) reported its fourth quarter earnings Tuesday, January 28.
The company posted a 2% year-on-year decline in net revenues
(excluding Traffic Acquisition Cost or TAC) to $1.2 billion.
Furthermore, the non-GAAP operating income declined by 8% to $174
million and Non-GAAP net income increased by 17% to $482
million during the quarter. The company continues to invest
heavily to bolster its core ads business and build a robust mobile
Yahoo's core display ad revenues (excluding TAC) continued to
suffer and decreased by 6% year on year to $591 million. However,
its search ad revenues (ex-TAC) grew by 8% year-on-year to $461
million. Additionally, Yahoo's investment in Alibaba continued to
reap benefits for the company as revenues grew by 55% year over
year. During the fourth quarter, Yahoo acquired eight companies to
strengthen its product, content offerings and technology. The
company also attracted a record number of users to its properties
during the quarter. We believe that the company can increase its
revenues in the coming quarters, if it can monetize its increasing
user base and content effectively.
See our complete analysis of Yahoo! here
Outlook For First Quarter And Full Year 2014
For the first quarter, Yahoo expects revenues (ex-TAC) to be in
$1.06-$1.10 billion range. Additionally, it expects adjusted EBITDA
to be between $290 million and $330 million, and non-GAAP operating
income to be between $130 million and $170 million. While the
company has refrained from giving any guidance for 2014, it will
continue to invest and expects the momentum to pick up in latter
half of this year.
Alibaba Continues To Report Growth
According to Yahoo's fourth-quarter earnings announcement,
Alibaba generated $1.78 billion in revenues, $786 million in
operating income and $801 million in net income during Q3 2013.
While the company continues to post growth, it has slowed down.
Considering the impending IPO of Alibaba, the revenue growth rate
has negatively impacted investor sentiments. However, we believe
that Alibaba's valuation will continue to bolster Yahoo's
Pricing Pressure On Ads Continue
While search ads makes up 14% of Yahoo's estimated value,
display ads contributes 13% of its value. During the quarter,
Search Ad revenues (including TAC) fell by 4% year over year to
$464 million, while display ads declined by 6% to $553 million.
The company reported over 15% growth in the number of paid
clicks for search ads, and 3% growth in number of ads sold for its
display ads division. However, the price per click declined by 3%
and price per ad fell 7%. We expect this trend to continue in the
coming quarters as advertisers shift their ad budget to new avenues
such as mobile ads, which garner lower pricing. Furthermore, we
expect the international mix of total search and display to
increase, which should be a drag on ad pricing. Going forward, we
estimate RPS will decline from $13 to $12, and revenue per
impression to remain flat.
Mobile Boosts Unique Visitor Count
In an earlier article, we argued that Yahoo's mobile platform
will drive its revenue growth going forward. Yahoo continued to
report growth in its total mobile unique visitors, which grew to
over 400 million in the quarter. The growth in its unique visitor
count is important for Yahoo as a bigger user base will consume
more content across Yahoo's websites. This, in turn, will translate
into higher page views and searches across all Yahoo platforms.
Additionally, we believe that a strong mobile platform is
important for Yahoo as it can bolster Yahoo's revenue by capturing
a substantial piece of the global mobile advertising market, which
will stand at approximately $42 billion in 2017, according to
We are in the process of updating our Yahoo model. At present we
$31.17 price estimate
for Yahoo!, which is 20% below its current market price.
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