Yahoo Earnings Released, Revenue $1.09 Billion

Chris CrumBusiness

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Yahoo just released its earnings report for the third quarter. Revenue was $1.09 billion with earnings per share at $0.52. The company's results were well above Wall Street expectations.

"We had a good, solid third quarter. We delivered $1.094 billion in revenue ex-TAC and $1.148 billion in GAAP revenue," said CEO Marissa Mayer. "This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue. We achieved this revenue growth through strong growth in our new areas of investment - mobile, social, native and video - despite industry headwinds in some of our large, legacy businesses."

"I am also pleased to report today that our revenue in mobile is now material," she added. "In Q3, we saw mobile revenues in excess of $200 million on a GAAP basis. Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year. We have invested deeply in mobile and we are seeing those investments pay off. Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo."

On the search front, GAAP revenue was $452 million, up 4% year-over-year. Search revenue excluding traffic acquisition costs was $450 million, up 6%. Paid clicks were flat year-over-year, but price per click increased about 17%.

Display revenue (GAAP) dropped 5% to $477 million. Display revenue ex-TAC was $396 million, down 6%. Still the number of ads sold increased about 24%. Price-per-ad decreased about 24%.

Some Tumblr numbers:

Here's the release in its entirety:

SUNNYVALE, Calif.--(BUSINESS WIRE)-- Yahoo! Inc. (NASDAQ: YHOO) today reported results for the quarter ended September 30, 2014.

Q3 2013 Q3 2014 Percent
Change
GAAP revenue $1,139 million $1,148 million 1%
Revenue ex-TAC $1,081 million $1,094 million 1%
GAAP income from operations $93 million $42 million (55)%
Non-GAAP income from operations $173 million $156 million (10)%
GAAP net earnings per diluted share $0.28 $6.70 N/M
Non-GAAP net earnings per diluted share $0.34 $0.52 52%

N/M - Not meaningful

"We had a good, solid third quarter. We delivered $1.094 billion in revenue ex-TAC and$1.148 billion in GAAP revenue. This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue. We achieved this revenue growth through strong growth in our new areas of investment - mobile, social, native and video - despite industry headwinds in some of our large, legacy businesses," said Marissa Mayer, CEO of Yahoo. "I am also pleased to report today that our revenue in mobile is now material. In Q3, we saw mobile revenues in excess of $200 million on a GAAP basis. Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year. We have invested deeply in mobile and we are seeing those investments pay off. Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo."

GAAP revenue was $1,148 million for the third quarter of 2014, a 1 percent increase from the third quarter of 2013. Revenue excluding traffic acquisition costs ("revenue ex-TAC") was $1,094 million for the third quarter of 2014, a 1 percent increase compared to the third quarter of 2013.

GAAP income from operations was $42 million for the third quarter of 2014, a 55 percent decrease from the third quarter of 2013. Non-GAAP income from operations was $156 million for the third quarter of 2014, a 10 percent decrease from the third quarter of 2013.

Adjusted EBITDA for the third quarter of 2014 was $306 million, an 8 percent decrease compared to the third quarter of 2013.

GAAP net earnings for the third quarter of 2014 was $6.8 billion (which included a gain from sale of Alibaba Group Holding Limited ("Alibaba Group") shares of $6.3 billion, net of tax), compared to $297 million in the third quarter of 2013. Non-GAAP net earnings for the third quarter of 2014 was $543 million, compared to $358 million in the third quarter of 2013.

GAAP net earnings per diluted share was $6.70 in the third quarter of 2014 (which included the gain from sale of Alibaba Group shares of $6.27 per diluted share), compared to $0.28 in the third quarter of 2013. Non-GAAP net earnings per diluted share was $0.52 for the third quarter of 2014, compared to $0.34 in the third quarter of 2013.

Business Highlights

  • Yahoo completed the acquisition of Flurry, a mobile data analytics company that optimizes mobile experiences for developers, marketers, and consumers. Yahoo and Flurry's combined scale is expected to create more personalized and inspiring app experiences for users, and enable more effective mobile advertising solutions for brands seeking to reach audiences and gain unique cross-device insights.
  • Yahoo continued to launch new products and improve on existing ones in the third quarter, innovating for the daily habits of users around the world. The Company launched the new Yahoo Finance app, Yahoo News Digest app and Yahoo Mail app for iPad, support for Digital Magazines for Android and iOS, and new navigation for Yahoo Answers, and also made Aviate available in eight languages on Android devices.
  • As football season kicked off this quarter, Yahoo announced a partnership with Samsung Smart TV to provide viewers with the Yahoo Fantasy Football TV experience, and launched NFL Now on Yahoo across devices including desktop, iPhone and iPad.
  • Top names in music, fashion, entertainment and finance continued to partner withYahoo in the third quarter of 2014. Taylor Swift and Prince both provided exclusive content to Yahoo in advance of their album releases. Yahoo Digital Magazines launched Yahoo Style with editor-in-chief Joe Zee, previously from ELLE Magazine. The Company also announced four additional new well-known editors-in-chief:Michelle Promaulayko for Yahoo Health, Kerry Diamond for Yahoo Food, Kristen Baldwin for Yahoo TV and Katie Brown for the recently launched Yahoo DIY. Yahoo Finance also launched Yahoo Finance Contributors with a roster of new high-profile industry experts including the Najarian brothers.
  • Yahoo launched new ways for the Company to work with publishing partners. Yahooannounced Yahoo Recommends which brings Yahoo's content personalization technology and native ads to publishers across the web, launching on high-quality publisher sites CBSi, VOX Media and Hearst.
  • Yahoo added important technical talent to the team with Mike Kail joining as CIO and SVP, Infrastructure to lead IT and data center operations for the Company.

Third Quarter 2014 Financial Highlights

Display:

  • GAAP display revenue was $447 million for the third quarter of 2014, a 5 percent decrease compared to $470 million for the third quarter of 2013.
  • Display revenue ex-TAC was $396 million for the third quarter of 2014, a 6 percent decrease compared to $421 million for the third quarter of 2013.
  • The number of Ads Sold increased approximately 24 percent compared to the third quarter of 2013.
  • Price-per-Ad decreased approximately 24 percent compared to the third quarter of 2013.

Search:

  • GAAP search revenue was $452 million for the third quarter of 2014, a 4 percent increase compared to $435 million for the third quarter of 2013.
  • Search revenue ex-TAC was $450 million for the third quarter of 2014, a 6 percent increase compared to $426 million for the third quarter of 2013.
  • The number of Paid Clicks was flat compared to the third quarter of 2013.
  • Price-per-Click increased approximately 17 percent compared to the third quarter of 2013.

Cash, Cash Equivalents, and Marketable Securities:

  • Cash, cash equivalents, and marketable securities (excluding Investment in Alibaba Group equity securities) were $12 billion as of September 30, 2014 compared to $5 billion as of December 31, 2013, an increase of $7 billion. Yahoo estimates that it will pay approximately $3.3 billion in cash taxes in the first quarter of 2015 related to the sale of Alibaba Group shares.
  • During the third quarter of 2014, Yahoo repurchased approximately 8 million shares of its common stock for $282 million.
  • In September 2014, the Company also entered into an accelerated share repurchase agreement with a financial institution to repurchase shares of its common stock. Under the agreement, the Company prepaid $1.1 billion and approximately 15 million shares were initially delivered to the Company on September 30, 2014 and are included in treasury stock. Final settlement occurred on October 17, 2014 resulting in a total of approximately 23.5 million shares repurchased for $933 million. The Company received a return of cash for the remaining amount not settled in shares of$167 million. The accelerated share repurchase agreement was entered into pursuant to the Company's existing share repurchase program.
  • As of September 30, 2014, the Company had 979 million shares outstanding.

"We are pleased with our performance this quarter, demonstrating results that met or exceeded guidance on key metrics. We ended the quarter with over $12 billion in cash and marketable securities following the sale of 140 million shares of Alibaba stock in the IPO, which resulted in $9.4 billion in pre-tax proceeds," said Ken Goldman, CFO ofYahoo. "In Q3 and Q4 to date, we have bought back approximately $1.6 billion of our stock. Of this amount, we have returned $1.4 billion to shareholders as a part of our commitment to return at least half of the after-tax IPO proceeds. We are hopeful that we will finish the year strong, and we believe that the Company is well positioned for improved performance in 2015."

Live Stream

Yahoo will live stream a video broadcast of the Company's third quarter 2014 financial results at 2 p.m. Pacific Time/5 p.m. Eastern Time today. The live stream will be broadcast from Yahoo's Sunnyvale studio and will be available exclusively on Yahoo Finance at finance.yahoo.com. The Company will provide its business outlook for the fourth quarter during the presentation. Supplemental financial information can be accessed through the Company's Investor Relations website at investor.yahoo.net. The video will be archived after the event at investor.yahoo.net and will be available for 90 days following the broadcast.

Non-GAAP Financial Measures

This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission ("SEC"): revenue ex-TAC; adjusted EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP net earnings per share - diluted; and free cash flow.

Revenue ex-TAC is GAAP revenue less traffic acquisition costs. Adjusted EBITDA, non-GAAP income from operations, non-GAAP net earnings and non-GAAP net earnings per share - diluted, exclude from the most comparable GAAP financial measures certain gains, losses, and expenses that we do not believe are indicative of ongoing results, and exclude stock-based compensation expense. Adjusted EBITDA also excludes taxes, depreciation, amortization of intangible assets, other income, net (which includes interest), earnings in equity interests, and net income attributable to noncontrolling interests. Free cash flow is GAAP net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net and dividends received from equity investees.

These measures may be different than non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles ("GAAP"). Explanations of the Company's non-GAAP financial measures and reconciliations of these financial measures to the GAAP financial measures the Company considers most comparable are included in the accompanying "Note to Unaudited Condensed Consolidated Financial Statements," "Supplemental Financial Data and GAAP to Non-GAAP Reconciliations," and "GAAP to Non-GAAP Reconciliations."

About Yahoo

Yahoo is focused on making the world's daily habits inspiring and entertaining. By creating highly personalized experiences for our users, we keep people connected to what matters most to them, across devices and around the world. In turn, we create value for advertisers by connecting them with the audiences that build their businesses.Yahoo is headquartered in Sunnyvale, California, and has offices located throughout theAmericas, Asia Pacific (APAC) and the Europe, Middle East and Africa (EMEA) regions. For more information, visit the pressroom (pressroom.yahoo.net) or the Company's blog (yahoo.tumblr.com).

"Affiliates" refers to the third-party entities that have integrated Yahoo's advertising offerings into their Websites or other offerings (those Websites and other offerings, "Affiliate sites").

"Net earnings" means net income attributable to Yahoo! Inc., and "net earnings per diluted share" means net income attributable to Yahoo! Inc. common stockholders per share - diluted.

"Ads Sold" consist of display ad impressions for paying advertisers on Yahoo Properties.

"Paid Clicks" are clicks by end-users on sponsored search listings (excluding native ads) on Yahoo Properties and Affiliate sites.

"Price-per-Ad" is defined as display revenue from Yahoo Properties divided by our total number of Ads Sold.

"Price-per-Click" is defined as Search click-driven revenue divided by our total number of Paid Clicks.

We periodically review, refine and update our methodologies for monitoring, gathering, and counting numbers of Ads Sold and Paid Clicks, and for calculating Price-per-Ad and Price-per-Click.

Additional information about how "Ads Sold," "Paid Clicks," "Price-per-Ad," and "Price-per-Click" are defined and calculated is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which is on file with the SEC and available on the SEC's website at www.sec.gov.

"Search Agreement" refers to the Search and Advertising Services and Sales Agreement between Yahoo and Microsoft Corporation, as amended.

"Search click-driven revenue" is gross search revenue (before TAC) excluding the Microsoft RPS guarantee.

"TAC" refers to traffic acquisition costs. TAC consists of payments to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo Properties.

"Yahoo Properties" refers to the online properties and services that Yahoo provides to users.

This press release contains forward-looking statements concerning Yahoo's expected financial performance and Yahoo's strategic and operational plans (including, without limitation, the quotations from management). Risks and uncertainties may cause actual results to differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, acceptance by users of new products and services (including, without limitation, products and services for mobile devices and alternative platforms);Yahoo's ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with the Search Agreement with Microsoft Corporation; risks related to acquiring or developing compelling content; risks related to joint ventures and the integration of acquisitions; risks relating to possible impairment of goodwill or other assets; risks related to fluctuations in foreign currency exchange rates; risks related to Yahoo's regulatory environment; Yahoo's ability to protect its intellectual property and the value of its brands; adverse results in litigation; security breaches; interruptions or delays in the provision of Yahoo's services; risks related to Yahoo'sinternational operations; risks related to the calculation of our key operational metrics; dependence on third parties for technology, services, content, and distribution; and general economic conditions. All information set forth in this press release and its attachments is as of October 21, 2014. Yahoo does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances. More information about potential factors that could affect the Company's business and financial results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which are on file with the SECand available on the SEC's website at www.sec.gov. Additional information will also be set forth in those sections in Yahoo's Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, which will be filed with the SEC in the fourth quarter of 2014.

Yahoo!, Flurry, Yahoo Finance, Yahoo News Digest, Yahoo Mail, Yahoo Answers, Aviate,Yahoo Sports, Yahoo Fantasy, Yahoo Style, Yahoo Health, Yahoo TV, Yahoo Food, Yahoo DIY, Yahoo Recommends and the Yahoo logos are trademarks and/or registered trademarks of Yahoo! Inc. Tumblr is a registered trademark of Tumblr, Inc. All other marks are trademarks and/or registered trademarks of their respective owners.

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.