Yahoo! Guidance Has the Glass is Half-Full

The unusual move on Tuesday by Yahoo! (YHOO - commentary - Cramer's Take) of reiterating guidance for the 2008 first quarter in a mid-quarter-like press release -- as well as offering forward guidance for the next three years -- was greeted enthusiastically by investors (who promptly took the shares up 7%). However, there was relative suspicion by some of the cheerleaders who thought Yahoo's projections for 2009 and 2010 were too optimistic, given the company's recent problems.

Estimates Come in on the High Side

YHOO said that they were comfortable with first-quarter estimates of earnings of $0.11/share on revenue of $1.32 billion. The company said that it plans to double operating cash flow from $1.9 billion expected this year to $3.7 billion by 2010, and also said net revenues in 2010 of $8.8 billion, which would give a compound annual growth rate (CAGR) of 20%, something YHOO has not been able to do of late. The company is guiding revenue growth to 11% year-over-year in 2008, 25% in 2009 and 25% in 2010 vs. consensus Street estimates of 11%, 13% and 11%, respectively.

In the advertising area, YHOO is guiding global online advertising growth of 22% CAGR for the next three years to 2010, and said Search would grow at a 24% CAGR annually over the next three years.

Finally, the company is forecasting Display to grow at a 19% CAGR for the next three years ending Dec. 31, 2010. Industry-wide, YHOO is forecasting 10%-14% industry volume growth, and 8%-10% industry monetization growth in the next three years in Search, and 10%-12% volume and monetization growth in Display for the industry.

The company also said in its filing that it can expand operating cash-flow margins from 33% in 2008 to 38% in 2009 and 42% in 2010 by lowering its SG&A as a percentage of revenue from 35% to 37% at present to 31% by 2010.

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At the time of publication, Somaney was long Yahoo! calls, Google 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.