Yahoo's Ad Sales May Keep Shrinking -- Earnings Preview

Yahoo is scheduled to announce its third-quarter earnings after the market closes Tuesday. Here's what you need to know:

EARNINGS FORECAST: Yahoo is expected to earn 30 cents a share, according to the consensus of analysts surveyed by Thomson Reuters, compared with 34 cents reported a year earlier. Yahoo missed analysts' expectations in the second quarter by a penny.

REVENUE FORECAST: Analysts expect revenue, excluding commissions paid to partners, of $1.04 billion, compared with $1.07 billion reported the year earlier. The company gave a forecast of $1.02 billion to $1.06 billion. Yahoo's revenue has fallen in four out of the past five quarters on weakness in display advertising. CEO Marissa Mayer admitted then that Yahoo's transformation "will take a little longer than we originally forecast."

WHAT TO WATCH:

--USE OF ALIBABA PROCEEDS: Yahoo took in $5.8 billion in cash, after taxes, by selling part of its stake in Alibaba during the Chinese company's IPO last month. Yahoo has said it plans to return at least half of that cash to shareholders via a buyback or dividend, and announced it would give an update on those plans when it shares third-quarter earnings. What many shareholders are most interested in--Yahoo's plan for avoiding taxes on its remaining Asian assets--is unlikely to be discussed, because Yahoo is restricted in discussing the matter by the terms of its agreement with Alibaba.

--M&A STRATEGY: Chief Executive Mayer is expected to update shareholders on her acquisitions strategy, which has brought in more than three dozen small startups in two years and cost the company more than $1.3 billion. Facing new pressure from activist investor Starboard Value LP, Yahoo plans to focus less on smaller deals while it considers acquiring one or more large tech startups with some of its Alibaba proceeds, people briefed on those plans told The Wall Street Journal.

--MOBILE ADS: Yahoo's mobile sites and apps have more than 430 million monthly users combined, and the company has made mobile ads a bigger part of its pitch to marketers. This could be the first quarter Yahoo breaks out how much revenue it's generating from mobile, as Ms. Mayer seeks to assure investors that her strategy is paying off.

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