Yahoo released its Q3 financials this afternoon.
We took live notes from the conference call below.
The higlights:
- Yahoo is going to make small aquistions in the tens of millions to low hundreds of millions of dollars.
- Mayer wants half of Yahoo's engineers to be mobile engineers.
- Mayer said Yahoo should own some of the content it features.
- Mayer said it will take multiple years to get the company growing to her standards.
Here are the numbers (expectations according to Citi):
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Net Revenue: $1.09 billion vs $1.08 billion expectations.
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Operating income: $152 million vs. $180 million expectations.
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EPS: $.35 vs $0.26 expectations.
More from the release:
- Display revenue ex-TAC was $452 million, flat compared to the third quarter of 2011.
- GAAP display revenue was $506 million, a 1 percent increase compared to $502 million for the third quarter of 2011.
- Search revenue ex-TAC was $414 million, an 11 percent increase compared to $374 million for the third quarter of 2011.
- GAAP search revenue was $473 million, a 1 percent increase compared to $467 million for the third quarter of 2011.
Mayer's canned quote from the earnings release: "Yahoo! had a solid third quarter, and we are encouraged by the stabilization in search and display revenue. We're taking important steps to position Yahoo! for long-term success, and we're confident that our focus on quality and improving the user experience will drive increased value for our advertisers, partners and shareholders."
You can see a PDF of the results in slides here.
LIVE ANALYSIS: The numbers are mostly in-line, though we're trying to figure out why the EPS is so high. It's not Yahoo's sale of Alibaba stock, which is excluded from the EPS above, and pushes GAAP EPS to $2.64. Ex-TAC search revenues are healthy, but not driving the profits on their own. It might be that Yahoo has 1,700 fewer employees today than it did a year ago. Yahoo also sold some intellectual property to Alibaba for $550 million, and it's hard to figure out if that was excluded from the EPS. A source tells us it's due to a tax maneuver put on by now-departed CFO Morse.
The stock is up 2%.
At 5 PM Eastern Time, Yahoo will hold a conference call to go over the numbers. We'll be taking live notes below.
It will be new Yahoo CEO Marissa Mayer's first earnings call at the company.
It's been a very busy quarter for Mayer:
- She fired the CFO and the CMO and hired new ones.
- She gave employees new iPhones or generics.
- She hired a COO from Google.
- She tested redesigns of a new Yahoo.com.
- She considered firing thousands of employees.
- She outlined the company's vision for employees (in very broad terms).
We're told by a source to expect an informative outlining of her vision for the company. Fingers-crossed!
LIVE NOTES:
Click here for updates to this post.
4:59 – We're on the call. Mayer has not changed the music. It's still awful!
5:01 – Here we go! Legal disclaimer time.
5:02 – Here's Marissa.
5:03 – Says her first 100 days have been energizing and a lot of fun. Says she discovered Yahoo in 1994 as "Jerry and Dave's Guide To The Worldwide Web." She says the job is tailor made to her. Says Yahoo's core components: Search, ads, mobile, news, homepage are what she did at Google.
5:04 – Mayer says she's working to improve Yahoo's "people" – the efficiency, well-being, and accountability of them. Removed bureaucracy and laid out quarterly goals. As of today 93% of employees have quarterly goals. A company goal is to get that to 100%.
5:05 – Have made smart and thoughtful investments in new mobile phones. Offered free food, a standard thing in the Valley says Mayer.
5:05 – We have built a stellar leadership team, says Mayer. Finance, HR, development, and legal. Talks about new CFO Ken Goldman, who will lead our financial fitness moving forward.
5:06 – She talks about new COO Henrique De Castro, his "rigorous analytical approach."
5:06 – She calls out Ron Bell, the new general counsel. Jackie Reses is the new people development person for HR. Kathy Savitt is the new CMO.
5:07 – Mayer: "In Yahoo Fantasy Sports I would draft these people as my dream team."
5:07 – Mayer talks about products. Says she's reviewed hundreds of them. Mayer says Yahoo's share is "challenged." She wants to "grow share from the market." She says the alliance "has fallen below our expectations," and that Yahoo got a guarantee payment from Microsoft. That's probably why search revenues spiked this quarter. That'll disappear in six months.
5:08 – Mayer says mobile is "growing nicely." There's a new version of Flickr for Android. There's a new search for mobile. She talks about IntoNow.
5:09 – In Q3, Yahoo's global coverage around the 2012 games resulted in more traffic than the Vancouver and Beijing Olympics combined.
5:09 – She says Yahoo is reinvesting in ad technology. She says advertisers love audience-based buying, and they would buy more if they could. She says Yahoo needs to generate more impressions, which is more usage.
5:10 – Mayer says that Yahoo has committed to returning $3 billion from the Alibaba deal. She says the smart move is to repurchase stock in the current environment, but says she will reevaluate.
5:11 – Ken Goldman, the new CFO, now has taken the phone.
5:12 – He's going over the earnings slides and release. You're better off reading them than having me transcribe.
5:14 – He says the prime objective is to leverage assets to go from stability to growth.
5:15 – He says ad spending on Yahoo Mail came down because Yahoo Mail usage declined, though sale-through remained high. He said the Olympics performed well, but were probably cannabilistic.
5:15 – He says Yahoo search is up 11% y/y during the quarter, due to better performance and a payment.
5:18 – We're onto the balance statement and cash flow.
5:20 – He says the plan is to re-purchase stock with the money from Alibaba. The net gain is $2.8 billion. Yahoo now owns 24% of Alibaba Group. Pre-tax value is $8.1 billion. Not including 800 million of preferred. Cost basis is $250 million.
5:22 – Goldman is not going to give guidance.
5:22 – Now it's time for Marissa again. She says the results are a solid foundation. She says Yahoo will become a growth company by inspring and delighting users. Yahoo goal: "to make the world's daily habits inspiring and entertaining." Search is a top priority for Yahoo – making organic investments to grow our market share. There is clear upside. Says communication products can improve. Says homepage can too.
5:25 – Mobile is a daily habit and "fundamental platform shift," that Yahoo has to ride. We've underinvested on mobile, and have splintered our brands. 76 apps. THis needs to change. OUr top priority is a focused strategy. Hiring people to solve this. She says on mobile people watch videos, share photos, play games, check stock quotes, check email – "Does that sound like any particular company?" Talks about having apps that are "beautiful and compelling."
5:26 – She's talking about personalization of content and advertising now. Going to contine to create engaging branding experiences. Will expand "simple and effective targeted ads"
5:27 – The future of Yahoo is bright. Reach. Transformative products that will be indispensible. Inspire. Learn. Innovate. Entertain. She came to Yahoo to bring change. She's not alone she says. Others there share goal. Calls Yahoo a consumer Internet company. "We intend to win."
5:29 – Time for analyst questions. The first guy wants to know how this all differs from past.
5:30 – Mayer says the difference is that the core of Yahoo is valuable and it doesn't need to pivot to go into a new business. It needs to focus on daily habits, search, mail, homepage and mobile. It means focusing on where it's already ahead. She's saying Yahoo needs to make products people use every day. Easier said than done!
5:30 – On search versus display: Mayer says there is more upside in search. There is an opportunity to improve monetization. The content investment Yahoo has made provides a lot of opportunity in display. "I'm bullish on search and display, but because of audience targeting I'm particularly bullish on display."
5:33 – Now there's a question about international. Mayer says the plan is to build growth. She says South Korea didn't have a growth story ahead of it, so that's why they closed the shop.
5:34 – Analyst wants to know why Yahoo isn't focusing on local. Mayer says it's very hard to do it well. That it requires a lot of people and a lot of time. Our local offerings are good at the moment. It's hard to take that next step to provide even deeper funcationality. Not an area where we planned to invest moving forward.
5:35 – Analyst asks a question: You didn't talk about time spent on Yahoo. Is there another metric we should use?
5:36 – Mayer says the metrics to look at are number of users and pageviews.
5:37 – Analyst asks where else could Yahoo capital go.
5:37 – Goldman says it's important to have a strong balance sheet. Says Yahoo will invest in data centers. Will look at "small-ish" acquisitions that further growth.
5:38 – Mayer talks about investment. She says investing in user-experience involves spending on data centers. In terms of possible aquisitions: Don't have any in mind today. Need flexibility. What's lost on people is that because high profile tech acquisitions are above $1 billion, people don't realize that there are many below $100 million. She says that at Google she did 20 or so of that size. Says Yahoo will look at that size: double digit millions and low hundreds of millions.
5:40 – Analyst wants to know if Yahoo has strategic options for other search options.
5:41 – Mayer answers: from my perspective, we have been happy working with Microsoft. The teams work well together. Our goal is to produce a terrific search experience and to work well with our partner in the form of Microsoft to do so.
5:42 – Goldman says Yahoo would like to work better with Microsoft and achieve its own results.
5:42 – Analyst wants to know how Yahoo is going to hire more talented people.
5:43 – Mayer says Yahoo needs more mobile engineers. Says half of its workforce should work in mobile. People at Yahoo need to learn how to do it. She says she's impressed with the change in Yahoo's applicant pool. At an all hands, employees said that their friends want to work at Yahoo. She's hearing from entrepreneurs are investors are excited to sell to Yahoo. She says Yahoo can be a good home for people in smaller scale aquisitions. Being the place to work attracts talent.
5:45 – Ken Goldman says "there's a lot of great buzz among the young folks about Yahoo."
5:45 – Analyst wants to know if Yahoo can win without a mobile operating system. Won't the OS owners just co-opt any valuable application?
5:46 – Mayer says one of the advantages at Yahoo is not having a mobile operating system because that means it can offer its products on iOS and Android. She says checking news, weather, sharing photos, are things people do on the phones and that Yahoo has a unique set of content that it can provide its users.
5:47 – Analyst also asked about Yahoo ad technology. Mayer says in search, Yahoo is working with Microsoft. She says in display, Yahoo will target its audiences. She touts Yahoo's user-engagement.
5:48 – Analyst wants to know about how Yahoo is doing on search. He asks about some specific metrics.
5:49 – Mayer says there is an opportunity to do more integration across Yahoo sites. She says in terms of mobile share, she says there are going to be a few large players in mobile and that Yahoo is going to be one of them. She says if Yahoo has mobile apps that people use on a daily basis, that will also drive search. In terms of monetization, there are going to be elements that are challenging: auction and network dymanics, in particular.
5:50 – Analyst wants to know if Mayer thinks the site is over-monetized, if there is a clean-up effort needed.
5:51 – Mayer says I don't think we are over-monetizing. She says revenue is traffic X RPM. She says there are ways where Yahoo could back off on some ad units. The reason to do it is if it causes traffic to grow. If we make changes, it will be for those kinds of trade-offs.
5:53 – Analyst asks if Mayer thinks Yahoo needs to own its content, or just leverage partnerships.
5:53 – Mayer says I do think there are some elements of content that we do need to own. Need to do partnership. Need to do partnership. She says Yahoo Answers should be better. She said when we look at Olympics, or Elections, by putting our editors and reporters there were are able to drive pageviews and egagement. Witout ownership of that content, we would not be able to drive that engagement. I do think that is something that is ulimtately important.
5:56 – Analyst wants to know how important Yahoo TV, OMG, etc are.
5:56 – Mayer says I am product focused. I do think there are hallmarks of terrific products. They make it fast and straightforward and simple. Another important thing is differentiation. She says OMG, Yahoo TV, are differentiation. Olympics, election, and live events are very important.
5:56 – Analyst asked if Yahoo needs better self-service buying for ad-buyers.
5:57 – Mayer says Yahoo needs to invest more in programmatic buying for advertisers.
5:58 – Analyst wants to know how long it will take Mayer to get Yahoo growing properly again.
5:59 – Mayer says my goal isn't to grow at the industry rate, it's to grow faster and more. Industry rate is the first. It will take multiple years to get it where she wants it to be. There will be measurable progress in the meantime.
6:00 – Analyst wanted to know how Yahoo will buyback its stock.
6:00 – Goldman says its extremely attractive, good for shareholders, good for limiting dilution. He says the plan is open market buying.
6:01 – Analyst wants to know if Yahoo will streamline at this point.
6:01 – Mayer says Yahoo is completing its restructuring. She says she has revisted this. She says by and large, wer aren't looking at large scale restructuring. She says the focus is bringing it into alignment with the current strategy. Finance, Sports, News, Flickr, many of those … and getting focused on the shift on mobile. We will be doing some realignment in areas where we need to increase our investment. At this point, it's getting aligned with the strategy.
6:02 Analyst wants to know how Yahoo is using data.
6:03 Mayer says Yahoo does not have a coherent view of its users across all its products. She says that's something that needs to get in place in the future. There's potential there.
6:05 That's it.
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