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), 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) 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.

FB Chart

Facebook

Background: Facebook operates as a social networking company worldwide. Facebook, Inc. was incorporated in 2004 and is headquartered in Menlo Park, California.

Book Value: $5.35

Facebook is anticipated to report good fourth quarter earnings after the market closes on Wednesday.

The consensus estimate is currently 27 cents a share, an improvement of 10 cents (37%) from 17 cents during the same period last year. Analysts estimates range from 23 cents per share to 31 cents per share. Along with beating last year's results, this quarter is expected to beat third quarter's result of 25 cents per share.

The stock appreciated 97% in the last year, and the average analyst target price for Facebook is $60.89.

I'm not the biggest fan of Facebook because of the concentration of Mark Zuckerberg's ownership. Granted it's a double edge sword. On one hand, your interests are probably more aligned with management compared to a CEO with little or no long-term holdings. On the other hand, every shareholder other than Zuckerberg has zero say in any of the company affairs.

Shareholders will also want to diligently monitor Google's progress into social media. It hasn't made significant inroads toward Facebook's dominance yet, but continues to motivate users to migrate, or at least add Google as another social media outlet using search engine results as a gigantic carrot.

With that said, I'm also bullish on the company's prospects and absent a black swan event; shareholders should continue to watch their shares appreciate. Facebook entered the world of real money online poker with Zynga (ZNGA) in January. Facebook's monetization potential in online gambling appears huge. I wrote about the new partnership in Facebook and Zynga Increase Online Gambling Bet.

FB Revenue (Quarterly) Chart

At the time of publication, Weinstein is long Zynga.

Follow @RobertWeinstein

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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