) second-quarter earnings excluding restructuring charges and
including SBC and gains from patent sales came in at 30 cents,
which was down both sequentially and year over year and in line
with the Zacks Consensus Estimate. The results were helped by a
lower share count.
Yahoo reported GAAP revenue of $1.08 billion, which was down
4.3% sequentially and 4.5% year over year. Traffic acquisition cost
(TAC) was down 4.5% sequentially and 31.9% from last year.
Excluding these costs in all periods, net revenue was down 4.3%
sequentially and 2.9% year over year.
Yahoo combines revenue from O&O and affiliate sites and
presents under Display and Search categories.
revenues (ex-TAC) were down 3.7% sequentially and 6.9% from the
comparable quarter of 2013. The number of ads sold increased 24%
from last year but were offset by a 24% decline in the price per
ad. Yahoo's streaming ads, which doubled sequentially to about 40%
of total display volume, are helping the company generate stronger
revenue, although the lower prices are impacting the ASP. The
premium strategy remains a work-in-progress. Display revenue for
mobile remains a positive, doubling year over year for the second
(ex-TAC) was down 3.7% sequentially and up 6.0% year over year.
Paid clicks grew around 3% year over year, while the price per
click jumped 15%. This was despite the fact that the
) RPS guarantee expired in March. A lot of the strength in search
is attributable to improvement in click yields, due to relative
strength in the Americas region and on Yahoo properties (rather
than partner sites) both of which typically yield more
revenue. Improved ad formats, strategic partnerships and
better user experience continued to drive click-through
Other (fees, listings and leads) revenues were down 6.4%
sequentially and 10.5% from last year. In the last quarter, Yahoo
entered into a patent licensing agreement that will yield $20
million a quarter for four years and a smaller amount in the fifth
Display, Search and Other platforms represented 38%, 41% and 21%
of Yahoo's first-quarter revenue, respectively.
Yahoo generated around 75% of revenue on an ex-TAC basis from
the Americas (down 6.9% sequentially and 2.0% from Jun 2013),
around 8% came from the EMEA region (up 6.4% sequentially and 1.9%
year over year) and the balance from the Asia/Pacific (up 3.4%
sequentially and down 8.3% year over year).
Yahoo generated a gross margin of 70.9% in the last quarter,
down 21 bps sequentially and up 51 bps year over year.
Total operating expenses of $739.7 million were down 3.5% from
the previous quarter and up 12.2% from the year-ago quarter.
Product development cost increased sequentially as a percentage of
sales, partially offset by a decline in S&M cost. Both were
significantly higher than in the year-ago quarter.
The net result was an operating margin of 2.7% that shrank 78
bps sequentially and 965 bps from the year-ago quarter.
Yahoo's pro forma net income was $261.6 million or 24.1% of
sales compared to $321.1 million or 28.3% of sales in the previous
quarter and $337.7 million or 29.8% of sales in the year-ago
quarter. Our pro forma estimate excludes restructuring charges and
gains on sales of patents on a tax-adjusted basis in the last
Including the special items and the amount given out to
non-controlling interests, Yahoo's GAAP net income was $269.7
million ($0.27 per share) compared to $311.6 million ($0.30 per
share) in the Mar 2014 quarter and net income of $331.2 million
($0.30 per share) in the Jun quarter of last year.
Yahoo has a solid balance sheet, with cash and short term
investments of $2.74 billion, which dropped $195.1 million during
the quarter. The company generated $357.4 million from operations
in the last quarter, spending $107.4 million on capex and $718.6
million on share repurchases in the last quarter.
Yahoo provided limited guidance for the third quarter of 2014.
Accordingly, revenue on a GAAP basis is expected to be $1.06-1.10
billion, revenue on an ex-TAC basis $1.02-1.06 billion, with
adjusted EBITDA of $220-260 million and non GAAP operating income
of $70-110 million. The tax rate going forward is expected to be
around 37%. The results will exclude Alibaba's contribution (as
equity earnings) following their IPO.
Yahoo shares continue to be driven by strong other income, which
comes from a 24% equity stake in Alibaba and a 35% stake in Yahoo
Japan. Following the IPO, Alibaba will not be included in this
section, which will negatively impact its results, particularly
since the Yahoo Japan portion is nowhere near as strong. On a
positive note, Yahoo will be selling less than the 40% it had
previously agreed upon. Management intends to distribute 50% of the
proceeds, retaining the rest for operational flexibility and
leaving room for further acquisitions if required.
Mayer offered hope that the display business would recover, as
new products (Yahoo Ad Manager Plus) deals with the programmatic
buying trend. Premium plans are also on track with the company
investing heavily in quality content to attract traffic and premium
ad rates. The search business is already looking good and here
again new products have made a difference. Yahoo is making good
progress on the mobile platform
Yahoo remains focused on getting the right people on board,
which is resulting in properly focused products, leading to
stronger traffic and thereby, revenue. Acquisitions are of course
helping process, which may be expected to continue moving
Yahoo shares currently have a Zacks Rank #3 (Hold).
Better-ranked technology stocks that are worth considering at this
), both of which have a Zacks Rank #1 (Strong Buy).
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