Release Out! Quick take: Overall, Q4 was better than expected, but guidance is very weak. Q4 revenue in line and EPS ahead of expectations ($0.17 vs. $0.13). Stock initially up in aftermarket.
One potentially worrisome note: Deferred revenue dropped sharply, especially relative to last year. This suggests that bookings in the quarter were lower than revenue would suggest. This bodes poorly for future revenue. (It also hit cash flow). (NOTE: We have since learned that the drop in deferreds was primarily due to the change in the AT&T service deal. The drop in deferreds is therefore not particularly meaningful.)
Guidance calls for a drop of 10% of revenue year over year in Q1, which, as expected, is lousy. Worse for Yahoo employees: margin guidance is horrible. This makes it more likely that we’ll get another round of layoffs.
Overall, though, we think these results are largely irrelevant. The most important part of this afternoon is Carol’s performance on the call.
CONFERENCE CALL NOTES (Nicholas Carlson reporting)
Words in quotes are quotes. Everything else is a paraphrase.
5:04, We’re getting started.
5:04, Carol Bartz and CFO Blake Jorgensen are on the call. No Jerry! No Sue!
5:06, Standard legalese now.
5:06, Carol takes the phone. Makes a joke about the legalese. Says: “I’m telling you I already feel at home.”
5:07, As an outsider it was easy to assume there was little focus in the company. Now I can see that’s not the case.
5:08, “The weak global economic environment was impacting everyone and of course we were not exception.”
5:09, Delivering on profitablity was a real achievement, she says.
5:09, Blake takes the phone. Large advertisers are spending less on brand advertising and are spending more on performance marketing, he says.
5:10, 18% growth in owned and operated sites in the US. Worldwide display declined 2%.
5:11, Q4 revenues were in the range provided. Total revenue was down 1%. Revenue would have grown except for a negative currency impact, he says.
5:12, Cost reductions including layoffs, outsourcing etc (to 13,600 employees) will result in $400 million cash cost savings. Yahoo has $3.5 billion in cash.
5:13, No share repurchasing. We’ve maintained a conservative and flexibile approach to capital.
5:14, Total marketing servies revenue ex-TAC $1.6 billion
5:14 Search share has stabilised, according to ComScore. “demonstrating that our search investments have paid off,” says Blake. hah!
5:15, While some advertisers have been cutting their budgets, we believe we’ve been the beneficiaries of consolidated spending. Pageviews were up 15% in Q4. Advertisers are shortening lead times, giving us less visibility.
5:16, Fees revenue declined 12%.
5:16, Blake says again: excluding currency impact, we grew! (It should be noted that Google benefitted from currency shifts last quarter.)
5:17, $488 million goodwill impairment charge for foreign investments
5:18, In Q4, we performed well in a challenging environment.
5:19, Q1 guidance is all they’re providing. GAAP revenue to be in $1.525 billion to 1.725 billion. TAC to be 27% of GAAP revenue.
5:19, Factor Kelkoo out of 2009 models. Also, VOIP and Music revs will decline. Currency will have a negative $200 million impact during 2009. Our cash tax rate will be 15% to 17%.
5:20, Call goes back to Carol.
5:21, She touts APT, search assist, BOSS, Yahoo Buzz. Yahoo grew its share of engagement, she says. Yahoo has the top-ranked sites in 11 categories.
5:21, Yahoo News set a record on inauguration day with over 12 million uniques and 300 million pageviews, 2 million video streams.
5:22, Carol mentions a road map for 2009. “We look forward to sharing with you in the future.” Yahoo needs to focus on clarity, speed innovation and “focus maniacally” on users.
5:24, “Did I come to Yahoo to sell the company? The answer’s no.”
5:24, “Did I come to sell the Yahoo search business?” Now as an insider and CEO it’s my job to do what’s best for customers and shareholders. I’m still figuring that out. BUT Search is a very valuable part of our business. Understanding the intent of searchers is extremely valuable. Some of the most important Yahoo search stories are being overlooked. In late 2008, Yahoo’s query share began to stabilise. Our search share remains 3X the size of the next competitor (MSFT!)
5:26, Turns out Jerry IS on the call! Surprise!
5:27, First analyst’s question: What are the key 2 or 3 elements that you feel you need to figure out and find a solution to which would decide if you want to remain independent?
5:28, He also wants to know about search share.
5:28, Carol: “As I said I didn’t come here to sell the company.”
5:29, Blake on search: “If you look back in the year we’ve stabilised our search share.” I think what we’re saying today is the impact of the economy on advertisers on RPS. PPC growth and click yields and fewer commercial queries are affecting revenues in general.
5:29, Ben Schacter asks about Bostock meeting with Ballmer and wants to know who’s leading the discussions.
5:30, Carol says “We don’t have any comments on press reports that come from nowhere.”
5:30, What’s Carol most concerned about? “This org. is very complex. It’s hard for people to get information and make speedy decisions. The good news is that’s easy to fix. I’m telling you there are some really smart people here. They just need a little help in their lines of communications. Good news I happen to be pretty good at that stuff.”
5:32, Next question: Regarding Int’l search revenue. It was flat on a constant currency. Why? The economy? It seems lower than your competitors (Google, he means).
5:33, Blake says we have a very diverse int’l market. Doing well in Europe, not Korea and developing nations.
5:33, Next question: Are you expecting more investments like you had in APT? Is that why your expectations are low?
5:34, Blake: No they’re low because the economy is scary.
5:34, What’s happening to premium CPMs and non-premium CPMs? Will premium CPMs ever come back?
5:35, Blake: The premium class one advertising is seeing pressure due to the recession. We’re still seein ga simliar ratio between class one and class two. We’re seeing massive growth in class two advertising. “We would continue to expect to see CPMs hold at similar levels over time.” Most of what you’re tending to see is overall slowdown in volume primiarly by people moving away from branded advertising during a recesion.
5:36, Which are decelerating faster, display or search?
5:37, Blake: I don’t want to give away what’s going on in Q1. But search is impacted by people buying less stuff. We’re not making assumptions beyond that.
5:37, What kind of benefits will we see from restructuring in Q1?
5:38, Blake: Q1 costs tend to be the highest in terms of headcount. We’re also still moving through some of the headcount reductions. Also we’re changing our real estate footprint.
5:38, Should the off-balance sheet assests remain with Yahoo?
5:39, Carol: I know that’s been a question. I’ve only looked at it briefly. They’re all different depending on country. I don’t have an opinion. I will look into it.
5:40, Blake says it’s been high on her list to look through int’l taxes. A joke.
5:40, You have a good position in the demo of 35+, but not younger. Any strategies to fix that?
5:41, Carol: That was one of my questions for the board. I have a 20 year old and two kids in their lates twenties. I’m very familiar with the Facebooks of the world. Thoughts: They do grow up. It’s interesting watching the older ones, they’re much more looking at Yahoo Finance not just throwing pictures up all day because guess what, they’re off the dole. (Ed. Bad thought, Carol). That crowd (the youngs?) are very finicky. Who knows what’s going to come next? Maybe Yahoo could grab that.
5:43, Gene Munster asks when changes will happen. Gene’s the guy who said Yahoo should buy the NYT and Gawker and Twitter. Carol jokes, “Well Gene, I thought I’d buy the New York Times tomorrow!” Blake jumps in: “She’s joking!”
5:44, “I have a total maniacal interest in delighting our customers. Give me some time and things will be rolling out.”
5:45, How’s Yahoo’s sales force?
5:45, Carol: Don’t know yet. In a few weeks, “I’ll be able to have a beer with them.” I’ve been very impressed with the sales leaders. “The leaders are good.”
5:46, Is everything on the table for the company? Including AOL, MSFT deals?
5:46, Carol: “Well it’s my job to make sure that as a company we look at anything that makes sense.” “It’s very easy to have different shareholder interests some short-term, some long-term. It’s our job to look at the bell-curve of shareholder value. So yes, everything’s on the table. I really would just plea, this is a fantastic Internet property. It really doesn’t deserve everyone trying to pull it and pick it apart. This is not a company that needs to be pulled apart and left for the chickens. If there’s something interesting to look at, we look at it.”
5:48, Where are you in capturing upside, wish-list targets?
5:49, Blake: Worldwide search revenue grew 11% and 18% in the US. Query growth up in the double digits. WE believe we’ve been closing that monetization target. We’ve been chasing a constantly moving target, which is no surprise to you guys. Also important to remember is our huge O&O audience. When we first discussed closing the gap we didn’t imagine the current economic downturn.
5:50, What are the top three or for assets?
5:51, Front page, Yahoo Finance fanatics, the people who depend on Yahoo News. The more people we can attract as they mature. As the baby-boomers age, they are not as tech phobic, we have a chance to really grow the users from top to bottom. If we have strong products then we will attract the audience that beats everything. It isn’t just about search it’s about content and information.
5:52, How integrated is search and display for sales?
5:53, Carol: Search is complex that allows users to search and advertisers to search and some of its easier to break apart and some of it isn’t. Whether we keep it or sell it it’s important to get the most out of it if we keep it or get the best value if we sell it.
5:54, Does there need to be a consolidation of products at Yahoo? What at the heart the Yahoo brand should stand for?
5:55, “The Yahoo brand needs to stand for the best information site on the Internet.” The place where you’re going to start your day and manage your day. The problem with a lot of these products is they distract from that. “I didn’t sign up to do Yahoo for Gardners or something.” It gives us a chance to look at consolidation.
5:57, From your perspective, how do you view acquring companies where its hard to justify revenues today, but they have a huge audience?
5:57, Carol: “I think it’s important to look at things that don’t seem as economically interesting in the beginning. But I want to caution the balance to that. Our users don’t need constant change.” They need dependable, constant access to information. Whether its microblogging, news finance, etc.
5:59, Can we expect to see further cost cuts going forward?
6:00, Blake: I think you should assume that particularly with the uncertainty around revenue we will keep a razor focus on costs. I don’t think we’ll see the kind of things we saw last quarter.
6:00, Carol says thanks for not asking questions you know I couldn’t answer. That’s it.
What we will be looking for on the call is the sense that Yahoo is now in the hands of a leader who isn’t afraid to break eggs, raise hackles, and kick arse. This is what Yahoo needs more than anything else. And our hope is that hope has finally arrived.
As for the crappy results, here are the consensus expectations:
- Net Revenue: $1.37B
- EBITDA: $522MM in EBITDA,
- GAAP EPS: $0.12 ($0.13 pro forma)
And here’s Citi analyst Mark Mahaney’s excellent preview:
We Anticipate An In-Line & Lower Q4 — We believe Street Q4 estimates arereasonable (and we believe GOOG results provided a modestly positive read- thru), but we believe Street expectations for approx double digit EBITDA growth for ’09 could be aggressive, given material top-line uncertainty and ongoing investment needs. We would also expect initial ’09 guidance/commentary by a brand new CEO seeking “freakin’ breathing room” to be highly cautious.
[We would actually be surprised if Carol gave guidance. We think there’s a good chance she discontinues this practice, as most companies should.]
Our YHOO fundamentals call for Q4 is negative — Due to very tough Macro conditions, especially impacting the company’s Display advertising segment, signs of market share losses in its Search and Display segments, uneven execution, and a tough comp in YHOO’s Fees segment, we see Yahoo!’s
fundamentals deteriorating in Q4, with 1) Y/Y revenue growth flat-to-down for the first time ever; 2) EBITDA margins down about 90 bps Y/Y; and 3) EBITDA falling approximately 2% Y/Y.
Mark’s “Cheat Sheets”:
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