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Facebook and Yahoo! Earnings Previews

NEW YORK (TheStreet) -- Next week's heart of the earnings season will shape the next three month's market performance. After skyrocketing more than 30% in 2013, the market may be ready for a pause based on 2014's start. Let's review two stocks I will be watching for trading opportunities in and around their releases.

Yahoo!

Background: Yahoo! (YHOO - Get Report), together with its subsidiaries, operates as a digital media company that delivers personalized digital content and experiences worldwide. It offers online properties and services to users in three categories, including communications and communities, search and marketplaces, and media. It owns about 24% of Alibaba.

Book Value: $12.33

You wouldn't know it by examining the price chart, but Yahoo! isn't executing nearly as well as many other web properties. Amazon (AMZN), Google (GOOG), Facebook (FB - Get Report) and Twitter (TWTR) are rocking while Yahoo! only appears to. We will soon know if last quarter's results show signs of improving when Yahoo! reports its results after the close on Tuesday.

The analysts' mean profit appraisal is presently 39 cents a share, a gain of 7 cents (17.9%) from 32 cents during the corresponding quarter last year. Analysts' estimates this quarter range from 33 cents per share to 45 cents per share. If Yahoo! meets or exceeds in the upcoming report, the earnings will also surpass third quarter's 34 cents a share earnings.

Marissa Mayer took the reins in the summer of 2012, and the shares have more than doubled. The stock is up 97% in the 2013 alone, albeit the gains aren't a vote of confidence for her leadership. The shares are increasing because of investments in Yahoo! Japan and Alibaba have soared in value during her tenure as CEO.

YHOO Chart

So far Mayer has proven her ability to make acquisitions as Yahoo! bought more companies under her leadership than the previous 10 years combined. It makes for exciting news, but not necessarily growth. To her benefit, Yahoo! beat estimates in every quarter since taking charge.

It's difficult to use standard metrics like price to earnings and revenue growth to value and compare to other companies. Over half of Yahoo!'s market cap can be directly attributed to the before mentioned investments. Viewed from the perspective of removing cash and investments, the company's forward price to earnings ratio is under 10. By that measurement, the shares remain cheap, especially if the shopping Mayer's spree begins to pay off.

You want to focus on guidance more than last quarter's results. Yahoo! can beat and if expectations for growth are missing the shares will be under pressure. I expect an earnings beat by at least two cents, and many on Wall Street will be disappointed if it doesn't beat by at least three. YHOO Revenue (Quarterly) Chart

The short interest is slightly elevated, however, not high enough for me to worry about it. As long as it stays under 4%, I won't give it much thought. Short interest is 3.5%, and if it starts to trend higher I recommend monitoring for a possible exit.

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