Yahoo! Inc. (YHOO) reported fourth quarter non-GAAP earnings that beat the Zacks Consensus Estimate by a couple of cents. The 18.7% sequential increase and 1.9% year-over-year decline were better than what most investors were expecting. Yahoo shares did not respond much however, losing 0.89% after the company reported.
Revenue
Yahoo reported GAAP revenue of $1.32 billion, which was up 8.8% sequentially and down 13.2% year over year. TAC costs increased 7.2% sequentially but dropped 51.4% from last year. Excluding these costs in all periods, net revenue was up 9.1% sequentially and down 3.0% from last year, in line with consensus estimates and management’s guidance.
Yahoo combines revenue from O&O and affiliate sites under Display and Search.
Display revenues (ex-TAC) grew 21.4% sequentially, while declining 3.8% from last year. The sequential increase was seasonal. Yahoo attributed its weaker-than-expected revenue to macro-economic issues in Europe and guaranteed placements in the U.S. However, overall, for the year, display issues were largely limited to the U.S., while the international business (EMEA and Asia/Pacific) grew 20%.
Yahoo’s performance in display is particularly disappointing, since most market research firms are projecting strong growth here due to underlying drivers, such as brand building. Since Yahoo does not appear to be gaining from this trend the way arch rival Google Inc (GOOG) appears to be gaining, it looks like the company is steadily losing market share not just to Google, but emerging Internet company, Facebook.
Search (ex-TAC) was flat sequentially, but declined 3.1% year over year. Segment results were a shade better than management expectations, due to better performance at O&O sites (first growth in nearly four years). As expected, the RPS guarantee (stays for another quarter) from Microsoft Corp (MSFT) helped results. But even excluding this benefit, RPS strengthened, offsetting the lower query volumes.
For the quarter, worldwide query volumes were down slightly, while RPS was up mid single-digits. U.S. query volumes and RPS were both up from the year-ago quarter. The alliance with Microsoft continues to improve ROI for advertisers, which is having a positive impact on spending.
Other (fees, listings and leads) revenues were flat sequentially and down 1.0% from last year.
Display, Search and Other platforms represented 47%, 32% and 21% of Yahoo’s fourth quarter revenue, respectively.
Yahoo generated around 72% of revenue on an ex-TAC basis from the Americas (up 11.4% sequentially and down 5.5% from December 2010), around 9% came from the EMEA region (up 13.9% sequentially and 3.8% year over year) and the balance from the Asia/Pacific (down 1.0% sequentially and up 3.9% year over year).
Margins
Yahoo generated a gross margin of 70.2% in the last quarter, down 28 bps sequentially and 675 bps year over year. Total operating expenses of $662.1 million were down 1.8% from the previous quarter and 5.7% and year-ago quarter.
S&M and G&A were down similarly as a percentage of sales on a sequential basis, with product development declining at a lower rate. All expenses increased as a percentage of sales from the year-ago quarter. The net result was an operating margin of 20.2% that expanded 515 bps sequentially and 279 bps from the year-ago quarter.
Net Income
Yahoo’s pro forma net income was $325.8 million or 24.6% of sales compared to $278.6 million or 22.9% of sales in the previous quarter and $351.2 million or 23.0% of ... Read more