We recently predicted that Yahoo! would beat estimates when it reports earnings tomorrow. One large dark cloud floating over the company was its uncertainty at the top, as the company has seen 3 different CEOs in the last year. The company took a step in the right direction by hiring Marissa Mayer, a key executive at Google who oversaw the release of many new products like Google Maps, Google Search and Gmail.  Marissa Mayer does not have an easy job. Yahoo has seen annual revenues fall for 3 consecutive years falling from $7.2 billion in 2008 to $5 billion in 2011.

No executive wants to be a CEO of a company that is in an irreversible downward spiral. The fact that Marissa Mayer took the position shows that she believes that she can have a positive influence on the company. Some signs point to a nascent recovery already in progress. Yahoo! has outsourced the search technology to Microsoft in a 10 year deal signed in 2009, in which Microsoft will give Yahoo! 88% of the revenues from searches in Yahoo! sites. That leaves Yahoo! the ability to focus on its core competency – advertising. Already the company has seen margins increasing in the last 2 years. The chart below shows the most popular margin measures, and shows that Yahoo! actually has margins higher than the industry median using all three margin measures (gross, operating and net margins). Here Marissa Mayer has a strong launching pad.

Yahoo! still has a positive Predicted Surprise for the second quarter, and analysts have raised full year estimates for the company, and the I/B/E/S consensus estimate for the full year is now at 98 cents, higher than it has ever been in the last one year period. Yahoo! has a StarMine Analyst Revisions Model (ARM) score of 100, the highest score possible, indicating that analysts have been raising estimates and are likely to continue to raise estimates in the coming months. By accepting the position, Marissa Mayer must have agreed with analysts, and must have seen something in Yahoo! that made her believe that the worst is behind the company and brighter days are ahead.