) reported fourth quarter non-GAAP earnings that were down 12.0%
sequentially and up 25.5% year-over-year, exceeding the Zacks
Consensus Estimate by 5 cents, or 18.5%.
The surprise history is also positive (31.6% in the four
preceding quarters). Yahoo shares responded as may be expected,
jumping 3.2% in after-hours trading.
Yahoo reported GAAP revenue of $1.35 billion, which was up
12.0% sequentially and 1.6% year over year. TAC costs were up
10.8% sequentially while declining 19.6% from last year.
Excluding these costs in all periods, net revenue was up 12.1% on
a sequential basis and 4.5% from last year, ahead of the Zacks
Yahoo combines revenue from O&O and affiliate sites and
presents under Display and Search categories.
Display revenues (ex-TAC) increased 15.2% sequentially while
declining 4.6% from the comparable quarter of 2011. Management
attributed the year-over-year decline to declining engagement on
key properties, primarily webmail. The number of non-PPC
ads sold declined double-digits for the fourth straight quarter,
although the price per ad continued to increase.
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, confidence in Yahoo's prospects
remains low, given the growing success of archrival
). The company is steadily losing market share and it remains to
be seen whether the latest CEO can reverse the trend.
Search (ex-TAC) was up 3.2% sequentially and 13.8% year over
year. Ad quality improvements, including a Yahoo-specific click
prediction model from
) and new ad products drove click-through rates.
With both the number of paid clicks and the price per click
increasing for the second straight quarter, Yahoo saw another
quarter of positive RPS. Microsoft's RPS guarantee expires at the
end of the current quarter, so the improvement in Yahoo's RPS is
Other (fees, listings and leads) revenues were up 22.4%
sequentially and 10.4% from last year.
Display, Search and Other platforms represented 43%, 35% and
22% of Yahoo's third quarter revenue, respectively.
Yahoo generated around 74% of revenue on an ex-TAC basis from
the Americas (up 13.1% sequentially and 8.1% from Dec 2011),
around 8% came from the EMEA region (up 22.1% sequentially and
down 12.0% year over year) and the balance from the Asia/Pacific
(up 4.4% sequentially and down 1.3% year over year).
Yahoo generated a gross margin of 70.6% in the last quarter,
up 343 bps sequentially and 222 bps year over year. Total
operating expenses of $659.1 million were up 6.0% from the
previous quarter and up 2.0% from the year-ago quarter.
The gross margin expansion from both comparable quarters was
supported by lower S&M and flattish product development costs
(as a percentage of sales). However, while G&A expenses were
consistent with the previous quarter, the increased substantially
from last year. The net result was an operating margin of 21.6%
that expanded 620 bps sequentially and 205 bps from the year-ago
Yahoo's pro forma net income was $369.6 million or 27.5% of
sales compared to $429.5 million or 35.7% of sales in the
previous quarter and $312.8 million or 23.6% of sales in the
year-ago quarter. Our pro forma estimate excludes restructuring
charges on a tax-adjusted basis in the last quarter.
Including the special item and the amount given out to
non-controlling interests, Yahoo's GAAP net income was $280.2
million ($0.24 per share) compared to $3.17 billion ($2.65 per
share) in the Sep 2012 quarter and net income of $295.6 million
($0.24 per share) in the Dec quarter of last year.
Yahoo has a solid balance sheet, with cash and short term
investments of $4.2 billion, down $4.2 billion ($2.3 billion was
paid for Alibaba-related taxes) during the quarter. The company
used $1.90 billion in operations ($2.3 billion was paid for
Alibaba-related taxes) in the last quarter and spent $130.3
million on capex, which resulted in negative net cash flow.
The company also spent $1.5 billion on share repurchases in
the last quarter. Yahoo does not have any debt.
Yahoo provided limited guidance for the first quarter of 2013
and the full year. Accordingly revenue for the current quarter is
expected to be $1.07-1.1 billion, with EBITDA of $340-360 million
and operating income of $155-175 million.
For the full year, Yahoo expects revenue of $4.5-4.6 billion,
with EBITDA of $1.6-1.7 billion and operating income of $810-850
The guidance takes into account the closure of the Korean
business and expiration of Microsoft's RPS guarantee on Mar 31
Yahoo's search business showed signs of improvement, while the
display side disappointed yet again.
The guidance was also not very exciting although management
commentary about ad improvements, technology enhancements and
cost control sounded good. Yahoo's guidance indicates a 3.3%
decline in operating income on a revenue decline of 8.7%, which
seems to be accounting for some cost control.
We think Yahoo needs to step up investments to drive its
business. Therefore the lower costs seem to indicate the lack of
a crystalized strategy.
With Microsoft's RPS guarantee disappearing and the display
market remaining challenging, we think a turnaround remains a
Yahoo shares have appreciated 27.1% over the last six months,
after the Alibaba issue was resolved and the company decided to
retreat from unprofitable markets. However, the current valuation
is no longer cheap.
Yahoo shares currently have a Zacks Rank #1 (Strong Buy) and
we expect the rank to move lower in the next few weeks.
FACEBOOK INC-A (FB): Free Stock Analysis
GOOGLE INC-CL A (GOOG): Free Stock Analysis
MICROSOFT CORP (MSFT): Free Stock Analysis
YAHOO! INC (YHOO): Free Stock Analysis Report
To read this article on Zacks.com click here.