This summary is based on the third quarter fiscal 2008 earnings call conducted by Yahoo Inc. (YHOO) on October 22, 2008.
Management:
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CEO: Jerry Yang
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President: Susan Decker
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CFO: Blake Jorgensen
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Investor Relations: Marta Nichols
Key Investors Issues
- Net income was $54 million or 4 cents per diluted share, down 64% from $151 million or 11 cents per diluted share in 2007.
- Revenue increased 1% to $1.79 billion from $1.77 billion in the prior year.
Year to Date Highlights:
- Revenues were up 5% to $5.4 billion.
- Net income was up 38% to $728 million or 51 cents a share.
Third Quarter Highlights
Revenue increased 1% to $1.79 billion from $1.77 billion in the prior year due to slower online advertising growth.
- In addition, fees revenue from the broadband partners is no longer growing and will in fact decline over time.
- The upfront payments received from AT&T and Rogers will allow the firm to recognize some fee revenue from broadband relationships though this revenue source will decline over the next several years.
- These broadband relationships are converting to primarily revenue sharing arrangements as the firm is now paying TAC to these partners on O&O marketing services revenue in both search and display which drives non-comparability.
In the marketing services business revenue was $1.56 billion, up 1% over last year’s third quarter and total marketing services revenue ex-TAC was $1.1 billion, up 4%.
- Within marketing services, the owned and operated revenue was $1 billion up 9% on a GAAP revenue basis.
- O&O search was $438 million up 17% and O&O display was $435 million, up 3%.
- Affiliate revenue was $561 million a 10% decrease from last year principally due to the final quarter of a non-comparable results from Overture Japan’s transaction.
- Fees revenue was flat with last year and exceeded expectations due to a few one-time items related to the renewal of the broadband partnership with Verizon, and exit of the paid music subscription business.
The company delivered $447 million of operating cash flow or OCF or $410 million including the $37 million of costs related to the Microsoft proposal, strategic alternatives including the Google agreement, the proxy contest, and related litigation.
– The firm has no debt and had $3.3 billion of cash and marketable debt securities, with direct and indirect interests in the publicly traded securities of Yahoo! Japan, alibaba.com and Gmarket valued at $7.9 billion in the public markets or over $5.50 a share.
- Gross profit fell by $13 million year-over-year due to principally higher amortization of acquired intangibles related to acquisitions we’ve made over the last year.
- Other income was negatively affected by $13 million in currency fluctuations as volatility affected cash balances held in international locations.
- Net income was $54 million or 4 cents per diluted share, down 64% compared to $151
million or 11 cents per diluted share in 2007 due to a weaker revenue climate and high operating expenses.
Streamlining Initiatives:
- Goal is to reduce the current annualized cost run rate of roughly $3.9 billion by more then $400 million before the end of 2008.
- These efforts will involve streamlining the organization by reducing layers, increasing spans of control, and eliminating redundancies.
- Because the majority of costs are headcount related, that the firm will reduce global workforce by at least 10% by year-end.
- Efforts to drive efficiency might include relocating some operations to lower cost geographies, consolidating real estate, improving procurement and standardizing the global technology platform.
On monitorization efforts, the firm saw revenue per search increase in the US and launched APT from Yahoo! the new display ad management platform.
- It expects APT to change the game for advertisers, publishers, networks, and agencies dramatically simplifying the online advertising process while creating a dynamic open and innovative marketplace.
- Current investments which also included the development of Yahoo! open strategy put in place the key elements of the plans to better capitalize in online ad spending, search and enhancing audience experiences through more open and social features.
- With respect to the agreement with Google, the two firms are still working with the Department of Justice and others regarding the agreement.
Operational Insights:
- Users and usage growth continued at a healthy clip as Yahoo! reinforced its position as a core starting point for consumers who want to keep on top of what’s important to them in their world.
- Overall monetization was lower then expected and experienced the trends you might expect to see.
- Commitments to higher priced guaranteed advertising slowed further as companies with top line pressure cut back in order to protect their own bottom line results.
