Yahoo Earnings Preview: Wall Street Is Watching 'Promising Structures' Yahoo! Japan And Alibaba

Yahoo! Inc. YHOO is trading lower with the market ahead of its earnings report after Tuesday's close. The company is expected to report EPS of $0.29 in Q4, down 37 percent year-over-year. Revenues are expected at $1.19 billion with operating income of $212.6 million.

What Analysts Are Saying

Yet, the headline numbers are only a fraction of the story.

Many are wondering what Yahoo will do with its stake in Alibaba Group Holding Ltd BABA.

Related Link: Mike Khouw Sees Bearish Options Activity In Yahoo

SunTrust's Bob Peck, for one, is expecting an inline quarter, and is looking for several other items, including:

• The status on "promising structures" for the potential tax-efficient spin-off of Alibaba and Yahoo! Japan stakes
• Performance of mobile, social, native and video
• An appetite for large scale acquisitions following BrightRoll and Flurry integrations as well as the potential for further cost reductions that could boost EBITDA by ~20%
• Status of the pending "opt out" on the search deal with Microsoft

Pivotal, meanwhile, noted acquisitions of BrightRoll and Flurry could generate important revenue in net display, but said these will not have a meaningful impact on Q4. "We would expect them to be incorporated into 2015 guidance," they added.

Tigress recently reiterated a Buy on January 23 and said the company is "highly undervalued." It sees growth potential in Tumblr, Flickr, and mobile apps like Yahoo Weather.

What Dr. Stoxx Says

Thomas Carr, author of the Dr. Stoxx Options Letter, noted the paradigm: “In this increasingly risk-off environment, and all other things being equal, YHOO shares should get a boost if CEO Marissa announces on Tuesday she plans to sell off the stake in BABA after lockup. If she plans to hold, YHOO better come in strong on the top and bottom lines.”

Of course, there are substantial tax implications to Yahoo’s moves. When it cashed in a $10 billion stake in Alibaba, it took a $3 billion tax hit. So, if it plans to sell its $40 billion stake, shareholders will want management to get more creative than it was 18 months ago. 

Yahoo's stake in Alibaba is locked up until September 21, so it's not clear why pressure on CEO Marissa Mayer is building now - except that after a 25 percent increase in share prices over 2014, shareholders want to know how Yahoo will redefine its core business and how it will get there moving forward.