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Back on tax day, my friend and colleague Elizabeth Harrow wondered if Yahoo! (NASDAQ: YHOO) would announce job cuts when it reports earnings tomorrow. Ms. Harrow looked at a report in The New York Times about preparations for a "significant round of layoffs" and then took a look at the option activity on the Internet search portal a week ahead of earnings.
Something that Elizabeth noted was the fact that the 15 strike was going to assume the mantle of peak call open interest when the market opens for trading festivities today. This level could be a major sticking point for the stock, as Yahoo hasn't closed atop the $15 level since late 2008.
With peak call open interest acting as yet a further barrier for Yahoo, the prospects for breaking through $15 appear to be slim. With the search firm's 10-month moving average descending into the picture to muck things up even more, the picture is indeed grim -- especially if job cuts accompany disappointing earnings.
Of course, none of this has stopped Wall Street from feeling a bit of enthusiasm. As Elizabeth noted, the Street expects Yahoo to report earnings of eight cents per share, which is a full 11 cents worse than a year ago. That said, some experts think that last week's report from Google is a positive indicator for Yahoo. I don't agree.
If earnings come in worse than expected, watch for any underlying support (of which Elizabeth pointed out some) to be severely tested -- and any jubilation carrying through from Google's report could heighten disappointment, leading to more downside pressure. Furthermore, if the job cuts come to fruition we could see even more downside pressure, with eMarketer estimating that Yahoo's advertising revenue will decline, the picture ain't pretty.
One thing is certain, as Elizabeth noted -- the news for Yahoo "should be interesting."
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