The stock is up about 7% after hours as investors digest the news of the tax-free spinoff of Yahoo’s biggest and most important asset.
With the Alibaba spinoff, Yahoo boasts, it will have returned more than $US50 billion to shareholders. Its market cap is $US47 billion.
Earnings were more or less right on target with analysts’ expectations:
- Non-GAAP EPS of $US0.30 versus analysts expectations of $US0.29. Last quarter Yahoo blew analysts’ expectations away — not so this time.
- Revenue (minus traffic acquisition costs) of $US1.18 billion, slightly less than analysts’ expectations of $US1.19 billion.
- Display revenue (minus TAC) was down 5% from last year, coming in at $US464 million.
- Search revenue (minus TAC) was flat from last year, at $US462 million. However, gross search revenue was up 14%, so Mayer’s efforts to revamp search at least seem to be drawing more advertising dollars than before. During the earnings call, she explained that cost per click and total number of clicks are up, but traffic acquisition costs are rising.
So now that Alibaba is public and that chapter of Yahoo’s history is basically closed, why should investors buy Yahoo today? Mayer tried to explain a little bit during the earnings call today.
First, Mayer discussed the Alibaba spinoff. It will happen in Q4 of 2015, and she says “we made the conscious decisions to distribute 100% of our Alibaba shares.” She’s also noting that Yahoo’s management team worked extra hard to sell as few Alibaba shares as possible before the IPO. You can see all the details about the spinoff here.
So this is all well and good, but what about Yahoo’s core business? Mayer said she was “pleased” to note that both display and search ad revenue were about flat on a year-to-year basis.
Mobile revenue was $US254 million, up from $US207 million in Q3. “We grew at an accelerating rate.” In Q4, mobile active monthly users were 574 million, but that includes Tumblr so can’t be compared with last year. It’s growing about 18% year to year, Mayer says.
“In late 2012, this management team changed course from a confused, web-based mobile strategy to a beautiful, native” strategy.
She also boasted about native and video advertising. “We have created more than $US1 billion of new revenue annually from basically nothing in just two years.” Native ads contributed $US80 million in revenue Q3, and $US106 million in Q4. Nice growth.
So what about Tumblr? It overtook Instagram as the fastest-growing social network in Q4, with 463 million users. “Mobile app usage continues to be a key growth driver, with mobile app users up 33% year over year.”
Now we’re coming to search and display. She’s boasting of gross search revenues, which were up 14% year over year, even while GAAP revenue was up only 1% and ex-TAC revenue was flat. What’s going on here? Paid clicks and price per click were both up, and the deal with Mozilla will get another 3 to 5% of the North American search volume. But traffic acquisition rates are rising across the industry. That explains the difference between gross and net search revenues.
“We believe…our overall display business will return to growth this year.” A revamped Mail product, new digital magazines, and other content businesses are the key here. They also “added serious strength to our sales teams.”
If you set aside the PC business, core ad revenues grew 10%.
Now she’s talking about how Yahoo has been “remixing” its business. Acquisitions, reallocating. Headcount’s been flat, even as acquisitions have added more than 1,000 people. So basically, they have gotten rid of 1,000 people as they have added new people. “We have sunset more than 75 products.”
She’s only going to make big acquisitions if they fit into mobile, native, video, or social.
Convinced? Regardless, investors seem to be happy enough with the Alibaba news to give the stock a nice 7% bump at the end of the day.
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