company.
Has a company’s quarterly earnings announcement ever been so highly scrutinized and anticipated, for reasons having little to do with the earnings?
Revenue from the division Yahoo calls MaVeNS (mobile, video, native ads, and social), a key focus, rose 7% in the first quarter, but that was seen as a disappointment after the category rose 26% in the quarter before. In the second quarter, MaVeNS rose 26%.
Suntrust downgraded Yahoo to neutral in advance of the earnings, despite the fact that, “We expect a positive result (~$6B in total).” If the company has already selected a winning bid, positive or negative earnings aren’t going to change sentiment.
Many are expecting Yahoo to announce the buyer of choice on Monday along with its earnings, or to at least say or indicate something about the process. But it is under no obligation to do so, and the head-scratching and speculation may continue for weeks.
It’s also still possible that even after such a public bidding process, Yahoo could still delay a sale; analysts believe that is what CEO Marissa Mayer wants, though activist investor Starboard Value feels differently.
If Yahoo does sell, the leading bids for Yahoo or for pieces of Yahoo have reportedly come from: Verizon; AT&T; Quicken Loans founder Dan Gilbert with financial backing from Warren Buffett; private equity group Advent International; private equity group TPG; and private equity firm Sycamore in partnership with Vector Capital Management.
Yahoo says it is “not commenting on the process until a definitive agreement has been reached.”
For all the hue and cry over Yahoo’s sale process, and all the negative hot-takes by the tech media, the truth is that no one really knows anything. If all the apparent leaks are to be believed, everyone has a sense of the companies still bidding, but even that list, thought to be a general consensus, could be wrong.
The price Yahoo could fetch is also highly uncertain. Factors like Yahoo’s patents, its media business (including Yahoo Finance), and its stake in Alibaba have led some analysts to report that the company could fetch much more than the $3.5 to $5 billion range most media outlets have settled on.
Suntrust, in a new note, points out that, “Yahoo is running two auctions in parallel – core sale and Excalibur patent portfolio – so we wouldn’t be surprised to see multiple winners. We expect the core to generate ~$6B in aggregate, in one or multiple transactions.”
Amidst all the scrutiny, Yahoo’s stock has risen 4% in the last three months, and 32% in the last six.
It’s worth noting that Yahoo stock, which has often closely matched the performance of Alibaba stock, decoupled somewhat from Alibaba last November through this January. Then they rejoined for a time, and decoupled again in the past few days.
What Yahoo could fetch in the end from interested buyers—if it does sell—is anyone’s guess.
Disclaimer: Yahoo is the corporate parent of Yahoo Finance, but Yahoo Finance covers Yahoo as it does any other large public company.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and tech. Follow him on Twitter at @readDanwrite.
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