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Yahoo Earnings: Looking to the Future

yahoo earns metueWhile Silicon Valley and the rest of California suffered under an unprecedented spring heat wave, Yahoo announced earnings today that were anything but hot. Largely in line with expectations, but off  78% year over year, net income dropped to 8 cents a share, or $118m, down from 37 cents a share ($536.8m) last year.  Revenue fell 13%  year over year to $1.58 billion. 

Markets found reassurance lingering behind the digits in comments that showed new CEO Carol Bartz knows what she wants to do, even if the challenges are substantial.  

"We have a lot of people running around here telling engineers what to do, but no one is f***ing doing anything,” she colorfully said during the earnings call, and that’s going to change. That, and a whole lot more, as she continues to guide the company’s restructuring after her first full quarter on the job.

Yahoo will cut another 5% of staff, about 700 jobs, in the next two weeks, and refocus its efforts on core areas of the site including the home page, news, finance, sports, entertainment, mail and mobile.

From Bartz perspective, it’s all about the “wow” factor and user experience.  “If we are a hot site, advertisers follow.” she said during the analysts call.

The company continues to talk to Microsoft about ways to leverage search assets while, at the same time, working to improve itself organically. 

“We need to invest in both search and display and the monetization of those.” Bartz said, adding reassurance to concerned watchers that search is "absolutely critical to Yahoo."  

The company needs to offer “better customization and visibility for our advertisers, and it has to be a lot easier," she said.

Looking ahead, Yahoo guided to between $1.425 billion and $1.625 billion in revenue next quarter and is targeting Op Income to come in between $80 million and $90 million. 

That’s not a lot of immediate improvement but the hope is that a leaner and stronger Yahoo will emerge down the road ready to "take meaningful share when brand budgets continue to grow again." 

Yahoo remains a preeminent audience destination, the company points out.   “[Advertisers] are clearly not going to define [their] brand by letting it sort of float down the trail,”  Bartz said. “[they] have to be able to have a location that [they’re] proud of.”

Markets reacted favorably to the news in afterhours trading. 

More of the detail, by the numbers:

• Q1 GAAP revenues were $1.58 billion, down 13% from $1.818 billion year over year (Y/Y). The international segment contributed $392.1 to the total.

• Marketing services revenues were down 12% for the first quarter while fee revenues plunged 20%.

Owned and Operated -
•Owned and Operated sites generated $871.8 million in marketing services revenue for the first
quarter, down 10% from $965.7 million for the same period Y/Y. 
•At Owned and Operated sites, search revenue in Q1 was $399m, down 3%.  Display advertising revenue was $371m, down 13%.

Affiliates -
• Affiliate sites generated $511 million in revenue for Q1, down 16 percent from $607 million for the same period last year.

Fee Revenue-
• Fees revenues were $197 million for Q1, down 20% from $245 million Y/Y.

Revenue Less TAC-
• Revenues excluding traffic acquisition costs (“ex-TAC”) were $1.1562 billion for Q1 compared to $1.352 y/y, worldwide.

• Worldwide Operating Income for Q1 was $100.7m million versus operating income of $120.6 y/y. The international segment contributed 79.9m in Q1 and the U.S. segment, $20.8m.

• Operating cash flow from worldwide operating activities for Q1 was $409 million, down from $433.1 million Y/Y. Year over year, the US was down 7% and the international segment off 3%.
• Free cash flow for Q1 was $214 million, down compared to $646.5 million for the same period of last year, though last year included a $350 one-time payment from AT&T.

• United States GAAP revenues in Q1 were $1,187.9 down compared to $1,305.3 Y/Y.
• International GAAP revenues in Q1 were $392.1, down from $512.3 for the same period last year.

Related Articles from Metue
Earnings Watch: Week of April 20th
Yahoo Q4 and Year End, Bartz First Earnings Call
The Cost of Leadership: Survey of Bartz Pay
Yahoo hires Carol Bartz as CEO
Icahn Re-ups on Yahoo
Jerry Yang to Step Down as Yahoo CEO

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



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