Yahoo ( YHOO ) reported
first-quarter non-GAAP earnings that were up 11.6% sequentially and
up 48.7% year-over-year, exceeding the Zacks Consensus Estimate by
10 cents, or 40.0%.
The surprise history is also positive (35.1% in the four
Yahoo shares plunged 4.2% as investors responded to the decline
in the Display business and weak guidance for the second
Yahoo reported GAAP revenue of $1.14 billion, which was down
15.3% sequentially and 6.6% year over year. TAC costs were down
42.3% sequentially and 49.9% from last year. Excluding these costs
in all periods, net revenue was down 12.5% on a sequential basis
and 0.8% from last year, short of the Zacks Consensus Estimate.
Yahoo combines revenue from O&O and affiliate sites and
presents under Display and Search categories.
Display revenues (ex-TAC) were down 22.7% sequentially and 11.4%
from the comparable quarter of 2012. Yahoo's Display initiatives
have obviously not yielded results yet, as falling engagement and
negative mix impacted volumes and prices.
However, the trend appears positive for volumes, where the rate
of decline is going down. It is negative for the price-per-ad,
which is on a decline. Management is optimistic about improvements
in both engagement and pricing as we move through the year.
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 Google ( GOOG ) and
Facebook ( FB ).
Search (ex-TAC) was down 4.4% sequentially and up 6.5% year over
year. Yahoo is closing down Korea operations and excluding its
contribution in the year-ago quarter, revenue would be up 10%. Ad
quality improvements, better user experience and new ad products
continued to drive click-through rates.
The number of paid clicks jumped 16%, the fourth straight
quarter that growth has accelerated. However, the price per click
dropped 7%, which Yahoo attributed to a higher mix of affiliate
business. The O&O side of the business also grew, albeit at a
slower rate. Microsoft's ( MSFT ) RPS guarantee
expired in the U.S. and Canada at the end of the Mar
Other (fees, listings and leads) revenues were down 5.7%
sequentially and up 7.5% from last year.
Display, Search and Other platforms represented 38%, 38% and 24%
of Yahoo's first quarter revenue, respectively.
Yahoo generated around 75% of revenue on an ex-TAC basis from
the Americas (down 11.4% sequentially and up 1.5% from Mar 2012),
around 8% came from the EMEA region (down 13.7% sequentially and
5.7% year over year) and the balance from the Asia/Pacific (down
13.9% sequentially and 4.8% year over year).
Yahoo generated a gross margin of 69.8% in the last quarter,
down 74 bps sequentially and up 242 bps year over year.
Total operating expenses of $610.0 million were down 7.5% from
the previous quarter and up 5.9% from the year-ago quarter. While
all expenses increased sequentially as a percentage of sales,
S&M increased the most, followed by product development and
G&A. However, while product development and G&A expenses
also increased from last year, S&M declined.
The net result was an operating margin of 16.3% that shrank 526
bps sequentially while expanding 200 bps from the year-ago
Yahoo's pro forma net income was $391.2 million or 34.3% of
sales compared to $369.6 million or 27.5% of sales in the previous
quarter and $291.1 million or 23.8% of sales in the year-ago
quarter. Our pro forma estimate excludes restructuring reversals in
the last quarter.
Including the special item and the amount given out to
non-controlling interests, Yahoo's GAAP net income was $397.1
million ($0.36 per share) compared to $280.2 million ($0.24 per
share) in the Dec 2012 quarter and net income of $286.3 million
($0.23 per share) in the Mar quarter of last year.
Yahoo has a solid balance sheet, with cash and short term
investments of $3.0 billion, which was however down $1.2 billion
during the quarter. The company generated $297 million from
operations in the last quarter and spent $109.8 million on capex
and $70.5 million on share repurchases in the last quarter. Yahoo
does not have any debt.
Yahoo provided limited guidance for the second quarter of 2013
and updated its guidance for the full year. Accordingly revenue for
the current quarter is expected to be $1.06-1.09 billion, with
adjusted EBITDA of $350-370 million and operating income of
For the full year, Yahoo expects revenue of $4.5-4.6 billion
(reiterated), with EBITDA of $1.6-1.7 billion (reiterated) and
operating income of $1.05-1.10 billion (up from $810-850
Yahoo's search business continues to show signs of improvement,
despite softer pricing. Improvements on the display side are
ongoing, although the impact is not apparent just yet.
While the guidance was disappointing, ad improvements,
technology enhancements and cost control are positives. Yahoo's
guidance indicates a 7.4% increase in operating income on a revenue
decline of 5.7%, which is indicative of solid cost control.
Yahoo shares have appreciated 47.9% over the last six months,
after the Alibaba issue was resolved, the company started
retreating from unprofitable markets and acquiring companies to
build its position in mobile.
Yahoo shares currently have a Zacks Rank #1 (Strong Buy).FACEBOOK INC-A (FB): Free Stock Analysis ReportGOOGLE INC-CL A (GOOG): Free Stock Analysis
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