Tuesday night, online community veteran and Stock Advisor pick Yahoo! (NASDAQ:YHOO) will tell us how the first full quarter under everything-old-is-new-again CEO Jerry Yang worked out. Here's how the third-quarter outlook shapes up ahead of the call. (Peek into last quarter if you need a refresher.)

What Fools say:
More than 3,600 Motley Fool CAPS users have rated this stock, with 86% of them liking it. But market performance factors in, too, and Yahoo! has been stuck on a two-star rating (out of five) for months.

The Fools who like the company's chances point to an unmatched array of household-name online properties and a much-rumored Microsoft (NASDAQ:MSFT) buyout. But All-Star player kristm thinks the company has "abandoned its original mission and purpose." Yahoo! could be a "social networking site with its own established messaging system, compelling multiplayer games, photo sharing, e-mail, and lots more," instead of just another search portal.

Here's how Yahoo!'s CAPS scoring rates against some of its peers and competitors:

Market Cap (billions)

CAPS Rating

Bull Ratio

Google (NASDAQ:GOOG)

$158.9

**

69%

eBay (NASDAQ:EBAY)

$54.1

***

89%

Yahoo!

$38.2

**

86%

Baidu (NASDAQ:BIDU)

$11.0

***

82%

IAC/InterActive (NASDAQ:IACI)

$8.5

***

90%

Data taken from Motley Fool CAPS on Oct. 14.

What management says:

  • Revenue. Management can see $1.2 billion to $1.3 billion coming in the door, excluding traffic acquisition costs -- up from last year's $1.12 billion.
  • Earnings. The company doesn't offer earnings guidance, but does say that operating income should land between $90 million and $120 million this time. That would be down from $202 million a year ago, and would be the weakest operating income since 2003.

What management does:
Yang took over the reins with most of the profit metrics and revenue growth in a free fall. And it's not that e-commerce and search marketing can't make money anymore -- just look at Google. Yang said from the start that he had to improve operations, speed up the execution process, and foster a "culture of winning," and those needs show in the numbers.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

60.7%

60.3%

59.4%

60.1%

59.9%

60.1%

Operating

18.8%

17.2%

15.5%

14.6%

13.9%

13.0%

Net

32.8%

21.1%

18.7%

11.7%

11.2%

11.0%

Growth (YOY)

3/06

6/06

9/06

12/06

3/07

6/07

Revenue

41.6%

35.4%

28.7%

22.2%

15.6%

11.4%

Earnings

96.4%

(20.4%)

(26.5%)

(60.4%)

(60.4%)

(42.1%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As management's income guidance shows, you can't expect miracles in one quarter. Yang's challenges are profound, and it will take time to meet them all. But Terry Semel got a few good things started before stepping down from his CEO post, including a revamped advertising system and an overarching Web 2.0 redesign of the essential Yahoo! property portfolio.

That redesign is a baby-step kind of thing. For a quick taste, go look up a ticker symbol on Yahoo! Finance and note how the search process and presentation both are very different today than what we've been used to for years and years.

Jerry Yang is one of Yahoo!'s founding fathers, and new President Sue Decker has proven her mettle. If this twosome can't put the company back on a profitable growth track, then it's time to call up Redmond and start haggling over an acquisition price.

But I think they can, and they won't sell out. A few more rough quarters should be expected as the new team works out its strategy and implements it, but long-term investors should take a serious look at Yahoo!

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