Yahoo! (
YHOO
) reported fourth quarter and full year earnings Monday, January
28. The company posted net revenues (excluding traffic acquisition
costs) of $1.2 billion, an increase of 4% year-over-year and a 10%
increase in non-GAAP (Generally Accepted Accounting Principles)
operating income, which was $283 million compared to $259 million
in 2011. Despite the encouraging top line growth, Yahoo!'s display
ad revenues fell 5% year-over-year in the fourth quarter, and 2%
year-over-year for the whole year.
See
our complete analysis of Yahoo! here
Full-year Revenues Grow For First Time Since
2008
While display ad revenues ex-traffic acquisition costs
(
TAC
) fell 2% for the full year, the company's overall revenues ex-TAC
increased by 2%. The higher revenues were driven by a 9% increase
in search revenues, which increased to $1.6 billion from $1.4
billion in 2012. Search revenues grew because of an 11% increase in
paid clicks during the fourth quarter, which occurred
despite news that Yahoo!'s search traffic declined
during the year
. This means that Yahoo! is likely improving the advertising
quality on its search engine as it is able to translate lower
traffic into higher clicks. If it is able to maintain this trend,
and also grow its search user base, revenues from the search
division are likely to be a growth driver going forward.
Focus Again On Employees
Yahoo! CEO, Marissa Mayer, has again stressed on the importance
of the firm's employees. Working on this company ideology, she
introduced few changes to the firm's culture during the third
quarter, like giving free food to employees, instituting quarterly
performance reviews and internal feedback tools for products. Mayer
says this has helped lift employee morale.
Additionally, Mayer streamlined more of Yahoo!'s processes
during the quarter, like reducing bureaucracy to
implement a more collaborative and bottom-up culture. These
changes, however, can have an impact on the firm's margins going
forward. An important part of retaining quality employees in
Silicon Valley will be paying high wages, which is likely to
increase costs over the long term. Therefore, Yahoo! will have to
focus on cutting costs in other parts of its business. Overall, we
will have to wait and see how management will cut costs going
forward, as margins will be an important factor in Yahoo!'s bottom
line growth.
Mobile Platform Hits 200 Million Unique Visitors
It seems that Mayer's investment in Yahoo!'s mobile platform
with the revamp of Yahoo! mail and Flickr have paid dividends, as
the firm's total mobile unique visitors hit approximately 200
million. We have argued that Mayer must invest in Yahoo!'s mobile
platforms since this avenue can be a big driver of growth for the
company, especially in the emerging markets, and are encouraged by
her continued focus on this platform during the earnings call.
The mobile platform is an important point of focus for Yahoo!
since it will drive organic user growth in the emerging
markets, as new members of the middle class are first accessing the
Internet via their mobile phones. Since these individuals aren't
familiar with various Internet platforms, a successful mobile
product would get them using Yahoo!, and building user familiarity
and loyalty.
Additionally, the mobile product line can also drive page views.
A greater number of Internet page views are via mobile phones when
compared to traditional personal computers. According to research
firm StatCounter, the percentage of total internet page views on
mobile phones was 10.1% in May 2012, almost doubling the 5.8% that
it had posted for the same period in 2011. The growth was more
pronounced in Asia, which saw the proportion grow to 18% in 2012
vs. 8.3% year-over-year, and provides some indication of the growth
trend in emerging markets. Overall, we think that mobile can
be key to Yahoo!'s long term health. Not only can it succeed in the
emerging markets due to the mobile Internet trend, it can also get
a substantial piece of the global mobile advertising pie, which
will stand at approximately $26.6 billion in 2016, according to
research firm eMarketer.
We are currently in the process of updating the Yahoo! model. At
present we have a
$21 price estimate
, which is approximately the same as the current market
price.
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