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Yahoo Q4 Earnings

yahoo patienceForget about “what have you done for me lately” (though that can’t be neglected); in these turbulent markets what matters more is “what are you going to do for me next.” Wall Street made that painfully clear when Apple released record earnings last week but was cautious in their forward guidance.  After Tuesday’s close of market, Yahoo received a similar message.  It was a little less blunt, the consequences a little less severe, but then, with Yahoo nobody had built up expectations to walk away impressed. 

For the fourth quarter, Yahoo’s results were modest but beat or met expectations.  The company reported earnings of $205.7m (15c/share), down from $268.7m (19c) for the same period last year.  Gross revenue was up about 8% to $1.83b.   Revenue less traffic acquisition costs (payments to advertising partners) was up 14% to $1.4b.   Consensus expectations called for earnings of 11c/share on revenue of $1.4b excluding traffic acquisition costs. Display advertising, a trouble area earlier in 2007, was also up 20% on the quarter.

Forward guidance is what caused the real disappointment. Looking ahead to fiscal 2008, Yahoo projected net sales of $5.35 to $5.95b and revenue less traffic acquisition cost (TAC) of $1.28 to $1.38b.  Analysts, on average were forecasting $5.54 to $6.4b, and revenue less TAC of $1.32 to $1.45b.

The subtext of forward projections was that the turnaround promised in June and July when Jerry Yang took over  is going more slowly than expected.  Yang noted in the conference call that, “this sort of transition takes time.”  He also said the company will “continue to face headwinds this year” but they will exit 2008 stronger, “more competitive” and “return to higher levels of operating cash flow growth in 2009.”

The combined projections weren’t what investors wanted to hear. They were looking for bold strokes, decisive actions; a plan for the future and results to support it.  Yahoo instead turned in modest results, a vague plan and a cautious outlook. 

Even display advertising, a clear bright spot, came with a shadow because the display ad business is considered to be more vulnerable to economic downturn and recessions than other forms of Internet advertising.

The most decisive forward action discussed during the conference call  came when CFO Blake Jorgensen  euphemistically said the company will have a “workplace realignment of 1000” in February. Layoffs were largely expected.  While Yahoo didn’t disclose their official plan or characterize how many of those jobs would be cut (versus reassigned), some investors found reassurance in hearing  the company is working to streamline and cut costs.

In other related news, Yahoo announced they’d struck a deal with AT&T to replace their expiring co-branded Internet access pact.  The new contract, will give Yahoo an upfront payment estimated to be  $300 to $400m but AT&T will keep the customer relationship and not share per subscriber revenue fees as they had in the past.

Yahoo also announced they’d filled the CTO void in their executive offices with the hiring of Ari Balogh, the former CTO of VeriSign.

Yahoo was trading down more than ten percent in extended after hours trading.


More detailed press coverage on Yahoo’s finances can be found at:
Yahoo Finance
Google Finance

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