Yahoo Inc. is expected to report second-quarter earnings after the market’s close on Monday, but the company’s looming sale will likely be front-and-center. The company is expected to stop taking bids and make a decision about a potential suitor, on or around Monday.
Here’s what to expect:
Earnings: Sell-side analysts surveyed by FactSet expect Yahoo YHOO, -0.63% to report a profit of 10 cents a share, compared with 16 cents in the year-earlier period. Contributors to Estimize, a software platform that uses crowdsourcing from hedge fund executives, brokerages and buy-side analysts to predict earnings, expect Yahoo to report slightly weaker earnings of 9 cents a share. Yahoo topped both consensus numbers in its last two reporting periods.
Revenue: The company is expected to report revenue of $840 million, a decline from $1 billion last year, according to FactSet. Estimize has Yahoo earning roughly $838 million in revenue. Just as with earnings, Yahoo is on a two-quarter beating streak with revenue.
Part of the decline may be attributed to weak display revenue, which declined by 1% last quarter. Also an issue is the decelerating sales growth among Yahoo’s MAVENS business group, which includes Yahoo’s mobile, video and native advertising businesses, and has been referred to by Yahoo CEO Marissa Mayer as a key growth area for the company. Last quarter, revenue from MAVENS grew 7% year-over-year, a marked decline from the division’s 26% revenue growth in the quarter prior.
Stock reaction: Shares of Yahoo have risen nearly 4% over the past three months, virtually in line with the S&P 500. They’re down 1% on the year, underperforming the index’s 2.5% gain. The average rating on the stock is the equivalent to buy, while the median 12-month price target on the stock among a poll of nearly 30 analysts surveyed by FactSet is $41.41.
What to watch for: Yahoo has been exploring strategic alternatives, which includes a possible sale of the core business, since the beginning of 2016. Leading bidders include Verizon Communications Inc. VZ, +0.00% and AT&T Inc. T, +0.28% , as well as a few hybrid organizations and private-equity firms. Analysts expect the company to make a decision on or around July 18, when it reports quarterly earnings.
On Monday, SunTrust Robinson Humphrey analyst Rob Peck downgraded Yahoo’s stock to neutral from buy and cut his price target to $42 from $44. He warned investors of a potential sell-off that could come in the wake of the announcement, given the fact that the process has been widely reported and a deal is anticipated.
Peck also pointed to the challenges that could come with closing such a complicated deal, which will likely include the process of liquidating its investments in Alibaba Group Holdings BABA, -0.60% , though he believes a deal could be worth as much as $6 billion.