Has YHOO Hit Rock Bottom?

YHOO Preview: Almost a Value Play

Yahoo! (YHOO - commentary - Cramer's Take) is set to report earnings after the close of trading today.

The Street expects earnings of 11 cents per share on revenue of $1.41 billion for the December quarter. For the March quarter, estimates remain steady at 11 cents per share in earnings on slightly lower revenue of $1.37 billion. For the year ending December 2008, the current consensus is for earnings of 52 cents per share on revenue of $5.9 billion.

Yahoo! is really stuck in no-man's land, and to make matters worse, the company is going to have to cut jobs to reduce expenses going forward. Things have not been this bad for Yahoo!, even back when the Internet bubble burst, when the company was a fraction of today's size.

Here are some questions to consider on the release and call:

• Is there a U.S. ad recession, and does it only pertain to Yahoo!? (Google (GOOG - commentary - Cramer's Take) does not seem to show an ad spend decrease, although we will find out this quarter.)
• How much money will the headcount reductions save the company?
• How much will the company lose in access revenue, and what does it propose to counter those losses?
• How is the integration of recent acquisitions (Blue Lithium, Right Media, etc.) coming along, and what are their contributions going to be going forward?
• How is the company's cost per 1,000 impressions?
• What is guidance for first quarter and full year 2008?
• What is Yahoo!'s competitive positioning vis-à-vis Google et al.?
• The Street expects $510 million in earnings before interest, taxes, depreciation and amortization. What will be the actual number generated?
• How will the restructured AT&T (T - commentary - Cramer's Take)contract affect revenues (lower for sure)?
• How does Yahoo! plan to counter declines in affiliate (search) revenue?
• Does the company plan to unlock value in its foreign holdings (Yahoo! Japan, Alibaba, et al.)?

I think that management might guide cautiously going forward given the uncertainties surrounding its business, slashing of jobs and the restructuring of the AT&T contract.

The stock is almost a value play here, however, and if it goes a few points lower, the value boys could start eyeing the company if they haven't started already.

This is not a good stock for a trade, but it could be a compelling buy a few points lower.

Good luck whichever way you are positioned into the call, long or short.

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At the time of publication, Somaney was long Google stock and Google calls, although positions may change at any time without notice.

Jay Somaney is a partner and fund manager with TSG Capital Partners, a hedge fund based in Plano, Texas, and founder of GlobalTechStocks.com, a subscription site that focuses on technology and Indian stocks (including ADRs), providing information, news and chatter. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback; click here to send him an email.