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Yahoo (YHOO) Beats on Earnings in Q4, Delays Verizon Deal

Yahoo! Inc. 's YHOO fourth-quarter 2016 earnings exceeded the Zacks Consensus Estimate on higher revenues. Shares moved slightly higher as investors are actually looking forward to the sale of the company rather than its earnings.

Over the last one year, the stock has outperformed the Zacks Internet Services industry. It gained 42.38% compared with the industry's gain of 12.78%.

The results were driven by continuous strong performance in mobile and native businesses. Two consecutive quarters of earnings beat show signs of a business revamp at a good time since Yahoo is on the verge of selling its core assets to Verizon VZ .

Marissa Mayer stated that the integration plan is on track and the company will remain deeply responsible for protecting users' information and enhancing security.

Yahoo had given an update on the time of completion of the deal. The deal was expected to be completed in the first quarter of 2017 but now the company has extended it to the second quarter.

Yahoo! Inc. Price, Consensus and EPS Surprise

Yahoo! Inc. Price, Consensus and EPS Surprise | Yahoo! Inc. Quote

Let's see what the numbers say

Revenues

Yahoo reported GAAP revenues of $1.469 billion, up 15.4% year over year and 12.6% sequentially. Traffic acquisition cost (TAC) was up 13.7% sequentially and 87.9% from last year. Excluding these costs in all periods, net revenue was up 11.9% sequentially and 4.4% year over year.

For 2016, GAAP revenues were $5169 million compared with $4968 million for full year 2015. Yahoo combines revenues from O&O and affiliate sites and presents it under Search and Display categories.

Search revenues (ex-TAC) were up 4.5% sequentially and 16% year over year. The key metrics were a huge disappointment in the last quarter, with paid clicks dropping 21% year over year. Price per click (PPC) grew 18%.

Display revenues (ex-TAC) grew 20.3% sequentially and 4.7% from the comparable quarter of 2015. The number of ads sold increased 4% from the year-ago quarter with price per ad (PPA) decreasing 10%.

Mavens (mobile, video, native, social) grew 12.6% sequentially and 25% from the year-ago quarter.

Mobile growth is extremely important because of the increasing use of mobile devices to connect to the Internet. Traffic-driven mobile revenues amounted to $495 million in the fourth quarter.

Other (fees, listings and leads) revenues were up 3.3% sequentially but down 8.8% from year-ago quarter.

Search, Display, and Other platforms represented 35%, 52% and 13% of Yahoo's fourth-quarter ex-TAC revenues, respectively.

By geography : Yahoo generated around 77.9% of revenues on an ex-TAC basis from the Americas (up 12.6% sequentially but down 3.4% from Dec 2015), around 7.4% came from the EMEA region (up 25.7% sequentially but down 8.3% year over year) and 14.7% from the Asia/Pacific (up 2.9% sequentially but down 7.7% year over year).

Margins

Yahoo generated gross margin of 47.5% in the fourth quarter, up 140 basis points (bps) sequentially but down 635 bps year over year.

The company generated operating margin of 4.4% that was better than the previous quarter's -4%.

Net Income

Including the special items and the amount given out to non-controlling interests, Yahoo's GAAP net income was $162 million (17 cents per share) compared with $54.61 million (loss of $4.70 per share) in the December quarter of last year.

Balance Sheet

Yahoo's cash and short-term investments balance was $6.82 billion at quarter-end, up $219.9 million during the quarter. The company generated $255.3 million of cash from operations, of which $41.6 million was spent on capex.

Guidance

Yahoo did not provide any guidance for the first quarter of 2017.

Zacks Rank and Stocks to Consider

Currently, Yahoo has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Seagate Technology plc STX and Intersil Corporation ISIL , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

For the current year, the consensus estimates for Seagate and Intersil have gone up 0.5% and 1.8% respectively in the past 60 days.

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Seagate Technology PLC (STX): Free Stock Analysis Report

Yahoo! Inc. (YHOO): Free Stock Analysis Report

Verizon Communications Inc. (VZ): Free Stock Analysis Report

Intersil Corporation (ISIL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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