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Yahoo! Earnings Preview: What Wall Street's Thinking

NEW YORK (TheStreet) -- Yahoo! (YHOO) is scheduled to release fourth-quarter results after the close. Given the sharp run up in shares in 2013 and the recent departure of its top ad exec, all eyes will be watching the Internet giant.

The company has struggled to turn around its core business, with Mayer bringing in Henrique de Castro from Google (GOOG) to help. It became apparent, however, that de Castro was not turning around the struggling advertising unit, despite Yahoo! growing to more than 800 million monthly active users (MAUs). Mayer recently terminated de Castro, who received one of the largest golden parachutes in history, to the tune of more than $60 million in cash and stock.

Since Marissa Mayer took over as CEO in July 2012, shares of Yahoo! have performed exceptionally well, gaining 135%, compared to a 41% rise in the NASDAQ. Much of that rise has come from Yahoo!'s stake in Alibaba, the Chinese Internet behemoth, which has been compared to Amazon (AMZN), eBay (EBAY), PayPal, and Google (GOOG), all rolled into one.

Despite the failure of the core advertising business, Alibaba has been a big driver for Yahoo! earnings, as the Chinese company gets set to go public, and expectations surrounding its market cap rise. Last quarter, Alibaba helped generate $233 million in net income for Yahoo!, along with Yahoo! Japan, which Yahoo! owns a 35% stake in.

Analysts surveyed by Thomson Reuters are expecting Yahoo! to earn 38 cents a share on $1.2 billion in revenue. In the third quarter, Yahoo! earned 34 cents a share on $1.08 billion in sales.

With eyes focused firmly on 2014 and the core business (including Tumblr), Yahoo! and Mayer will have to do more than put a pretty purple bow on its earnings report, and start thinking about how to turn those 800 million sets of eyeballs into serious revenue growth for its core business.

Here's what several analysts on Wall Street are expecting from the results:

JPMorgan analyst Doug Anmuth (Not Rated, No PT)

"Yahoo! made significant improvements in user engagement in 2013, with a notable increase in product launches and focus on innovation. According to comScore, Yahoo! surpassed
Google in unique users in the U.S. during 3Q13 for the first time since 2Q11. Key product improvements included a new Search interface with news feed ads, new mobile interfaces for key products such as Sports, Mail, and video, and the Tumblr acquisition. Despite the improvement in engagement, monetization has lagged and we believe it will be a primary focus for Yahoo! management. We look for increasing volume of news feed style ads, possible improvements in Display, and greater monetization of Tumblr."

Cantor Fitzgerald analyst Youssef Squali (Buy, $38 PT)

"While we've seen significant progress in company culture, product improvement, and even an uptick in user engagement, 2014 is supposed to be the year when Yahoo! shows improvement in monetization and hopefully a resumption of growth. In fact, our 2014 estimates call for overall revenue growth of +5.0% Y/Y vs. -0.4% in 2013."

BGC Partners analyst Colin Gillis (Hold, $34 PT)

"The company has completed 23 acquisitions in 2013, and two so far in 2014 in efforts to add in new talent and reboot the core business. While we understand the need to quickly layer in talent, particularly in the area of mobile, we suggest investors be prepared for a degree of destruction of capital related to these acquisitions and hires. We point to the recent exit of COO Henrique de Castro after 15 months, who is likely to keep the majority of his $18 million restricted stock units (RSUs) and his $20 million of make-whole RSUs. Reports indicate de Castro generated between $88 to $109 million in total payout during his time, or approximately $2.10 - $2.73 for every second of every day while at Yahoo. Display revenue declined every quarter that de Castro was COO of Yahoo."

--Written by Chris Ciaccia in New York

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