Photo: Associated Press
Yahoo’s earnings release just hit.We’re not seeing anything to get too excited about here. Carol Bartz has increased Yahoo’s income, but sales growth is still flattish.
The stock is essentially flat in after hours trading.
Revenue came in light with sales (ex-TAC) of $1.12 billion. EPS was little stronger than expected.
Yahoo’s display business grew 17% year over year, which is about what the street was expecting.
Unfortunately, Yahoo is still in several other businesses, such as search, that are shrinking. So the company as a whole grew all of 2% year over year.
Here’s how Yahoo did versus expectations:
- Gross revenue: Right in line at $1.6 billion versus expectation of $1.6 billion
- Net revenue: Slightly weak at $1.12 billion versus $1.13 billion expected.
- Operating income: Strong at $189 million versus $178 million expected.
- EPS: Was $0.17 which is higher than the $0.15 expected.
- Display revenue grew 17% year over year, which about in line with expectations.
- Midpoint guidance for Q4 Revenue is weak.
We’ll be live blogging the call, which should start soon.
4:48: Still waiting, looking at slides — headcount was up 7% y/y. Yahoo has repurchased 7% of the company’s stock so far. In Q3 it spent $868 million on share repurchases.
5:02: Here we go. Programming note: If it’s not in direct quotes, it’s not a direct quote. Stuff in parentheses is our analysis/opinon.
5:03: Here’s Carol…we’ll discuss how were executing, etc. Before I get to results, first our plan: Innovative technology company that operates digital media content and communications.
Content drives search to social networks. It will continue to be important.
5:05: Everything we do is to grow revenue and profitability. To grow revenue we need to grow users and engagement. When I got here, we had to tear down silos, eliminate silos, reduce redundancy. We had to answer big question about search. We had to create better infrastructure across company.
5:06: We’re building a more efficient, more lean. One byproduct of change is new people. Some leave, some come. Important thing is the right person for the right person.
5:07: That said, what have we done? Search deal with Microsoft. Next? Making buying display platform better. Third: Divest assets that aren’t useful. Fourth: get efficient. Fifth: Revamp engineering processes. Six: Pull data out of silos to optimise content for more personalised experience for users/advertisers. 7th: Revamped messenger/mail. 8th: Our new data centre in NY.
5:09: Our legacy platforms just couldn’t scale. So we rebuilt/modernized our platform. Just yesterday rolled out a global platform: news. New platform on one code base, we can bring up new countries quickly. Infused with science and personalisation.
5:11: It will dramatically change everything. To grow revenue/profitability you have to move slowly. First you walk, then you run, then you fly. (Time to fly!)
5:12: Again, increase profits, reinvigorate revenue growth. How’d that go this quarter? Margins are up, income from operations grew 80%. Very good progress with profitability.
Revenue was up 2% driven by 17% O&O display. Advertisers clearly impressed. That’s why CBS chose Yahoo to advertise. Its why State Farm and Dodge chose us for video ads. Our Asian unit is knocking cover off the ball.
5:13: We have solid results. Revenue would be greater if advertisers hadn’t waited for Microsoft transition. Also, our search results are better so people are clicking on top organic result. RPS was up, first time in 8 quarters.
5:14: First enhancement of search is showing promise.
5:15: We think we’re undervalued, so we bought back 7% of the company’s stock.
5:15: To CFO Tim Morse. Revenue up 2% y/y. Operating income more than double, above the midpoint of guidance. GAAP operating margins 12% more than double last year. EPS grew 126%. Current quarter included $0.13 of divesture of Hotjobs, ex that EPS up 86%.
5:17: Display ads up 17%. Revenue in 7 of 10 industries grew. Telecom notably weak, retail and tech were strong. Q3 2008 was last time RPS was up.
5:19: While up it did fall shy of expectations because of transition to algo platform. As users get better results they click on organic results. People are clicking through to second page less often. We think we’ll get long term volume because we’re better.
5:20: RPS uplift will be greater than originally anticipated.
5:21: Costs were down. We’re please to generate $20 million of cost efficiency from the last quarter.
5:22: Operating reimbursements were $81 million from Microsoft.
5:23: Cash $3.5 billion approximately. For year we spent over $1 billion on share repurchases at an average price around $14.
5:24: Finally, pre tax value of 35% of Yahoo Japan and 29% of Alibaba was roughly $10 billion or $7+ per share.
5:25: Today we present revenue on gross basis. 100% of ad revenue on affiliates and our sites. As you know affiliates carry significant TAC. That’s a cost of revenue. As Yahoo search runs through MSFT, accounting rules mean we no longer recognise 100% revenue on affiliate sites, only recognise revenue on TAC basis. This transition will take till early 2011.
5:27: Revenue ex-TAC guidance is $1.125 billion to $1.225 billion.
5:29: For Q4, $240 million operating income guidance. To summarize where we stand. We’re happy with out results.
5:30: Back to Carol: More on search alliance, and Alibaba.
First search — making progress. Fact transition continues on schedule shows a lot about talent for both MSFT and YHOO teams. After algo switch, pleased to see freshness, improvements in search.
5:32: 97% of premium accounts have transitioned to ad centre. Expect complete transition this month.
5:33: Alibaba, Yahoo made investment 5 years ago. Great forsight. No other company outside China has done as well as us. I have tremendous respect for Jack Ma and the team at Alibaba. Beyond that I’m not going to speculate. Just know were maximizing shareholder value.
5:35: Search results more visually appealing. For mobile, we released 8 new Android apps. On Apple side, upgraded mobile homepage, updated Sportacular. Added video chat. Lastly, fantastic new experiences for Yahoo Mail.
5:36: New mail will be very fast which is important in emerging markets.
5:37: Revenue is stabilizing, after a long period of declines. Yahoo has a lot of potential. We’re clearly making progress. Pay off and return to shareholders will be substantial.
5:38: We will grow volume and RPS on search. We want to grow search revenue, that’s why we did MSFT deal.
5:40: So looking to Q4 lookign sequentially $30 mill of rev share hitting that didn’t happen in Q3. So you’ve got those dynamics. There’s a whole lot of moving parts on search. On display, we’ll see sequentially growth. Not as strong as last year. The economy isn’t quite as strong this year, a little more normal. More cautious on that.
5:42: On app side, 50 million uniques in the US looks to us a lot of momentum. On mail a lot people check on phone, which is not counted by comScore as a unique. But, mobile is still new, you’ll see a lot more apps, so you’ll see users no matter what screen.
5:44: Carol: One of the important things is the app (ad) launch, which we’re progressing is important. It’s a product that’s important, it’s going to do a lot for our ability to sell an audience as opposed to a site or a position on a site. Other thing, fast growing area of display is video. So its important for us to have video ads and interactive video ads.
5:45: Focused on local with a passion here, because ad dollars will flow to local.
5:46: Mahaney asks: Carol, any comment on private equity interest? Even if to just say you would entertain an offer if it was huge premium? She responds, As tempting as it is to tell you what I really think, you know I can’t comment on rumours. Not allowed to do that, nor what I should do as CEO. We like our products, we like our strategy.
5:48: Tim Morse: We think we’ll have double digit growth in Q4 for display. We going to continue on the local aspect of video. Local, social. Then the app side, the combined marketplace for c1 and c2. We feel good about display. We’re getting cost structure in line. We’re feeling good. We have a lot of things in the hopper. Streamline us, get us going faster. Carol mentioned the Buffalo data centre. A lot of initiatives to help us become higher margin business.
5:50: We are going to in 2011, we feel great about leverage off investments last year, this year.
5:51: Carol chips in, we made decisions to clean up marketplace, to decide what company to be. Main drag on our growth for ever has been search revenue. Hard to grow with that dragging us. Once that’s stabilised, once it goes positive, we are going to be an entirely different company.
5:52: Look at 2004, growth has been falling, this is the first time we see upside. 2011 will be messy, but end of 2011, 2012, you’ll get correct TAC compared to MSFT, and you’ll get us inherently growing our business. We’re not trying to carve out so much profit we can’t grow.
5:54: Pageviews are down 4%, and when you look MSFT’s search revenue growth any read?
Carol: Let me talk pageviews and engagement — Better content, more engaging. I think at the top of the stack is our own content, I think we have some of the best. We put out the Upshot and in 6 million 80 million pageviews 270 million minutes, because we put pro blogging on news. Then at the bottom is Associated Content.
5:56: No read from MSFT search trends.
5:57: Imran Khan — Revenue per person is relatively low? Do you need headcount reduction? Carol, are you worried about losing ground on display?
5:58: TIm — i dont calculate revenue per employee, other than we’re trying to grow revenue. I don’t think we’re bloated. Is there more to go? I think there’s more to go. We’re expanding margins. We’re beginning to see things go the right way.
5:59: Carol on display — we’re a leader in display. The creativity on Yahoo site really allows display advertisers to grab attention which is different than a social network or another network. Our unique ability to work with large advertisers for their campaign. Reach the right audience as perfectly as possible. We’re running fast, we’re not giving up leadership very easily. (Which suggests it will be given up, just not easily!)
6:01: Mobile advertising is growing fast off a small base, says Carol. We’re working with advertisers on any size screen they want. We’re all working on it together. All brands want the pull through to all screens. When I got here a few years ago, we had a much smaller list of mobile advertisers.
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Here’s the presentation slides: Q310EarningsPresentationFinal
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