Yahoo! (YHOO) Reports In-Line Q4 EPS; Announces Strategic Growth Plans, Explore Divestitures
(Updated - February 2, 2016 4:31 PM EST)
Yahoo! (NASDAQ: YHOO) reported Q4 EPS of $0.13, in-line with the analyst estimate of $0.13. Revenue for the quarter came in at $1 billion versus the consensus estimate of $1.19 billion.
Fourth Quarter and Full Year 2015 Financial Highlights
Mavens Revenue:
Q4 2014 | Q4 2015 | Full Year 2014 | Full Year 2015 | |||||||||
| Mavens revenue | $ | 375 million | $ | 472 million | $ | 1,148 million | $ | 1,660 million | ||||
| Non-Mavens revenue | 751 million | 750 million | 3,022 million | 2,908 million | ||||||||
| Total traffic-driven revenue | $ | 1,126 million | $ | 1,222 million | $ | 4,170 million | $ | 4,568 million | ||||
| Non-traffic-driven revenue |
| 127 million | 51 million | 448 million | 400 million | |||||||
| GAAP revenue | $ | 1,253 million | $ | 1,273 million | $ | 4,618 million | $ | 4,968 million | ||||
Mavens revenue represented 33 percent and 28 percent of traffic-driven revenue in the fourth quarter and full year of 2014, respectively, and increased to 39 percent and 36 percent in the fourth quarter and full year of 2015, respectively.
Mobile Revenue:
| Q4 2014 | Q4 2015 | Full Year 2014 | Full Year 2015 | |||||||||
| Mobile revenue | $ | 254 million | $ | 291 million | $ | 768 million | $ | 1,048 million | ||||
| PC revenue | 872 million | 931 million | 3,402 million | 3,520 million | ||||||||
| Total traffic-driven revenue | $ | 1,126 million | $ | 1,222 million | $ | 4,170 million | $ | 4,568 million | ||||
| Non-traffic-driven revenue | 127 million | 51 million | 448 million | 400 million | ||||||||
| GAAP revenue | $ | 1,253 million | $ | 1,273 million | $ | 4,618 million | $ | 4,968 million | ||||
Mobile revenue represented 23 percent and 18 percent of traffic-driven revenue in the fourth quarter and full year of 2014, respectively, and increased to 24 percent and 23 percent in the fourth quarter and full year of 2015, respectively.
Gross mobile revenue for the fourth quarter of 2014 and 2015 was $413 million and $449 million, respectively. Gross mobile revenue for the full year of 2014 and 2015 was $1,261 million and $1,679 million, respectively.
Search Revenue:
- Gross search revenue was $866 million for the fourth quarter of 2015, a decrease of 7 percent compared to the fourth quarter of 2014. Gross search revenue was $3,612 million for the full year of 2015, an increase of 7 percent compared to the prior year.
- GAAP search revenue was $522 million for the fourth quarter of 2015, an increase of 12 percent compared to the fourth quarter of 2014. GAAP search revenue was $2,084 million for the full year of 2015, an increase of 16 percent compared to the prior year.
- Cost of revenue - TAC paid to search partners was $141 million for the fourth quarter of 2015, which includes TAC from the Mozilla agreement, compared to $5 million in the fourth quarter of 2014. Cost of revenue - TAC paid to search partners was $465 million for the full year of 2015, which includes TAC from the Mozilla agreement, compared to $9 million in the prior year.
- The number of Paid Clicks decreased 10 percent compared to the fourth quarter of 2014.
- Price-per-Click increased 3 percent compared to the fourth quarter of 2014.
Display Revenue:
- GAAP display revenue was $601 million for the fourth quarter of 2015, a 13 percent increase compared to the fourth quarter of 2014. GAAP display revenue was $2,074 million for the full year of 2015, an 11 percent increase compared to the prior year.
- Cost of revenue - TAC paid to display partners was $130 million for the fourth quarter of 2015 compared to $68 million in the fourth quarter of 2014. Cost of revenue - TAC paid to display partners was $410 million for the full year of 2015 compared to $205 million in the prior year.
- The number of Ads Sold increased 8 percent compared to the fourth quarter of 2014.
- Price-per-Ad increased 6 percent compared to the fourth quarter of 2014.
Strategic Plans:
Yahoo! will announce today an aggressive strategic plan to simplify the company, narrowing its focus on areas of strength to better fuel growth, drive revenue and increase efficiency in 2016 and beyond.
Collectively, the strategic plan aims to:
- Improve consumer and advertiser product quality and grow daily active users (DAUs)
- Drive continued growth in revenue realized through Mavens (mobile, video, native and social) to $1.8 billion this year,
- Improve profitability to reach an adjusted EBITDA run rate of approximately one billion dollars by the second half of 2016
- Reduce operating expenses by more than $400 million by the end of 2016
- Limit GAAP revenue impact of product and regional exits to approximately $100 million
- Explore non-strategic asset divestitures that, if consummated, could generate in excess of $1 billion in cash, and
- Deliver increased value to shareholders, advertisers, and the more than one billion people who use Yahoo’s products and services.
“Today, we’re announcing a strategic plan that we strongly believe will enable us to accelerate Yahoo’s transformation,” said Marissa Mayer, CEO of Yahoo. “This is a strong plan calling for bold shifts in products and in resources. We are extremely proud of the billion dollar plus business we have built in mobile, video, native, and social. Our strategic bets in Mavens have enabled us build an entirely new, forward-leaning business of tremendous scale and growth in just three years. The plan announced today builds from that achievement and will dramatically brighten our future and improve our competitiveness, and attractiveness to users, advertisers, and partners.”
"The Board is committed to the turnaround efforts of the management team and supportive of the plan announced today. We have tremendous respect for the thousands of Yahoos who work very hard to make the world a better place,” said Maynard Webb, Yahoo’s Chairman of the Board. “The Board also believes that exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders. Separating our Alibaba stake from our operating business continues to be a primary focus, and our most direct path to value maximization. In addition to continuing work on the reverse spin, which we’ve discussed previously, we will engage on qualified strategic proposals.”
Strategic Plan for Growth
On this afternoon’s fourth quarter and year end 2015 earnings call, Yahoo will lay out a go-forward plan for accelerating growth at the Company through four key objectives:
- Play to Strengths to Grow User Engagement. Yahoo has grown into a guide to digital information discovery for more than one billion monthly active users. In 2016, the Company will prioritize growing engagement with its enormous user base. Yahoo will simplify its product portfolio to emphasize the products that distinguish the Company competitively and drive the most substantial portion of users, revenue, and market opportunity. This focus will increase the pace of innovation and product improvement, deliver a more deeply integrated Yahoo experience and more quickly grow key metrics such as page views, logged in users, and DAUs.For consumer products, Yahoo will consist of three global platforms: Search, Mail, and Tumblr, and four verticals: News, Sports, Finance and Lifestyle in growth markets like the U.S., Canada, U.K., Germany, Hong Kong, and Taiwan. For advertisers, Yahoo will be defined by two core offerings: Gemini and BrightRoll. Gemini combines search and native ads for superior results, while BrightRoll offers programmatic buying and selling tools for video, display and native advertising.For Yahoo’s search business, mobile search is the biggest opportunity. The Company will shift most of the resources in this area toward more forward-leaning mobile search investments, positioning it to redefine search for mobile devices, which will help drive sustainable long-term growth and differentiation.Yahoo Mail is the heart of the Company’s communications products. To continue to grow DAUs and increase engagement, investment in Yahoo Mail will be used to improve speed and stability, as well as add features that make it easier for users to share, search and connect through the platform. As an essential driver of the Company’s entire product portfolio, focused investment in Yahoo Mail will help accelerate growth across the business.For the Tumblr platform and Yahoo’s digital content strongholds of News, Sports, Finance, and Lifestyle, investment will be focused on growing user engagement, especially on mobile. The Company will invest in features and experiences that engage users as both consumers and creators of content, encouraging them to do more with, and therefore spend more time on, the Yahoo network.
- Drive Mavens Revenue Growth. Yahoo will continue to invest in the Mavens strategy to counterbalance legacy business declines with an emphasis on mobile. Mavens revenue exceeded $1.6 billion in GAAP revenue in 2015, a 45 percent year-over-year increase that surpassed our forecast. Focus on engagement growth and improved monetization for the core consumer products, together with the syndication of mobile tools through the Yahoo Mobile Developer Suite, Yahoo expects to drive long-term sustainable revenue growth and reach more than $1.8 billion in Mavens GAAP revenue in 2016.Advertiser spend in Mavens areas is projected to increase significantly. Mobile industry ad spend is anticipated to nearly double by 2018, and programmatic technology has become the proven advertising solution for optimal performance, pricing and control. In response to these trends, Yahoo’s global sales team has already begun to shift toward performance and programmatic offerings and the Company has already seen the benefits of this in Q4. This strategy, plus the work that’s been done over the last two years with Mavens-focused ad formats and investment in Gemini and BrightRoll platforms, positions Yahoo well to ride these trends toward sustainable growth.
- Simplify the Business to Improve Execution. In 2016, a smaller product portfolio emphasizing Yahoo’s core strengths will yield better focus, execution, and ultimately clearer value to shareholders, advertisers and users. Since 2012 the Company has invested across different product areas and markets to drive innovation and fuel growth and now it will align resources towards proven growth areas. In Q4 the Company closed Yahoo Screen and shifted away from original scripted content. In 2016, Yahoo will consolidate some Digital Magazines under one of our four core verticals, while others will be shut down. The Company will also exit legacy products, including Games and Smart TV, which have not met growth expectations. A simpler product portfolio more focused on Yahoo’s strengths will allow the Company to more quickly improve offerings to increase profitability.In addition to a clarified product portfolio, Yahoo has begun to explore divesting non-strategic assets of value such as the responsible monetization of non-strategic patents, the sale of valuable real estate, and other non-core, non-strategic assets. Through the end of the year, the Company estimates that these efforts could generate between one and three billion dollars in cash.
- Efficiently Align Resources. Yahoo’s plan reflects the Company’s goal to continue to spend thoughtfully, operate effectively, and drive profitability. As part of this plan, the Company has begun executing on a number of additional cost-savings efforts. Since 2012, Yahoo has already made significant strides to manage headcount and achieve stability with fewer employees. Yahoo values everyone who has dedicated themselves and made contributions to the Company. The changes in the employee footprint have not been easy, but are necessary to position the Company for a stronger future.To that end, Yahoo plans to reduce our workforce by roughly 15 percent and exit five offices in Dubai, Mexico City, Buenos Aires, Madrid, and Milan, subject to local laws and consultation processes. It’s expected that most of these changes will take place in Q1, but by the end of 2016, the Company anticipates having approximately 9,000 employees and fewer than 1,000 contractors. This represents a workforce that is roughly 42 percent smaller than it was in 2012 and will result in savings in short term operating expense of $400 million annually. Yahoo does not take this decision lightly and will make every effort to handle the process with thoughtfulness, transparency, and compassion.
As a result of this four-point plan, Yahoo is expected to return to modest and accelerating growth in 2017 and 2018. Yahoo’s leadership and Board together believe that by taking these steps, the Company will more quickly realize a significant and positive impact on the trajectory of its transformation.
For earnings history and earnings-related data on Yahoo! (YHOO) click here.