Revenue, Operating Income, and EPS Exceed Consensus
Yahoo! Inc. (NASDAQ:YHOO) today reported results for the quarter ended September 30, 2011.
Revenue excluding traffic acquisition costs ("revenue ex-TAC") was $1,072 million for the third quarter of 2011, a 5 percent decrease from the third quarter of 2010. Income from operations decreased 6 percent to $177 million in the third quarter of 2011, compared to $189 million in the third quarter of 2010. The year over year decreases were primarily due to the revenue share related to the Search Agreement with Microsoft.
GAAP revenue was $1,217 million for the third quarter of 2011, a 24 percent decrease from the third quarter of 2010, primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft.
Net earnings per diluted share decreased 21 percent to $0.23 in the third quarter of 2011, compared to $0.29 in the third quarter of 2010. Adjusted for the two items noted below, diluted earnings per share increased 32 percent to $0.21 in the third quarter of 2011, compared to $0.16 in the third quarter of 2010. Net earnings per diluted share for the third quarter of 2011 included a benefit of $0.02 per diluted share related to the dilution of the Company's ownership interest in Alibaba Group as a result of option exercises and the issuance of stock to Alibaba Group employees during its quarter ended June 30, 2011. Net earnings per diluted share for the third quarter of 2010 included a benefit of $0.13 per diluted share related to the gain on sale of HotJobs.
Financials at a Glance
Quarterly Results (in millions, except percentages and per share amounts)
Q3 2010
Q3 2011
Percent Change
Revenue ex-TAC $1,124 $1,072 (5)%
GAAP revenue $1,601 $1,217 (24)%
Income from operations $189 $177 (6)%
Net earnings $396 $293 (26)%
Net earnings per diluted share $0.29 $0.23 (21)%
"We're pleased that revenue, operating income and EPS were all above consensus this quarter," said Tim Morse, CFO and Interim CEO, Yahoo!. "My focus, and that of the whole company, is to move the business forward with new technology, partnerships, products, and premium personalized content — all with an eye toward growing monetization."
Business Highlights
Yahoo! is home to 10 number one properties globally and ranks among the top three in 21 categories worldwide. Yahoo! has ten out of the top ten original video programs in the U.S. on the Web (Source: comScore Media Builder Custom Report, US, August 2011, among a set including more than 75 original video programs, as custom-defined by Yahoo!, on the following properties: Yahoo!, YouTube, Hulu, MSN, AOL, Forbes, PopSugar, IGN, TMZ, New York Times, Smosh.com, ABC News, Sugar, Funny or Die, She Knows, CraveOnline).
Yahoo! continued to modernize its technology platforms, with 28 additional sites across the Americas, EMEA and Asia Pacific going live on the new global Yahoo! Publishing Platform, bringing the total to 95.
Yahoo! and ABC News announced a strategic alliance that combines Yahoo! News' unmatched audience, as well as its depth and breadth of content, with ABC News' global news gathering operation and trusted anchors and reporters. The alliance kicked off with the launch of GoodMorningAmerica.com on Yahoo! and a live stream of anchor George Stephanopoulos interviewing President Barack Obama live at the White House.
Yahoo! introduced a full slate of original, premium, TV-quality Web shows in tandem with the beta launch of its re-vamped video destination, Yahoo! Screen. The eight new shows add to Yahoo!'s existing industry-leading video programming and star top Hollywood talent including Judy Greer (The Descendants, Arrested Development), Niecy Nash (Reno 911, Dancing with the Stars), Cameron Mathison (All My Children, Dancing with the Stars), and Morgan Spurlock (Super-Size Me, 30 Days), among others.
Yahoo! was the exclusive live broadcast partner for the William J. Clinton Foundation's special concert titled "A Decade of Difference: A Concert Celebrating 10 Years of the William J. Clinton Foundation." The concert included special performances by Stevie Wonder, Lady Gaga, The Edge and Bono, Usher, Juanes, Kenny Chesney and K'naan.
Yahoo! launched a new way to discover and connect with the world's most popular content on both Yahoo! and Facebook. Beginning with Yahoo! News in the U.S., people can discover and connect around the news and information they are enjoying on Yahoo! seamlessly through updates on Facebook. People will also be able to feature their TV watching activity on IntoNowTM from Yahoo! on their Facebook profile.
As part of Hispanic Heritage Month, Yahoo! live-streamed the first-ever Hispanic-focused online roundtable with President Barack Obama, giving people the opportunity to submit questions to the President on the issues that are important to them.
Yahoo! debuted MLB.com® Full Count, a new online video offering produced and powered by MLB.com in partnership with Yahoo! Sports that allows fans to follow live Major League Baseball action through the regular season. Yahoo! and Gow Broadcasting also launched Yahoo! Sports Radio. The new, national sports radio network can be heard on over 180 affiliate radio stations across the country, Sirius Satellite Radio®, and a number of digital and mobile partners.
Search Alliance Impact
Yahoo!'s results for the third quarter of 2011 reflect $53 million in search operating cost reimbursements from Microsoft under the Search Agreement, which amount is equal to the search operating costs incurred by Yahoo! in the third quarter. Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft's search platform and the underlying expenses are no longer incurred under our cost structure. Our business outlook for total expenses reflects these anticipated savings.
Yahoo!'s results for the third quarter of 2011 also reflect $4 million in transition cost reimbursements from Microsoft under the Search Agreement. During the third quarter Yahoo!'s cumulative transition costs exceeded the $150 million reimbursement cap specified in the Search Agreement. Transition costs in excess of the cap will not be subject to reimbursement.
In order to create more financial certainty, Microsoft and Yahoo! recently agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013. Microsoft and Yahoo! remain fully committed to the success of the Search Alliance, and the RPS Guarantee extension represents an important sign of that commitment.
Third Quarter 2011 Revenue Highlights
Display revenue ex-TAC was $449 million, which was flat compared to $448 million for the third quarter of 2010.
GAAP display revenue was $502 million, a decrease of 2 percent, compared to $514 million for the third quarter of 2010.
Search revenue ex-TAC was $374 million, a 13 percent decrease compared to $428 million for the third quarter of 2010.
GAAP search revenue was $467 million, a 44 percent decrease compared to $839 million for the third quarter of 2010.
Cash Flow and Cash Balance
Cash flow from operating activities for the third quarter of 2011 was $356 million, a 3 percent increase compared to $346 million for the same period of 2010.
Free cash flow was $247 million for the third quarter of 2011, a 1 percent decrease compared to $250 million for the same period of 2010.
Cash, cash equivalents, and investments in marketable debt securities were $2,870 million at September 30, 2011 compared to $3,629 million at December 31, 2010, a decrease of $759 million. During the third quarter of 2011, Yahoo! repurchased 44 million shares for $593 million. During the nine months ended September 30, 2011, Yahoo! repurchased 82 million shares for $1,203 million.
Business Outlook
Revenue ex-TAC for the fourth quarter of 2011 is expected to be in the range of $1,125 million to $1,235 million. Based on the terms of the Search Agreement with Microsoft, Microsoft retains a revenue share of 12 percent of the net (after TAC) search revenue generated on Yahoo! Properties and Affiliate sites in transitioned markets. Yahoo! reports the net revenue it receives under the Search Agreement as revenue and no longer presents the associated TAC within cost of revenue. Accordingly, for transitioned markets Yahoo! reports GAAP revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. For markets that have not yet transitioned, revenue continues to be recorded on a gross basis, and TAC is recorded in cost of revenue. GAAP revenue for the fourth quarter of 2011 is expected to be in the range of $1,275 million to $1,395 million. Total expenses (cost of revenue plus total operating expenses) for the fourth quarter of 2011 is expected to be in the range of $1,075 million to $1,135 million. Total expenses less TAC for the fourth quarter of 2011 is expected to be in the range of $925 million to $975 million. Income from operations for the fourth quarter of 2011 is expected to be in the range of $200 million to $260 million.
Business outlook for revenue ex-TAC is being provided to reflect the underlying dynamics of the business during the Microsoft transition and to facilitate comparisons to prior periods.
Conference Call
Yahoo! will host a conference call to discuss third quarter 2011 results at 5 p.m. Eastern Time today. A live Webcast of the conference call, together with supplemental financial information, can be accessed through the Company's Investor Relations Website at http://investor.yahoo.com/results.cfm. In addition, an archive of the Webcast can be accessed through the same link. An audio replay of the call will be available for one week following the conference call by calling (888) 286-8010 or (617) 801-6888, reservation number: 36003638.
Note Regarding Non-GAAP Financial Measures
This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission ("SEC"): revenue ex-TAC; free cash flow; total expenses less TAC; non-GAAP net income; and non-GAAP net income per diluted share. These measures may be different than non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles ("GAAP"). Explanations of the Company's non-GAAP financial measures and reconciliations of these financial measures to the GAAP financial measures the Company considers most comparable are included in the accompanying "Note to Unaudited Condensed Consolidated Statements of Income," "Supplemental Financial Data," "GAAP Net Income to Non-GAAP Net Income Reconciliation," and "Business Outlook."
About Yahoo!
Yahoo! is the premier digital media company, creating deeply personal digital experiences that keep more than half a billion people connected to what matters most to them, across devices and around the globe. And Yahoo!'s unique combination of Science + Art + Scale connects advertisers to the consumers who build their businesses. Yahoo! is headquartered in Sunnyvale, California. For more information, visit the pressroom (pressroom.yahoo.net) or the company's blog, Yodel Anecdotal (yodel.yahoo.com).
