San Francisco: Things went from bad to worse for Yahoo Inc a long time before the financial crisis spurred a new wave of advertising cutbacks by customers that will cast a pall over its quarterly results on Tuesday.
After rebuffing a takeover bid from Microsoft Corp earlier this year and having recently seen a promising advertising sales deal with Google Inc delayed by regulatory challenges, the company’s options have shrivelled.
Wall Street expects Yahoo’s third-quarter revenue to grow, on average, by a tepid 7% from the year-earlier quarter, although profit is expected to rise 26%.
“For Yahoo, there is not going to be any silver lining in the operating sense,” Sanford C Bernstein analyst Jefferies Lindsay said.
Canaccord Adams analyst Colin Gillis agreed. “There are no easy solutions,” he said.
Yahoo is poised to reveal cost-cutting moves that will include a new round of layoffs that go beyond the roughly 1,000 jobs, or 7% of the workforce it laid off in February, according to a source familiar with the plan.
Besides job cuts, analysts say investors should brace for Yahoo to once again cut its outlook for 2008 and perhaps 2009.
“We expect Yahoo to guide to the low end of its guidance for fiscal year 2008 and take a cautious stance toward fiscal year 2009,” Jefferies & Co analyst Youssef Squali said.
In July, Yahoo forecast 2008 revenue of $7.35 billion to $7.85 billion and operating income of $1.83 billion to $1.98 billion before depreciation, amortization and other items.
One of Yahoo’s strengths - its leading market share in online display advertising - has become its biggest weakness, analysts say. It is especially vulnerable to the finance and auto industry slump.
“Fundamentals began to crack up (late in the second quarter) in display (advertising) and we believe may have worsened in recent weeks,” RBC Capital analyst Ross Sandler said in a research note on Monday.
Half of the Sunnyvale, California-based company’s revenue is from display ad sales.