Yahoo’s Q4 and FY Revenues Down But Earnings Beat

This afternoon, Yahoo reported a mixed quarter. The company had revenues of $1.26 billion in Q4 2013. That was a 6 percent drop from a year ago. For the full year, Yahoo earned roughly $4.7 billion, another 6 percent decrease compared to 2012.

Yahoo earnings per share dramatically beat Wall Street estimates ($0.46 vs. $0.38). However, the contraction of Yahoo’s display business (9 percent year-over-year) caused the stock to fall somewhat in after-hours trading.

Net earnings for Q4 were $348 million, a 28 percent increase vs. 2012. However, net earnings in 2013 overall were just under $1.36 billion, down 65 percent (largely because the prior year included sale of  Alibaba Group shares worth $2.7 billion).

Search-related revenue:

• $464 million for the quarter (down 4 percent) and $1.74 billion for the full year (down 8 percent)
• Search revenue ex-TAC increased by 8 percent to $461 million in Q4. For the full year it was $1,699 million, up 6 percent
• Paid Clicks were up 17 percent for the quarter vs. a year ago
• CPCs were down 3 percent for the quarter compared with last year

Display revenue:

• Display revenue was $553 million in Q4, again a 6 percent decline from the previous year
• For the full year, display revenue came in at $1.95 billion, down 9 percent year over year
• “Number of Ads Sold” (excluding Korea) grew roughly 3 percent vs. Q4 2012
• “Price per ad” (excluding Korea) dropped by 7 percent vs. Q4 2012

This year will be critical for Yahoo CEO Marissa Mayer. She has “stabilized” the company and the stock is up vs. when she took over (some attribute that to Yahoo’s Alibaba holdings). Investors will now expect her team to get revenues growing — or she could suffer the fate of her immediate predecessors.

The follow remarks are from the earnings call:

Yahoo CEO Marissa Mayer:

In 2013 Yahoo saw traffic grow “after years of decline.” In 2014 efforts will continue toward “people, products and traffic.” Mayer cautions that it will take “years” for Yahoo to return to growth. She projects that there will be a modest “acceleration” in the second half of 2014.

Over 400 million mobile monthly users in Q4.

Four core business areas: search, communications, digital magazines (aligned with verticals) and video. She highlights Yahoo Tech, Sports, Finance and Yahoo Food. Already more than 10 million uniques on these digital magazines. Yahoo Food and Tech are “built on tumblr.”

Mayer says Q4 marked the eighth consecutive quarter of growth for Yahoo’s search business. Interestingly, the recent smart homescreen Aviate acquisition is seen as contributing mobile search growth.

Mayer talked at some length about video and the mobile video opportunity.

Yahoo has “erased two full years of [traffic] decline.”

Yahoo is getting more job applicants, over 85K in Q4 alone. Roughly 40 percent of Yahoo’s 2013 hiring were engineers.

Marissa says the sequence is: people, products, traffic then revenue. She describes it as a “multi-year” plan. In 2014 Mayer projects revenue growth, following improvement in the other areas.

Yahoo CFO Ken Goldman:

Goldman made a number of upbeat statements about the company’s trajectory. Then he spent an enormous amount of time reciting prepared remarks and the details of the financials in the earnings release and slides.

Yahoo CEO Marissa Mayer (discussing 2014):

Mayer identified several areas of potential future growth: mobile, social, video and native advertising. She says these four areas at Yahoo grew 60 percent year over year in 2013:

• Mobile: revenue has doubled. She points out it’s not “material” yet but it’s a great opportunity, especially display and video.
• Social: Mayer spoke about tumblr and its growth on PC and mobile.
• Video: personalized, well-organized user experience.
• Native: the two areas of focus are Yahoo stream ads and digital magazines. Stream ads a primary way to monetize mobile for Yahoo, but are being integrated across Yahoo properties

Ad technology: one of Yahoo’s biggest areas of focus is improving its ad technology and unifying and simplify ad products for marketers.

In closing the prepared remarks, Mayer cautions that it will take “several years” to return the company to growth. Despite this she also seeks to reassure investors that 2014 is about doing strategic things to promote revenue growth.

On Yahoo’s acquisition strategy, Mayer says:

• Small acquisitions for talent
• Strategic acquisition for technology or products (e.g., Aviate, Summly)
• Foundational acquisitions that allow the company to enter new areas or for content (e.g., tumblr)

On the Henrique de Castro firing . . . Ultimately he “was not a fit,” explained Mayer. She added it was “regrettable.” She’s now going to be much more involved “with revenue as we drive toward revenue growth.” The organization is now going to be more “flat” with a stronger focus on execution.

Marissa spoke about search click growth. She said that the company is adding new “search partners,” bringing the total to almost 900 search partners globally. She addressed the Microsoft partnership but didn’t say anything of substance. She said the companies continue to collaborate and that Yahoo is “long on search.”

Asked about reviving in-house search technology or a paid-search platform, Mayer said that all advertisers are now completely transitioned off the Yahoo platform but that the company will continue to invest in the search-user experience. “We’re still investing heavily in search,” CFO Goldman added.

On display: Yahoo has the “creme de la creme” of ad inventory and user data, said Mayer. Yahoo ad manager now brings together data, targeting and analytics in a simplified platform.

At the end of the call Mayer summarized the highlights of the release and earnings call in the form of a Yahoo News Digest. Cute.