Yahoo looking for better Q2 EPS year on year

Fresh market updates from China’s Alibaba raise both optimism and questions.

Yahoo sign
Source: Bloomberg

Yahoo is expected to see its earnings per share increase year-on-year from 0.30 up to 0.38. This will be driven by stable sales of $1.085 billion but a weaker pre-tax profit of only $55.2 million.

Investors continue to focus on the company’s exposure to China’s Alibaba, rather than the day-to-day profitability of Yahoo. The company's 24% stake in Alibaba has exposed it to both the ying and yang of a pre-IPO company run by a ‘unique’ chairman in Jack Ma.

Alibaba is due to float on 8 August 2014 as the date is perceived to be lucky. In filings this week, the Chinese company has updated the markets as to where it feels it is valued, currently $133 billion. This of course sees Yahoo's share worth as $31.92 billion on paper, which is particularly impressive when you consider that the company’s share price reflects a market valuation for the whole of the company as only $35.7 billion.

It is not all good news as Alibaba chairman Jack Ma has been known to make decisions without consulting the company’s largest shareholders, leading to strained relations. Although common in China, the 202 subsidiary companies now under the variable interest entity structure is a little worrying.

During the last quarter, the share price action in Yahoo has been broadly lateral. However, the shares have now broken above the 200-daily moving average and are set to break the 100-DMA imminently. Markets are not expecting much fresh news in these latest figures, and as such a continuation to the top end of the $37-$33 price range looks likely.  

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