Yahoo Inc (YHOO – Analyst Report) is set to report third quarter results on October 20, so let’s see how things are shaping up this quarter.

Major Factors In Play

Last quarter, Yahoo managed to exceed top line expectations but fell short on the bottom line. There are a number of factors in play right now that are impacting the company’s profitability.

Management is investing very heavily in quality personnel, so even as the employee count goes down, personnel costs continue to increase. It is also focused on getting quality content to increase engagement, which is another way expenses increase.

On the engagement front, Yahoo has given us some numbers: at quarter-end, Yahoo had a billion users across the world, 600 million of which were using its services on mobile devices. Developers were up to 225,000, apps up to 700,000 and devices using Yahoo 1.8 billion.

So while its people-product-traffic-revenue remains on track, there is a necessarily negative impact on the bottom line, which is common to any company in transition.

Guidance Was Limited

As may be expected of a company focused on investment to boost growth, Yahoo provided limited guidance for the third quarter of 2015. Accordingly, revenue on a GAAP basis is expected to be $1.23-1.27 billion, revenue on an ex-TAC basis $1.00-1.04 billion and net operating loss (including SBC of $125 million) of $75-35 million. It also said it would provide for depreciation and amortization of $150 million.

Some Numbers

While the Earnings ESP is 0.00%, Yahoo has a Zacks Rank of #4 (Sell), so surprise prediction is difficult. We generally don’t recommend sell rating stocks (#4 and #5) going into the earnings announcement and since Yahoo reported a huge miss in the last quarter, some added caution is justified.

Pick These Stocks Instead

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Print Friendly, PDF & Email