Yahoo Sheds Light On Search Performance, Future

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Yahoo reported is Q1 financial results on Tuesday with revenues of $1.04 billion, down from $1.08 billion from the same period last year. The company missed on the bottom line and on net revenue, but the search business has clearly received a major injection of new life thanks to the company's partnership with Mozilla.

The company reported an increase in search volume in Q1, with searches reaching a five-year high, citing the partnership as "key to this volume increase."

Gross search revenue was $956 million, up 20% year-over-year, while GAAP search revenue was $532 million, also up 20%. The company said search revenue from the Mozilla traffic is being recognized on a gross basis as a result of the terms of the agreement, and increased GAAP revenue and as well as TAC. Search revenue ex-TAC was $432 million, down 3% year-over-year.

Paid Clicks increased 21% year-over-year, and price-per-click increased 3%.

CEO Marissa Mayer said, "Yahoo is amidst a multi-year transformation to return an iconic company to greatness. This quarter, we saw encouraging revenue growth of 8%, with display revenue growing a modest 2% and search growing 20% on a GAAP basis. Our mobile GAAP revenue reached $234 million in Q1, growing 61% year-over-year. We anticipated that we would grow GAAP revenue ahead of revenue ex-TAC and EBITDA, and that's precisely what we saw this quarter. For the next phase of the transformation, we will focus on accelerating our GAAP revenue growth while managing our margins and costs."

On the company's earnings conference call, Mayer said (via SeekingAlpha's transcript), "Mozilla is not only a high-quality deal for us, it is a profitable deal for us. For volume and long-term health of the partnership, introducing Mozilla users to and retaining them on Yahoo! Search is key, and we surpassed all expectations for new users and retention. We knew this was a landmark deal for both companies. From today's vantage point, we would enter the partnership even more readily."

Yahoo has been aggressively trying to get people using Firefox. Not only has the company been displaying a download link on its home page and the home pages of some of its other popular web properties, it is even now sending Yahoo Mail users emails suggesting that they download it.

That's a particularly interesting strategy considering that they recommend doing so for safety reasons, and mention nothing whatsoever about search or or their partnership with Mozilla.

Earlier this week, Yahoo filed a regulatory document with the SEC outlining recently announced changes to its long-standing search agreement with Microsoft. It includes a termination clause, which would allow either company to bail on the deal after October 1.

Mayer said this about the amended partnership in her prepared remarks on the conference call:

The amended agreement has a five-year remaining term and is distinctly similar to the prior arrangement, except that it reduces our exclusivity commitments on PC to 51%, addresses the traffic acquisition cost we pay Microsoft on a gross basis rather than a net basis, and lets Yahoo! call on Microsoft for search only, ads only, or both together, paying a fixed cost rather than a revenue share for items that we discard without display.

I'd like to thank Satya and his team for the very constructive time and attention they dedicated to designing our go-forward partnership. We were very pleased with the renewed relationship, which improves the search experience for users, creates value for advertisers, and establishes ongoing stability for partners. We anticipate it will take several quarters to operationalize the new amendment...

She also mentioned how Yahoo is extending its search capabilities to any app developer as part of the mobile developer suite it launched at a recent developer conference. She said that in the first five weeks after the event, Yahoo Search in Apps has been launched in partner apps that have reached over 60 million users. She said the company will continue to invest in the developer ecosystem to improve quality and monetization of partner apps.

Naturally, Mayer was asked several questions about search during the Q&A portion of the call. On the company's approach, she said they're particularly interested in mobile and evolving context. They're also looking harder at involving personal information like email, which the company sees as a place where it can innovate in search.

Regarding that slight loss on search ex-TAC, she said this wasn't due to the profitable Mozilla partnership, but more attributable "acute things" the company saw in Q1, such as "the search revenue guarantee being wrapped".

Also regarding the Mozilla partnership, Mayer noted that it's only in effect in the U.S. and that there are "some international opportunities in the deal but none of those are in place at the moment."

Somehow, a potential Safari deal was never explicitly mentioned during the call despite Mayer's enthusiasm about such a prospect on the company's previous earnings call. She did, however, talk about potential distribution deals more generally, emphasizing the importance of maintaining volume, which she said is an indication of how Yahoo users value search, and that it's "actually meeting their needs."

Partnerships are a way to maintain that volume, she noted, and the exclusivity piece of desktop search being reduced in the Microsoft deal gives Yahoo the ability to "innovate more" and the potential to "work with other partners".

"We could introduce our own features but it also creates a very competitive atmosphere where we all work each day to earn that traffic and the percentage that gets directed to various partners, including Bing, and so overall we really like that dynamic," she said.

You can find the full earnings report here.

Image via Wikimedia Commons

Chris Crum
Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003. Follow Chris on Twitter, on StumbleUpon, on Pinterest and/or on Google: +Chris Crum.