Yahoo! (YHOO) is seeing a number of prospective bidders make an early exit in its auction ahead of the first-round deadline on Monday, boosting the position of Verizon Communications (VZ - Get Report) as a potential winner.
The Wall Street Journal reported Monday morning that a handful of prospective bidders have decided not to participate, pointing to Time (TIME) , Comcast (CMCSA - Get Report) , AT&T (T - Get Report) and IAC/InterActiveCorp. (IACI) . This effectively paves the road for New York's Verizon to emerge as the winner by cutting out competition. Verizon has publicly expressed its interest in Yahoo! over the past couple months amid deal speculation.
Still, the Journal reported that private equity firms could be the wild card in the auction, as Bain Capital, TPG and Advent International have reportedly expressed interest in the Internet company. At the same time, a strategic player--such as Verizon--will be able to offer a higher premium than a sponsor.
But amid the bidding, the the former Internet darling is getting ready to report earnings Tuesday, where the public will get a glimpse of just how much its core business is in decline and what the company is counting on for growth in the future.
"For core Yahoo!, focus is likely to be on the severity of declines in display and search, as desktop weakness continues to outweigh strength in [mobile, video, native advertising and social media businesses]," Cantor Fitzgerald analyst Youssef Squali wrote in a report Friday.
Wall Street has estimated $848 million in revenue and $115.5 million in Ebitda. Squali expected a slightly weaker $837.9 million in sales but greater profitability, with $125.7 million in Ebitda.
Display ad sales will drop 7.2% from the prior year to $354 million, he forecast, while search revenue will decline a projected 19.3% to about $349 million. Growth in Mavens, Squali suggested, is decelerating.
In the first two months of the year, RBC Capital Markets analyst Mark Mahaney wrote, U.S. unique visitors to Yahoo!'s sites on desktop computers and mobile devices were down 6%, a slightly greater decline than the fourth quarter's 5% drop.
Since reporting fourth-quarter earnings, Yahoo! is actually outperforming big names such as Netflix (NFLX - Get Report) and Amazon.com (AMZN - Get Report) . Yahoo! shares are up 31% since then, which Mahaney ascribed to agitation by Jeffrey Smith's Starboard Value and the expectation of a sale.
The operating businesses that Yahoo! is shopping represent a sliver of the company's value, most of which resides in its stakes in Alibaba Group Holding (BABA - Get Report) and Yahoo! Japan, a joint venture with Japanese telecom Softbank.
Cantor Fitzgerald's Squali has a $51 per share target for the entire company, whose stock declined 66 cents, or nearly 1.8%, to $36.51 on Friday. He attributes $33 per share to the Alibaba stake, $7 per share to Yahoo! Japan and a comparably measly $4 per share to the core business. Bundled up in the valuation is $1 per share for Yahoo!'s real estate and $6 per share for cash and investments.
Marissa Mayer won't be able to tell shareholders definitively whether Verizon, Comcast or Disney will catch the falling knife that is Yahoo's core business. They will, however, get a sense of how fast Yahoo!'s legacy businesses are falling.