) reported fourth-quarter earnings that were up 38.7%
sequentially and 28.4% year over year, exceeding the Zacks
Consensus Estimate by 10 cents, or 33.3%. Yahoo shares traded up
during the day but lost some of the gains after the company
reported results. This isn't really a negative as the
after-market movement looks like a correction.
Earnings were driven by the core business for a change,
although other assets and the tax rate were positive for the
year-over-year comparison. Operating leverage was apparent in the
Pricing remains a sore point across the board, but management
brushed it aside, saying that the Display side was impacted by
stream ads which had great long-term potential, while the Search
side was essentially on account of a mix shift to mobile and
The numbers in detail-
Yahoo reported GAAP revenue of $1.27 billion, which was up
11.1% sequentially and down 5.9% year over year. Traffic
acquisition cost (TAC) was up 12.2% sequentially and down 47.5%
from last year. Excluding these costs in all periods, net revenue
was up 11.1% sequentially and down 1.7% year over year, just
short of our expectations.
Yahoo combines revenue from O&O and affiliate sites and
presents under Display and Search categories.
revenues (ex-TAC) were flat sequentially and up 16.5%
sequentially and down 1.7% from the comparable quarter of 2012.
Yahoo's Display initiatives appear to struggling, since the
increase in the number of ads sold was just slightly higher than
in the last two quarters, while the price per ad continued to
decline at the same rate.
Pricing remains a negative due to lower premium ads sold and
the rollout of streaming ads, which currently carry weak prices.
But management appears optimistic about the prospects of
streaming ads, especially on the mobile platform. So pricing
could improve in ensuing quarters.
Yahoo's position in display will be a key to its future
growth, since most market research firms are projecting strong
growth here due to underlying drivers, such as brand building on
online properties. However, Yahoo still has much to prove, given
the growing success of rivals
(ex-TAC) was up 8.3% sequentially and 8.0% year over year.
Improved ad formats and better user experience continued to drive
click-through rates. The number of paid clicks (excluding career)
jumped 17% from last year, the seventh straight quarter of
growth. However, the price per click dropped 3%, which Yahoo
attributed to a continued mix shift to international markets.
These comparisons exclude the effects of Korea and the
Other (fees, listings and leads) revenues were up 6.5%
sequentially and down 9.2% from last year.
Display, Search and Other platforms represented 41%, 38% and
21% of Yahoo's fourth quarter revenue, respectively.
Yahoo generated around 76% of revenue on an ex-TAC basis from
the Americas (up 12.0% sequentially and 0.5% from Dec 2012),
around 8% came from the EMEA region (up 18.3% sequentially and
down 2.9% year over year) and the balance from the Asia/Pacific
(up 4.1% sequentially and down 10.2% year over year).
Yahoo generated a gross margin of 73.2% in the last quarter,
up 217 bps sequentially and 261 bps year over year.
Total operating expenses of $680.7 million were down 5.0% from
the previous quarter and up 2.0% from the year-ago quarter. All
expenses declined sequentially as a percentage of sales, but
product development and G&A were significantly higher than in
the year-ago quarter.
The net result was an operating margin of 19.4% that expanded
1,135 bps sequentially and shrank 160 bps from the year-ago
Yahoo's pro forma net income was $412.8 million or 32.6% of
sales compared to $298.4 million or 26.2% of sales in the
previous quarter and $361.7 million or 26.9% of sales in the
year-ago quarter. Our pro forma estimate excludes restructuring
and goodwill impairment charges on a tax-adjusted basis in the
Including the special items and the amount given out to
non-controlling interests, Yahoo's GAAP net income was $348.2
million ($0.34 per share) compared to $296.7 million ($0.28 per
share) in the Sep 2013 quarter and net income of $272.3 million
($0.23 per share) in the Dec quarter of last year.
Yahoo has a solid balance sheet, with cash and short-term
investments of $3.41 billion, which increased by $1.58 billion
during the quarter because it raised $1.11 billion in debt. The
company generated $347.7 million from operations in the last
quarter, spending $108.8 million on capex, $60.3 million on
acquisitions and $231.3 million on share repurchases in the last
Yahoo provided limited guidance for the first quarter of 2014.
Accordingly, revenue on a GAAP basis is expected to be $1.12-1.16
billion, revenue on an ex-TAC basis $1.06-1.10 billion, with
adjusted EBITDA of $290-330 million and non GAAP operating income
of $130-170 million. The tax rate going forward is expected to be
Yahoo remains focused on getting the right people on board,
which would result in properly focused products, leading to
stronger traffic and thereby, revenue. The company is of course
helping the process with suitable acquisitions. Acquisitions will
continue moving forward, with the focus shifting somewhat to new
ad products and the shoring up of its video capabilities.
Firing and hiring at the company are things to watch keenly,
since this could mean either weaker-than-expected performance or
new directions in the business.
It's also worth noting that we are roughly half-way through
the three-year period Mayer had set for a turnaround and the
company appears to be on track.
Still, concerns over Yahoo's core business and the persistent
pressure on prices continue to weigh on investor sentiments.
Yahoo shares currently have a Zacks Rank #4 (Sell).
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