Yahoo! Results Expected to Please

On Wednesday afternoon, Yahoo will report its second-quarter earnings, which analysts expect will confirm that an Internet ad recovery is well underway.

The two most watched gauges for Yahoo will be the performance of its branded advertising and search businesses. On both counts, according to analysts, the company is set to report robust growth.

Officially, Yahoo has forecast revenue will be between $295 million and $315 million, but most analysts have said they expect Yahoo will take in more money than predicted. J.P. Morgan anticipates $317 million in revenue, while U.S. Bancorp Piper Jaffray anticipates over $320 million.

Likewise, on the earnings front, Yahoo is set to over-perform previous expectations. The company’s forecast is for earnings before interest, taxes, depreciation and amortization to fall between $85 million and $95 million. Most analysts have bumped up their earnings forecasts.

“It’s proof that the rebound is happening,” said Gary Stein, an analyst with Jupiter Research, which is owned by the parent company of this site. “It’s also an indication that it’s real.”

Stein said Yahoo is now reaping the fruits of its labors to overhaul its sales structure, invest in new areas like search, and focus on serving big-ticket traditional advertisers like movie studios.

Yahoo’s good vibes have begun to rub off. In a new report drawing on revised Internet ad spending forecasts, eMarketer expects online advertising spending will finally grow again this year to $6.3 billion, up from $6 billion last year. By 2006, the researcher anticipates the market will finally return to its 2000 level, worth $8.1 billion.

The researcher cited a number of trends driving the growth of the overall industry, both of which have helped Yahoo during its recent rebound: a pickup in spending by traditional brand advertisers and a booming paid search market.

The eMarketer report echoes the findings from the Interactive Advertising Bureau, which said the online advertising recovery began in the fourth quarter 2002 and will gather steam through this year.

Despite CEO Terry Semel’s drive to diversify Yahoo’s revenue streams to avoid over-dependence on advertising, the company remains wedded to marketing services. Last quarter, it made up more than two thirds of the company’s revenues.

Both branded advertising and search are expected to continue showing growth. Deutsche Bank anticipates branded advertising revenues will grow to $144 million this quarter, up from $136 million last quarter.

“We believe that Yahoo will likely be a major beneficiary of increased Internet advertising spending,” the investment bank said in a research note.

Likewise, paid search is expected to surge. Last quarter, paid search, through Yahoo’s partnership with Overture Services, accounted for $53.8 million, a 210 percent increase from the same quarter a year earlier. According to Deutsche Bank, paid search revenue will increase to $76 million this quarter.

Importantly, the quarter will mark the first reporting period since Yahoo rolled out its revamped search tool in early April.

“Yahoo is one of those few that are bellwethers of the market,” Stein said. “You look to those, and even though they get the lion’s share of the online advertising money, it’s a sign that money is being put back into online marketing, some of it through new channels like search engine marketing.”

Wall Street has fallen back in love with Yahoo’s shares, driving up their price over 100 percent since the start of the year.