Posted by: Rob Hof on January 27, 2009
Despite showing a net loss of $303 million thanks to the costs of layoffs and office closings and a drop in the valuation of its overseas properties, Yahoo managed to eke out a better-than-expected profit before special items such as the costs of employee stock options, on sales that just met forecasts. Yahoo said profit per share before those special items was 17 cents a share, up from 13 cents a share a year ago—and considerably higher than the 12 cents Wall Street had forecast.
Net sales before the costs of acquiring traffic from other Web sites were $1.38 billion, down 2% from a year ago, but a hair above analysts’ expectations. Gross revenues fell about 1%, to $1.8 billion.
Yahoo’s shares initially were down a fraction of 1% in extended trading after the market close, though that was before there was much time for reaction, and a half-hour before the earnings call. UPDATE: Not surprisingly, the stock turned around and is now up about 3%. The stock was up almost 2% in regular trading today.
The full release is here, and I’ll provide more details as I look more closely at the numbers. Also, I’ll be liveblogging the highlights here when the call starts at about 2 p.m. Pacific. You can also listen to the earnings Webcast here.
Analysts will be looking for guidance from new CEO Carol Bartz on Yahoo’s prospects and plans. So far, all Yahoo is saying is that revenues are likely to be down 10% in the first quarter from a year ago. Given her vow to take the time she needs to learn what Yahoo needs to do, it seems likely Bartz won’t offer much in the way of specifics.
Here’s my liveblog, continuously updated on the bottom until the end at about 3 p.m. Pacific:
2:04: Carol Bartz comes on: "I should have understood all those risks before I took the job." Drum roll. She says she already feels at home eight days after joining. Lauds energy and product pipeline.
She says lots is actually happening in product innovation than you'd think from press reports. (I think this is actually true.)
But she mentions a need to streamline the business, which has to mean layoffs and/or operations to get cut.
2:07: She talks about the economy hitting results. Revenue did grow 3% after taking out currency changes. "Delivering on profit expectations is a real achievement in this environment."
2:08: Now CFO Blake Jorgensen comes on. He says more advertisers are directing money into performance advertising (which isn't Yahoo's classic mainstay brand ads). Display ads worldwide were down 2%.
He says U.S. search revenues were up 18% but international search revenues were down, or flat on a constant-currency basis. (That can't be good for international search operations.)
2:11: Jorgensen talks about the cost cuts. Yahoo had 13,600 employees at end of year, down 1,600 from a year ago. Company is "looking for additional efficiencies," which sounds like code for more layoffs or at least jettisoning some operations.
He says overseas stakes in Alibaba, Gmarket, etc., are now worth $9.4 billion, or $6.50 a share, after a $488 million downward adjustment in their value.
2:13: Jorgensen says non-guaranteed display ads (those provided by ad networks and Yahoo's Right Media, mostly direct-response vs. branded ads) are growing, but he says "We've seen more pressure on the guaranteed side." (That's ads that are arranged in advance, Yahoo's main source of revenues and much more lucrative than performance-based ads. Not a good trend.)
2:17: "We performed well in a challenging economic environment." No guidance for the full year, but net revenue of $1.525 billion to $1.725 billion in first quarter. Q1 operating cash flow estimate of $365 million to $415 million--below last year.
Notes that some operations like Kelkoo and fee revenues from discontinued operations like music subscriptions will have an impact. Also, currency changes are expected to take $200 million out of GAAP revenues.
2:20: Back to Bartz: "There's a great deal to be excited about here at Yahoo." Major new platforms like APT display ad platform and YOS, its open Web initiatives.
"Our ability to deliver better return on marketing dollars is actually driving growth with several advertisers."
That does not mean there aren't challenges. "This organization is extremely complex."
2:23: Addresses questions. "Did I come to Yahoo to sell the company? The answer is no. Am I planning to immediately sell the search business?" No clear answer on this; she says she's learning. "I'm still working my way through that thought process."
That said, "Search is a very valuable part of our business. ... extremely useful to our franchise." New features at a much faster pace over the last year. Query share has stabilized.
2:25: Bartz sums up: Encouraged by platform and product successes and product roadmap, as well as cost cuts.
Jerry Yang is here for questions too. Now to the analysts' questions:
Q: What two or three things most need fixing? Bartz: Reiterates she didn't come here to sell the company. "Product focus is extremely important, but it's too early to say more than that."
Q: Square increase in search revenues with flat search share? Jorgensen: Says fewer commercial queries are starting to affect revenue.
Q: Who's going to lead any discussions with Microsoft? And what about AOL? Bartz: Laughs. No comments on "press reports that come from nowhere."
2:30: Q: What are you most concerned about? Bartz: Complex organization makes it hard for people to get speedy answers and move fast. But she thinks that can be fixed because of smart, motivated people. "They just need some help on lines of communication and support."
2:32: Q: Why is international search revenue down/flat? Jorgensen: Strong market share in many emerging markets but impacted by European and Korean currency changes.
Q: Why are margins down? Jorgensen: Investments in APT are continuing, so no new incremental investment there. But seeing more caution on search and display.
Q: Why the drop in premium display ad revenue? Jorgensen: mostly recession-driven move away from branded advertising. Expect to see CPMs (ad prices) hold.
2:35: Q: Low-double-digit decline in net revenue: Any trends in January that warrant more cautious guidance--and in search or in display? Jorgensen: Says he can't add much in guidance. But generally pressure on ad spending thanks to consumers shutting down their spending.
Q: Guidance implies expenses would be down $30 million in first quarter, why not more? Jorgensen: Q1 costs for headcount tend to be highest because co. takes a higher proportion of benefits expenses. Also continued investment in organization.
2:38: Q: What will you do about off-balance-sheet assets (meaning international operations)? Bartz: Have looked at it "just briefly." "I don't have an opinion. I certainly will look into it." In other words, no comment.
Q: Plan to go after younger demographic? Bartz: "That was one of the questions I had when I talked to the board in December." So, yes. But she says "they do grow up," and her older-20s kids are going to Yahoo Finance and don't have time to keep putting up photos on Facebook. Also, "That crowd is very finicky. Who knows what's going to come next? And who knows whether Yahoo can ... grab that?"
2:42: Q: When will you share strategic roadmap? Bartz jokes: "Well, Gene, I thought I'd buy the New York Times tomorrow" to find out. "I don't want to commit to a number of days." Also committed to speaking to shareholders and having an analyst day. "I really want to get this external focus. I really want to understand our product pipeline better. I have a total, maniacal focus on delighting our customers" because that will bring advertisers. "My promise is to really communicate with you guys." (Just not yet!)
Q: What's your assessment of Yahoo's sales force? Bartz: Have met with sales leads but not whole sales force--will do so at a meeting in a few weeks. Says she's impressed with sales leaders.
Q: Looking at any acquisitions or deals? Bartz: Won't be specific, not surprisingly. Says she's thinking long-term. "Maybe we should divest some things. So yeah, everything's on the table." But "this is a fantastic Internet property, and it really doesn't deserve everybody trying to pick it apart. This is not a company that needs to be pulled apart and left for the chickens. It's my job to make sure if there's something to look at, we look at it."
Interesting, not a single answer from Yang yet.
2:48: Q: Why hasn't Yahoo closed the gap on revenue per search and what is needed to do that? Jorgensen: "We believe we've been closing that monetization gap," though he implies that Yahoo continues to chase Google's own improvements.
Q: Top three or four assets you want to focus Yahoo on? Bartz: Clearly, Yahoo's front page, which remains huge revenue-wise. Also products interacting better. More customization. "If we have strong products, then we will attract audience. It's not just about search, it's about people coming for content and information." And communications, but interestingly, she doesn't mention that.
Q: something on what will go into the decision to keep or sell search: Bartz: Very different parts of search, some easier to break apart.
2:54: Q: What will Yahoo stand for after you focus it? Bartz: "The Yahoo brand needs to stand for the best information site on the Internet. The problem with a lot of these properties is that they can defocus the simplicity of the core strategy."
Bartz makes a reference to this focusing with the team "over the next month." So there's a time frame!
Q: A lot of Net sites with most usage have little revenue today--Facebook, MySpace, etc. How do you view investing in those kinds of things? Bartz: It's important to look at things that don't look as economically predictable at the outset. "Our users don't need constant change, they need very deep partnership....not having everything be this constant churn."
Investors seem to like what they're hearing. Now Yahoo's stock is up more than 4% in after-hours trading.
2:59: Q: Expect further cost cuts this quarter? Jorgensen: "We will keep a razor focus on costs. I don't think we will have a massive cost reduction like in the last quarter. We want to continue to invest in key areas of the company." But says there likely will be outsourcing or divesting operations.
And that's a wrap. No Jerry Yang after all. Things have clearly changed at Yahoo.