Yahoo!’s (YHOO) CEO Marissa Mayer on Q3 2014 Results – Earnings Call Transcript

Yahoo! Inc. (NASDAQ:YHOO) hosted a conference call with investors and analysts to discuss Q3 2014 earnings results on October 21, 2014 at 5:00 p.m. ET. The following are the webcast audio and the associated transcript of the event…

Yahoo! Inc. (NASDAQ:YHOO)

Q3 2014 Results Earnings Conference Call

October 21, 2014 05:00 p.m. ET


Bianna Golodryga – Business Reporter

Marissa Mayer – Chief Executive Officer

Ken Goldman – Chief Financial Officer


Ben Schachter – Macquarie

Ron Josey – JMP Securities

Youssef Squali – Cantor Fitzgerald

Neil Doshi – CRT Capital

John Blackledge – Cowen and Company

Brian Wieser – Pivotal Research


Good afternoon and welcome to Yahoo!’s Third Quarter 2014 Earnings Video Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. The webcast today will be moderated by our business reporter from Yahoo! Finance, Bianna Golodryga.

Before getting started, I’d like to remind you that today’s presentation will contain forward-looking statements about our expected financial and operational performance including business and financial strategies, growth, revenue, products and ad sales. Actual results might differ materially from our projections.

Potential risks factors that could cause these differences are described in our Form 10-Q filed with the SEC on August 7, 2014. All information in this video is as of today, August 21, 2014 and we undertake no duty to update it for subsequent events.

Today’s discussion will include non-GAAP financial measures. Reconciliations of our non-GAAP results to the GAAP results we consider most comparable can be found in our earnings slides, which also contain full versions of the financial charts and graphs you will see in today’s video. We encourage you to review the complete earnings slides in our Investor Relations website at under the Earnings.

And with that, let me turn the program over to Bianna.

Bianna Golodryga – Business Reporter

Welcome to Yahoo!’s third quarter 2014 earnings video webcast. I’m Bianna Golodryga again. I would be moderating today’s earnings event. Here with me are Marissa Mayer, Yahoo!’s Chief Executive Officer; and Ken Goldman, Yahoo!’s Chief Financial Officer.

Today, we bring you prepared remarks from both Marissa and Ken around Yahoo!’s third quarter performance. Later, they will be answering your questions submitted via email. Institutional investors were encouraged to submit questions and we have selected a few questions that were representative of the group.

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I’d like to now turn it over to Marissa to discuss Yahoo!’s third quarter business update. Marissa?

Marissa Mayer – Chief Executive Officer

Thank you for joining us on today’s call. We had a good solid third quarter. We delivered $1,094 million in revenue ex-TAC and $1,148 million in GAAP revenue. This represents 1% growth in revenue ex-TAC and 1% growth in GAAP.

We achieve this revenue growth with strong momentum in our new areas of investments; mobile, social, native and video, despite industry headwinds in some of our large legacy businesses. Our results were outside and above the top of our guidance range by $34 million on revenue ex-TAC and $48 million on GAAP revenue.

For my segment of today’s call I will cover our quarter then Alibaba. Then return to our strategy for the core business for M&A and for managing expenses. We’re turning now to Q3. We see strength in search and mobile.

Our investment businesses of social, mobile, native and video are collectively growing 80% year-over-year, and we are gaining momentum in the four key areas of our strategy, search, communications, digital magazines and video. Our results in display are mix within new investment areas growing triple digits, but with legacy PC display more than offsetting that growth.

Turning now to search, our search business continues to be strong showing 6% growth year-over-year on an ex-TAC basis. With our search click driven up 17% based largely on strong PPC trends and clicks flat year-over-year.

This quarter represents our 11th quarter of search revenue growth year-over-year on a revenue ex-TAC basis. Our price-per-click is up in almost all regions as we continue to find ways to enhance the performance of our search ads through better user interfaces and higher quality traffic and as advertisers ultimately find our search ads more valuable.

In terms of clicks the story is more regional. We saw a strong click growth in the Americas for example, where clicks grew 9% year-over-year. However we saw fewer Clicks year-over-year in our Asia Pacific region, in total resulting in flat clicks year-over-year.

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Social across both PC and mobile continues to be a highlight where we see a lot of momentum and opportunity. Speaking of mobile, I’m delighted to report you today that our revenue and mobile is now material. In Q3 we saw mobile revenues in excess of $200 million on a GAAP basis.

Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year. This maps to GAAP revenue of more than $700 million in 2014. We’ve invested deeply in mobile and those investments are paying off.

Our mobile revenue more than doubled year-over-year, not only our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo! Fundamentally, we are moving from a company that makes web pages and monetizes them through banner ads to a company that makes mobile apps and monetizes them through native ads.

We have effected this transformation remarkably quickly with 44% of our display ads now being native and are material — and our mobile revenue now being material. And as we continue to think about growth, we know that we’ll say strong here. Mobile remains the minority of our traffic. And as our mobile traffic grows, we anticipate so will the associated revenue given the effectiveness of our mobile native ads.

Our display business continues to show some weakness with revenue down 6% year-over-year. But we will certainly like to display business grow, we see some very encouraging trends and anticipate we will see growth in the next year.

For instance, the number of ads sold is up 24% year-over-year. This really represents an increase in our user engagement especially on mobile. Our price per ad decline to 24% year-over-year and we would like both price-per-ad and ad sold to be positive.

If we were to have one positive and one negative, in my view its always better to have more things to sell and then subsequently focus on building greater demand, value and an improved pricing strategy. We feel the pricing on our mobile in particular will improve over time with better targeting and increased advertiser demand.

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And while our display revenue has been flat to down, the components of our display have not been. Traditional PC advertising is a sector of advertising and is in decline across the industry. That decline has been steep here at Yahoo! with legacy PC display advertising creating a drag on the business of $60 million or more per quarter.

However on the flip side, our native advertising offer through our Gemini platform has becoming credible strong. This product didn’t even exist six quarters ago. In Q3 native ads had revenues across mobile and desktop of more than $65 million.

In Q4 we anticipate native ads will approach $80 million of revenue. Native ads have been experiencing triple-digit year-over-year growth. And have moved from being an idea and the prototype to being a nearly $250,000 [quarter of billion dollar] business.

The advertising industry is constantly changing and the fact that we are able to response to this trend so quickly and meaningfully is a testament to our teams. This growth in native ads used on social and mobile has worked to offset the declines in traditional PC display.

As Gemini native ads and programmatic ads sold through Yahoo! Ad Management Plus gain momentum. We believe that their growth will overpower the declines in traditional PC display. In fact already in Q3 setting aside PC display and revenue classified as other our core revenue at 8% on a GAAP basis and 10% on a revenue ex-TAC basis.

This summarizes the key pieces of our core business in Q3. Obviously one of the biggest events for our company in Q3 was the Alibaba IPO on September 19. I’d like complement Jack Ma, Joe Tsai, the Alibaba management team and the underwriters on a very successful IPO.

I’d also like to complement our Founder Jerry Yang, on his foresight to invest in Alibaba where he has now joined the board. I want to use the next part of the call to discuss that actions that Yahoo!’s Management and Board have take to capture additional value from our Alibaba stake.

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