This summary is based on the second quarter fiscal 2008 earnings call conducted by Yahoo! Inc. (YHOO) on July 22, 2008.
Management:
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Chief Executive Officer, Director: Jerry Yang
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President: Susan L. Decker
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Chief Financial Officer: Blake J. Jorgensen
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Chief Technology Officer: Aristotle N. Balogh
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Investor Relations: Marta Nichols
Key Investors Issues
- Net income was $131 million or 9 cents a share, down 18.6% from $161 million or 11 cents a share in 2007.
- Revenue was up 6% to $1.8 billion from $1.7 billion in the prior year.
- Cash flow from operating activities was $426 million, a 5% increase compared to $406 million for the same period of 2007.
Half Year Highlights:
- Revenues were $3.6 billion, up 5.9% from $3.4 billion in 2007.
- The firm’s income rose 122% from $303 million or 21 cents a share in 2007 to $673 million or 46 cents a share.
Second Quarter Highlights
Revenue was up 6% to $1.8 billion from $1.7 billion in the prior year due to the restructuring of the relationship with Overture Japan.
- Revenue ex-TAC was up 8% year over year to $1.35 billion and the firm delivered $449 million of operating cash flow on a normalized basis, or $427 million including the $22 million of costs related to the Microsoft proposal.
- Cash and marketable securities balance was $3.22 billion, up over $370 million from the prior quarter.
- The value of the direct and indirect interests in the publicly traded securities of Yahoo! Japan, Alibaba.com, and Gmarket, were valued at $10 billion in the public markets, or over $7 per share.
In the marketing services business, revenue was $1.59 billion, up 7% over last year’s second quarter and marketing services ex-TAC was $1.14 billion, up 10%.
- Owned and operated marketing services revenue was up 14% on a GAAP revenue basis, with O&O search up 17% and O&O display up 11%.
- On an ex-TAC basis, owned and operated marketing services revenue was up 9%, search and display were consistent at that level.
- The firm generated $211 million of fee revenue which was flat with the same period last year.
The conversion of the broadband partnerships to a revenue sharing model will lead to a decline in fee revenue and increasing TAC payments to partners, creating a drag on overall revenue growth.
- U.S. revenue ex-TAC increased 6% year over year and international revenue ex-TAC increased 14%.
- Acquisitions and currency each contributed approximately 2% to the total revenue ex-TAC growth.
- Net income was $131 million or 9 cents a share, down 18.6% from $161 million or 11 cents a share in 2007 due to incremental costs of $22 million incurred for outside advisors related to Microsoft’s proposals.
The firm continued to see strong double-digit user growth and increased page views by more than 20% year over year, giving the opportunity to monetize a large and growing base of high quality, contextually relevant inventory.
- Recent investments in search are paying off, with query growth in the U.S. up more than 11% year over year.
- It grew the GAAP display revenue worldwide for the owned and operated and affiliates by over 20% year over year, or 12% rev ex-TAC.
- However, in some categories, such as CPF and finance, demand for branded display advertising softened and there was a shift away from branded campaigns towards performance marketing.
Strategic Insights:
- The firm reached an agreement to settle the proxy contest with Carl Icahn, hence eliminating the distractions and allows the firm to move forward to create and deliver shareholder value.
- The firm signed an important agreement with Google, which has the potential to generate substantial revenues that are expected to enhance financial results and be reinvested in the company to strengthen competitiveness.
- It has accelerated the pace of innovation, introduced new, important products, and signed many new premier partners.
- The firm has also implemented a realignment of the business to accelerate the ability to execute on the strategy and improve overall monetization.
As online publishers work with Yahoo! to leverage the breadth of online advertising offerings, this is a key indicator of where the online advertising market is headed and Yahoo!''s unparalleled position to lead the charge.
- Fundamentally, publishers want to drive as much long-term value as possible from their sites and are not concerned with whether it comes from search or display advertising.
- With the firm’s broad capabilities in both areas, it can uniquely optimize the value of their inventory using the best ad at any time for the situation, rather than just the best search or the best display ad.
- The firm is also managing search and display monetization for such leading publishers as WebMD and CNET, and concurrently their sales forces are bundling Yahoo!''s display inventory with their own to provide greater reach, frequency, and value.
In terms of convergence, while buying search advertising is relatively straightforward today, buying display is just plain hard.
- Therefore, developing these capabilities for display ads is a prerequisite to enabling efficient buying and selling across both search and display in a platform.
- Once the firm has made the process of buying and selling display ad inventory as easy as it is in search, then it will be in a position to unify the process of buying and selling ad inventory across search and display.
- By removing significant friction from the process, the firm believes the platform will greatly accelerate advertiser adoption of online media, as well as the migration of ad dollars from offline to online.
