Yahoo! Earnings Preview: All About Asia

NEW YORK ( TheStreet) -- Yahoo! ( YHOO) is set to report third-quarter earnings after the bell. With so much good will built up toward the Asian assets (Yahoo! owns 24% of Alibaba and 35% of Yahoo! Japan), CEO Marissa Mayer will have to start shifting some of that goodwill toward the core business itself.

Not much is expected from the core business, as Mayer continues to focus on building out Yahoo!'s mobile apps and turning Yahoo! into a "daily habit," something she's said on earnings calls, in her effort to turn Yahoo! around.

"Though overall traffic growth has been stable, the mix continues to shift toward lower eCPM mobile usage and programmatic buying continues to pressure premium inventory pricing, offsetting improvements in revenue per search," wrote Goldman Sachs analyst Heath Terry in a earnings preview note. Terry focused on the value of the Asian assets on Yahoo's balance sheet, noting it "remains the primary driver of shares of YHOO and continues to offer upside even under our relatively conservative scenarios." Terry rates shares "buy" with a $39 price target.

At a TechCrunch conference in September, Mayer revealed the company has more than 800 million monthly active users (MAUs), but she also said that the company would take three years or more to turn around completely.

JPMorgan analyst Doug Anmuth, who rates shares "neutral" with a $37 price target, is also expecting an inline quarter, as the improved engagement, and search trends continue to be offset by lower monetization and problems with display ads. "With improving engagement metrics and an emphasis on core products aimed at daily habits, we look for management to shift its focus toward improving monetization," Anmuth wrote in his note. "Heavy focus remains on Yahoo!'s Asian assets, but we look for better execution in the core business to consider becoming more constructive on Yahoo! shares from current levels."

Analysts surveyed by Thomson Reuters expect Yahoo! to earn 33 cents per share on $1.08 billion in revenue for the third quarter.

Anmuth notes that recent analysis of comScore data suggest Yahoo! is starting to see traction in both desktop and mobile, as Mayer has pushed mobile ad nauseam, both talking about it, and with all of her acquisitions, including the $1.1 billion purchase of Tumblr, earlier this year.

"We continue to see improvement in engagement metrics as well, but it is unclear how quickly better monetization will follow, particularly as Yahoo! reduces some ad inventory," Anmuth wrote in the note. "Recent commentary from Yahoo! suggests that the focus is currently shifting from products and engagement to monetization, but we think it may take some time to materialize."

According to comScore, during the month of July, Yahoo! properties, ex-Tumblr, surpassed Google ( GOOG) properties for the first time in two years.

Speaking of Tumblr, RBC Capital Markets analyst Mark Mahaney notes that any update on Tumbr could do a lot for Yahoo!, especially as it continues to integrate the platform and its users into Yahoo! "The Tumblr acquisition could do a lot to bring Yahoo! products to a younger demographic, if the company can avoid alienating users while ramping up monetization of that service," Mahaney wrote in a note.

For now, the focus is all about Alibaba, Yahoo! Japan and the continued optimism surrounding those entities. That's good enough for shareholders to give Mayer a pass while she turns core Yahoo! around, however long that may take.

-- Written by Chris Ciaccia in New York

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