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Yahoo!, Investors Brace for Earnings Report

NEW YORK ( TheStreet) -- Investors will be watching Yahoo!'s (YHOO - Get Report) third-quarter earnings announcement closely Tuesday, as rumors swirl about a buyout from AOL (AOL) and uncertainty over the future of CEO Carol Bartz.

Analysts are estimating EPS of 15 cents, up from 13 cents in the same period last year. Revenue is expected to stay flat at $1.13 billion.

After Bartz was hired two years ago to turn around the search giant following a failed takeover attempt from Microsoft (MSFT - Get Report), some tech watchers have questioned her ability to achieve meaningful results. Yahoo's market cap currently hovers at around $21.7 billion, far lower than Microsoft's $44.5 billion bid.

The company also lags behind competitors in the U.S. search market. According to a recent report from ComScore, while Google (GOOG - Get Report) and Microsoft's Bing increased their share last month, Yahoo's slice declined from 17.4% in August to 16.7% in September.

Also troubling is that within the past month, several key Yahoo! execs have announced their departures, including U.S. operating chief Hilary Schneider. Investors will be keen to hear plans of a replacement for Schneider, as the company's North American segment comprises over 70% of its overall business.

Perceived weakness at Yahoo! culminated last week after reports surfaced that AOL and a group of private equity firms were eying a takeover of the Sunnyvale, Calif.-based company, Bloomberg reported. Talks are in the preliminary stages, and the complex nature of the transaction -- which would likely include unloading Yahoo's 40% stake in Chinese Internet company Alibaba and Yahoo! Japan -- could make a deal difficult to achieve. A reverse merger which would also require Yahoo! selling its Asian assets was proposed, as well.

Some analysts believe Tuesday's earnings announcement will force management to revaluate Bartz's performance.

"I think that Carol will get a few more quarters, but she is under pressure," said Yun Kim, an analyst at Gleacher & Company. "Carol came in 20 months ago and has yet to show she can turn this thing around. It's time to closely examine her track record at Yahoo!"

Last quarter, Yahoo! posted a year-over-year decline in its North American business, despite improvement among peers. "Frustration got to the next level with last quarter's results," Kim said. "It was a wake-up call for investors to get this thing going quickly if it's ever going to improve."

Ironfire Capital's Eric Jackson, a contributor to TheStreet and an activist investor who pushed for Yahoo! to accept Microsoft's acquistion bid, said Bartz has been "a big failure" for shareholders.

"Two years after Bartz's arrival, Yahoo! is less relevant than it was before," he said. However, Yahoo!'s board of directors is unlikely to force Bartz out, Jackson said, as the company would still be required to pay out her contract for the remaining two years.

Jackson calls Bartz -- who eliminated 5% of her staff and froze salaries shortly after becoming CEO -- "a pure cost cutter who can't answer the question 'what is Yahoo?'"

Jackson has a short position in Yahoo!

Yahoo!'s stock has declined over 5% since last year, compared to Google's 11% gain over the same period. Yahoo! shares were down 16 cents to $15.77 in midday trading Tuesday.

--Written by Olivia Oran in New York.

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