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Yahoo just reported a pretty even fourth quarter, but the stock is dropping in reaction to the news.Revenue and EPS were in-line, but operating income was weaker than expected, and guidance was light, too.
In the release Carol Bartz says, “For the year, operating income, margins, EPS, and return on invested capital doubled. Display advertising grew 17%.”
It’s good news the display ad business is bouncing back, but it’s apparently not good enough.
Investors are not impressed with the results and the stock fell 3.5% in after hours trading.
Here’s the key numbers from Yahoo versus expectations:
- Gross revenue: $1.53 billion reported vs. $1.5 billion expected.
- Net revenue: $1.21 billion versus $1.19 billion expected.
- Operating income: $220 million versus $239 million expected.
- GAAP EPS: $0.24 versus $0.22 expected.
- Guidance for Q1 Net Revenue: $1.05 versus $1.12 billion
- Guidance for operating income: $145 million midpoint versus $196 million.
Display revenue was $567 million, a 16% increase from the year prior. It was better than the street expected. As was search revenue which came in at $388 million, an 18% drop.
Yahoo’s pageviews were down 1% for the quarter on y/y basis. Headcount was down 2%, which is good, but the company probably needs to cut more people.
Of course, it just announced new layoffs today, but if it’s going to make cuts, it should do it all in one go, not a little bit here, a little bit there, because that’s just depressing.
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4:42: Listening to music, all live blog disclaimers apply. Nothing without quotes is not a quote. There will be typos, we’re sorry. The call is scheduled to start at 5 pm.
5:00: Here we go! Carol Bartz (CB) is on the call and so is Tim Morse (TM), the CFO. We’re getting the boilerplate stuff right now…
5:02: CB: A very encouraging year and quarter for Yahoo. Carol is reading the above canned quote. Made major strides reinventing our tech platforms, reorganized the company, brought in great talent. Want to deliver great content. 638 million come to us every month.
5:04: Our US today module click thru up 36% y/y. Engagement on users of new mail is 50% higher than legacy. Want to stay a “premier digital Media” company.
Now let’s look at 2010 … revenue ex-TAC was ahead of expecations, but down y/y because of tev share with Microsoft, and because we closed down some businesses. All part of our plan to turn Yahoo around. But revenue is different, it takes longer to kick in. Our strong performance in display is where we think we’re going.
5:06: We believe growth in display outpaced the market.
As for search it was down, but take out search revenue sharing it’s not down as much. Takes time for the marketplace to adjust to our changes.
5:07: Before I provide more colour, turn it over to Tim. And here’s Tim …
5:08: $1.25 billion revenue ex-TAC, 16% growth in display … in short “really pleased” with fourth quarter.
Operating income for 2010 doubled v. 2009. Margins ex-TAC to 16.8% a double versus 2009.
5:10: We are proud of our results, want to get top line growing.
5:11: Display exceeded expectations with 16% y/y growth, and 23% q/q. Strong Asia growth.
Search declined, but this included $32 million of search alliance revenue share.
Other revenue was down 15% versus the year before.
5:13: Fourth quarter total expenses down for the year.
5:15: Cash ended at $3.6 billion, despite share repurchases of $1.8 billion. Full year results hit by transition to different tax structure. Cap ex $714 mill for full year.
5:17: Morse is reading more numbers from the release. Going over revenue guidance.
Most meaningful revenue discussion centres on search. There’s a marketplace issue tha needs to be addressed. We’re not where we need to be on RPS. optimising is a critical focus. Our affiliate marketplace is behind. That plus Naver’s transition, says it will be down $35 million.
5:19: On a more positive note, encouraged by search volume and the innovation we will roll out.
Outlook for op income $145 million.
Full year expecations: 2011 revenue headwinds 220 million, we expect $170 million in search alliance revenue share. Rounding out $200 million broadband amortization, fee rates, etc. We expect year over year net revenue growth in the second half of the year.
5:21: Better align our spending. Margin expansion a key priority. We will recast our margin goal on ex-TAC revenue. Want to go from 17% to 30% or greater by 2013.
5:23: Before going back to Bartz, want to say we’re gaining momentum, our product team has done a good job, we’re working on personalised content for each user.
5:24: We have a unified purpose: Increasingly personalised world class content.
5:24: Carol is back, wants to talk search alliance. As we enter 2011, market not doing RPS or yields we hoped. Yahoo and MSFT continue to work well together, we still believe in the alliance. A lot of work to be done. We picked hte right partner, and expect continued success. Transition in Europe and continue in Asia.
5:26: We lead the web in display, we bring in more display than anyone. Where did Walmart go when it wanted to target women, how about Macy’s, how about Toyota when it wanted an out of box campaign for Avalon? That’s right, Yahoo. We have creative new ads. It matters. Agencies know and trust us.
5:27: Reach right person at the right time is marketing 101. But not all impressions/ads are created equal.
Now to Alibaba: Our 40% stake has been and continues to be a great investment and it “has a bright future.” With ecommerce exploding, our investment will grow in value and benefit investors. As for Yahoo! Japan, our goal is to work with our partners in Japan to unlock the value of our investment for shareholders in a tax efficient way.
5:28: Now onto people: We made some great hires. Ross Levinsohn, and a few others (I missed the names, sorry). Reducing about 1% of the company, these actions are planned and necessary. Redirect investment, which means we will hire new Yahoos in support of our strategy.
5:29: Asia continues to out perform. Display up 30% ex-TAC.
5:31: On communications front, new messenger. We also launched a new mail beta. Share photos intuitively. Engagement is more than 50% higher. For mobile we’re on apps and HMTL5. We know that people access Yahoo on a range of devices so we’ll do our best to accomodate them.
More than 40% of fantasy football users accessed on mobile. New iPad app coming.
5:33: Our latest connected TV got rave reviews. On 6 million tvs from 100 partners. We’ve launched 6 new branded video platforms all with fancy ad partners.
Latest comScore data shows 21 million unique visitors for our new video.
5:34: Finally, we want to increase profits and revenue. Looking ahead, 2011 we’ll add to our growth strategy as a digital media company.
5:35: Why no share repurchase in Q4? Secondly Capex was 20%, how should we think about it over time? TM: On repurcahse, we’re not hellbent on spending a certain amount, we’re going to be disciplined, view it as a marathon, not a sprint. When we think we’re a great buy like when we did at $14, we’ll do it. But we’re going to disciplined. As for CapEx, yes a little high.
5:38: On Search Alliance, why click yield and RPS not as good as you thought and why not improving till 2nd half? As for guidance … CB: Market working for 60 days, essentially it’s a couple areas, at Yahoo we had better click prediction, we’re transfering employees. It’s a bunch of i dont want to say little things, we knew in a few — we said we didn’t see full benefit till mid next year, and this is what we were referring to. TM: On operating margins, last year excluding $43 million, op margin 9% is rising to 12.2%. CB: We’ll see the rev share for first time this year, won’t have a fair apples to apples comparison till next year. This is just time we pay ex-TAC.
5:42: Ex-TAC expenses being flat, do you expect costs to roll off from the ad tech? Second, walk through the revenue headwinds? TM: On first, we will start to see benefits of the costs rolling off. See the cost benefit hit in 2012. Most of the costs is out next year. You do see some of the benefit. $130 million operating headwinds, wage inflation, vloume pressure on us as data proliferates. We have headwinds of $43 million of one time benefit from last year. We feel good about keeping flat.
CB: We’re investing for revenue growth. For an update by end of 2011, move 135 platforms to new lego platofrms in finance news, etc. 50 new products in market, consistent publisher tools. For first time, SEO optimised. We dont have SEO which is patently ridiculous. One world wide legacy platform. Also, because of the Lego, we’ll go from 20 languages to 47, which gets us in new markets. Point is, by end of the year faster, innovating faster. Do all these things, but we are not cutting costs to grow the company. We are investing.
5:46: Is the workforce the right size? CB: As far as workforce is concerned, we’ll be adding people. We’re reallocating. I think it’s going to be less about … we’ll have more people, but same headcount — uhh DUH! We’ll have more people, but flat costs. We’re watching costs, but we want to have people in the right place.
5:48: CB: Let’s talk about the ad market, by end of this year, we will have the U.S. and international market on the new platform. Much better way to manage inventory, manage yield. Better to target display. New formats for pharma, for mobile, science, video and video ads and formats coming on strong. Display, robustness in display, just because of the creativity. Look at display ad just 2 years ago, you think it’s a black and white newspaper ad versus Vantity Fair ad.
5:50: On search, do you see gaining share? Any thoughts on mobile search share? Anything to improve? TM: Can’t comment on search share. Some good search volume growth, not sure about share. CB: We want to be flat to up in 2011, really about driving volume and the experience. TM: On mobile, don’t have any data, obviously, it’s a focus. Unquestionably early.
5:52: CB: We’re focused on fantastic applications, if it’s a new finance app, a super bowl app, a lot of search is going to come back through the app world. We can get how people discover information.
5:53: Do you need to spend more on content to differentiate yourself? CB: Content, hiring editors, bloggers, working on, with Yahoo content partners, going more into local. We are focused on that, we are focused on content optimization. We want to have 630 million different sites so everyone has a different expereince. Sure, that’s aspirational, but why not? Right content with the right people and then get the right ads for the right people.
5:59: (Carol’s droning on … not very exciting. Remember when people hung on her every word, hoping for F-bombs or something interesting?)
6:00: Tim and Carol getting defensive, trying to explain why they have momentum and why they’re excited. Sure, “top line isn’t showing it” but double operating income, EPS, etc. Look into things going into this company, an awful lot to be optimistic about.
6:01: One more on search? CB: The market just came together, and what our sales people are seeing, the feeling of waiting for this to happen, advertisers sat on side, only last couple of weeks advertisers jumped in. This is, we’re in the bottom half of the first inning.
6:02: One more question … Yahoo stands alone in brand ads, but there’s talk of Facebook? Are you worried about them? CB: Yeah, I would say there’s confusion … they have a lot of little impressions. We lead in display in revenue because of the “art and science.” There’s a lot of advertisers that work with us that work with Facebook, especially at “top of funnel,” but the story of how you paint with pixels on a Yahoo page is different. Most important thing all of us can do is to get them online. We feel they’re comfy because of large formats, and because of video. There’s room for everyone, because we serve different parts.
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