It's been a while since
CEO Terry Semel could walk into earnings season with a spring in his step.
But he may finally get the chance as his company prepares to announce first-quarter results after Tuesday's closing bell. Following a brutal 2006, Yahoo! has shown signs of righting the ship this year. The stock has rallied an impressive 23% this year, making it the best-performing big-cap Internet stock by a wide margin. The
, meanwhile, has gained only about 4% over the same time frame.
The ahead-of-schedule launch on Feb. 8 of Panama, Yahoo!'s new ad-ranking system, has been one of the main catalysts of the stock's recent gains. Panama serves up ads in a new order that is expected to increase click-through rates and result in increased revenue.
The system has been met with largely positive responses so far, and several recent bullish comments by Yahoo! management have raised expectations. Even though Yahoo! has said it won't see any financial impact from Panama until the second half of this year, investors seem to be lining up in advance.
For the first quarter, analysts surveyed by Thomson First Call are expecting, on average, earnings of 11 cents a share on revenue of $1.21 billion. That revenue expectation comes in toward the top end of the $1.12 billion to $1.23 billion guidance Yahoo! itself provided.
For the second quarter, analysts are forecasting 13 cents on revenue of $1.28 billion. For the fiscal year, analysts are forecasting 54 cents on $5.3 billion in revenue.
Beyond Panama, Yahoo! also has introduced several other promising new services over the quarter. It unveiled
a flurry of new additions to its mobile platform, including several upgrades to the oneSearch technology that will serve as the cornerstone of its bid in the burgeoning market. The company also announced a new mobile ad network as it hustles to get ahead of rival
in tapping the emerging market for mobile ad dollars.
On Monday, Yahoo! also finalized an advertising and content partnership with a consortium of major newspapers. The agreement will allow Yahoo! to sell ads on some of the newspapers' Web properties and feature some of their content on its own Web pages. The move is expected to bolster Yahoo!'s presence in the local search and advertising business, which is outpacing the overall growth in the ad business.
The steady stream of products and partnerships reflects well on Yahoo!'s management team, which seems to again be hitting its stride. It also stands in stark contrast to the second half of 2006, when a steady stream of top executives headed for the door -- even ahead of a major shakeup at the top.
Still, Yahoo! also has stumbled at times over the quarter, and more cautionary voices have started to emerge in the wake of the run-up in its stock price. In March, Yahoo! found itself the victim of a power play by longtime partner
, which was reportedly
re-evaluating the terms of its Web subscriber agreement with Yahoo!. And while an outright separation was unlikely, a new agreement that's much less favorable to Yahoo! seems to be in the cards.
And even though Yahoo! seems to gain ground in its new ventures, there are fears that the company may be slipping when it comes to its bastion of strength: rich, graphical advertising. The rise of highly popular new sites such as
, coupled with a bid by players such as
AOL to offer more ad space may be putting pressure on Yahoo!.
Google's plunge into the online display ad market via its plans to acquire the ad technology firm DoubleClick will only heat up the competition in the space. "The deal announcement could put some selling pressure on Yahoo! stock in the near-term as it will be viewed as creating a stronger competitor, accelerating Google's entry into the display advertising market," American Technology Research analyst Rob Sanderson wrote in a research note on Monday. Sanderson, however, clarified that he believes the risk of competition from Google to be limited in the near term.
And despite its recent gains, Sanderson says Yahoo! could still move higher if the company were to raise guidance for its second quarter. "Upward revisions to guidance this early in the year would be a very bullish sign and we would expect the stock to move higher," Sanderson wrote.
While the prevailing wisdom says Yahoo! has had its run for now, Sanderson argues, the stock is still much lower than it was prior to 2006 highs, before it first announced that Panama would be delayed. "The stock is after all still down 28% from highs in Q1 last year when investors were optimistic that search improvements were coming in 2006," he wrote.
Still, it's tough to compare Yahoo! with where it was a year ago. While Panama is now out, Google has made steady gains in its share of the search market. And while Internet advertising has continued to boom, a new crop of start-ups competing for those dollars has emerged over the same period.
Ultimately, another leg higher in the stock may come down to whether Yahoo!'s financial outlook is as bullish as recent management comments have led many investors to hope.