Yahoo 10Q Analysis: Sell-Out Rates And CPMs Still Very Low Heading Into Q4

We went through the Yahoo 10Q for Q309 released on November 6 and found the following noteworthy items:

Revenue Per Page View (RPPV): Page views increased 5% to 7% but RPPV decreased 19% year-over-year.  This is better than Q209, which was down 21%, but worse than Q109, which was down 16%. 

The declines in RPPV were likely due to lower sell-out and a steep drop in CPMs versus Q308.  This, combined with the fact that RPPV has not recovered from Q109, tells us that Yahoo likely continues to fill some of its premium inventory with network ads at large CPM discounts and did not make much progress turning that trend around in Q309.

In a previous report we found that CPMs at the exchanges had started to inch up, but that premium inventory was still very much stuck at the bottom.  This would indicate Yahoo will have a tough time seeing much improvement in its RPPV in Q409.

Fees revenue: Fixed fee revenue showed continued declines due to changes in broadband partnership agreements from fixed fee payments to ad-revenue sharing agreements.  These changes were announced in early 2008 and the company received cash payments totalling nearly $400 million from partners AT&T and Rogers Cable as a result of the re-negotiated agreements (amortized over four years).  However, continued weakness in online ad revenue with no imminent rebound in sight makes us question if ad revenue from these partnerships will be enough to offset the lost fixed fees over the long term.  Given our estimates for 2010 online advertising growth we believe the re-negotiated deals will likely turn out to be a net negative for Yahoo. 

Most of the amortized payments from AT&T and Rogers are paid in the first couple years.  We estimate amortization of these payments currently account for about 10% to 20% of total fee revenue (down from about 70% at their peak) so expect the deceleration of amortization payments to continue to put pressure on fees revenue the next couple years.

Our Take: Nothing groundbreaking in the 10Q, but we’ll continue to watch the new broadband deals and RPPV #s as the online ad market starts to stabilise.

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