yahoo earnings

8/9/2019 Yahoo Earnings

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Q210 Financial HighlightsYahoo! Inc.

7.20.2010


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7/20/2010

Quarterly Overview


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7/20/2010

Key Takeaways

We continue to deliver toward our long-term operating marginobjectives of 15-20% by 2012 and 18-24% by 2013. Operatingincome margin was 11% in Q2, more than double the prior year.

Display advertising momentum is strong. O&O display revenuegrew 19% YoY and 5% sequentially in Q210.

Search trends are stabilizing. Query volume grew 7%; RPS grew4% in the U.S., but fell on an overall basis due to changes in mix.

We are making solid progress repositioning the company withkey acquisitions and partnerships. We deepened our integrationwith Facebook; entered into key partnerships with Nokia, Samsung,Zynga, and Match.com; and acquired Associated Content, Citizen

Sports, and Koprol in the 2Q. These deals reflect our strategy offocusing on highest-value activities, while also continuing to offer abroad array of services to our users and advertisers.

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Note: Traffic acquisition costs (TAC) consists of payments made to Affiliate sites that have integrated our advertising offerings into their website or their other offerings and payments made tocompanies that direct consumer and business traffic to the Yahoo! website.

Note: Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP revenue less TAC. Please refer to supporting Table 1 forreconciliations of GAAP revenue to Revenue ex-TAC .

Quarterly GAAP Revenue & TAC Rate Trends

$1,580 $1,573

27%TAC % of

GAAP Revenue28% 28%

$1,575

27%

$1,732

$1,597

29% 30%

$1,601

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GAAP Revenue Details

$ in millions Q109 Q209 Q309 Q409 Q110 Q210O&O Search

Year/Year Growth

$399

(3%)

$359

(15%)

$354

(19%)

$370

(15%)

$343

(14%)

$331

(8%)

O&O Display

Year/Year Growth

$371

(13%)

$393

(14%)

$399

(8%)

$503

(1%)

$444

20%

$468

19%

O&O Listings & Other Marketing ServicesYear/Year Growth

$102(22%)

$106(21%)

$98(24%)

$98(18%)

$88(14%)

$82(23%)

Total O&O

Year/Year Growth

$872

(10%)

$858

(16%)

$851

(15%)

$971

(9%)

$875

0%

$881

3%

Affiliate

Year/Year Growth

$511

(16%)

$520

(9%)

$526

(6%)

$564

6%

$548

7%

$557

7%

Total Marketing Services

Year/Year Growth

$1,383

(12%)

$1,378

(13%)

$1,377

(12%)

$1,535

(4%)

$1,423

3%

$1,438

4%

Fees

Year/Year Growth

$197

(20%)

$195

(8%)

$198

(11%)

$197

(7%)

$174

(11%)

$163

(16%)

Total Revenue

Year/Year Growth

$1,580

(13%)

$1,573

(13%)

$1.575

(12%)

$1,732

(4%)

$1,597

1%

$1,601

2%

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Geographic Segment Data

$ in millions Q209 Q210 Q210YOY

Americas Segment

Revenue

Direct Costs(1)

Contribution by Segment

Segment Contribution Margin(2)

EMEA Segment

Revenue

Direct Costs(1)



Asia Pacific Segment

Revenue

Direct Costs(1)



$1,186

(441)

$745

63%

$150

(88)

$62

42%

$237

(123)

$114

48%

$1,133

(427)

$706

62%

$141

(80)

$60

43%

$328

(177)

$151

46%

(4%)

(3%)

(5%)

(100bps)

(6%)

(8%)

(4%)

100bps

39%

44%

33%

(200bps)

(1) Direct costs for each segment include TAC, other cost of revenue, and other operating expenses that are directly attributable to the segment such as employeecompensation expense, local sales and marketing expenses, and facilities expenses.

(2) Segment contribution margin is calculated as segment contribution divided by segment revenue.

Note: In Q210 we reorganized our business segments into three regions-Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes,prior period amounts have been reclassified to conform to the current presentation.

Note: Please refer to supporting table 2, Revenue and Direct Costs by Segment.

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Total Expenses less TAC

$1061$1040

$1140

$942 (2) $953

Note: Total expenses less TAC is a non-GAAP financial measure defined as total expenses (GAAP cost of revenue plus GAAP operating expenses) less TAC.

(1) D&A refers to Depreciation & Amortization (D&A) and SBC refers to Stock-Based Compensation Expense (SBC).

(2) Reflects $43 million of transition cost reimbursements from Microsoft Corp, recorded in Q110 for transition costs incurred in Q309 and Q409.

Please refer to supporting Table 3 for reconciliations of Total expenses to Total expenses less TAC, and Total expenses less TAC, D&A and SBC.

$1056

(1)

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Yahoo! and Microsoft Search AllianceQ1 Q2 2H10

Approximately $25M - $30Mper month for direct costs ofrunning Yahoo! Search

As we transition in eachgeography, these

reimbursements will begin todecline and the underlyingexpenses will be removed fromour cost structure.

Operating Cost

Savings/Reimbursements

Transition costs includesales training, customer migration,consulting, legal, retention and othercosts incurred in connection with thetransition of search services to

Microsoft Transition costs and reimbursements

are expected to be nearlyequal in Q3-Q410

Transition Costs

Up to $150M of reimbursementsthat Microsoft will pay to Yahoo!over the next two years asspecified in the agreement

Payments relate to specific

transition costs

$18M transition costs in Q2,bringing to-date total to $85M

Transition Cost

Reimbursements

Indicativeof long-term

cost savings, notincluding 2010reinvestments

Net $78M $86M $75- $85M per Q

$43 M Net $0

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Operating Income

(1) Operating income for Q110 includes $43 million of net transition cost reimbursements from Microsoft. See Table 4 for presentation (and reconciliation) of Non-GAAPoperating income, which excludes certain items that the Company does not consider indicative of its ongoing operating performance.

Note: Operating margin is calculated as operating income divided by revenue.

Operating Margin: 6% 5% 6% 7% 12% 11%

$76

$91

$119

$188 (1)

$175

$101

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Key Balance Sheet Metrics

$ in millions except where noted Q109 Q209 Q309 Q409 Q110 Q210

Cash & Marketable Debt Securities $3,691 $4,197 $4,503 $4,518 $4,244 $3,799

Accounts Receivable, net

DSO (in days)

$913

52

$907

53

$907

53

$1,003

53

$900

51

$922

52

Current Deferred Revenue $406 $417 $413 $411 $352 $347

Market Value of 35% Ownership inYahoo! Japan (at 6/30/10)

Market Value of 29% Ownership inAlibaba.com (at 6/30/10)

$8,163

$2,988

Note: Our 29% stake in Alibaba.com is held indirectly through our equity interest in Alibaba Group and does not include estimates for the values of Alibaba Groups privately held businesses.These pre-tax market values are based on public market share prices for Yahoo! Japan and Alibaba.com on June 30, 2010.

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Key Cash Flow Highlights

$ in millions Q109 Q209 Q309 Q409 Q110 Q210

Share repurchases $0 $0 $91 $23 $385 $496

Cash flow from operations $262 $342 $355 $351 $144 $347

Capital expenditures $70 $95 $99 $170 $113 $190

Free cash flow (1) $214 $266 $258 $220 $64(2) $127

(1) Free cash flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based awards), less net capital

expenditures and dividends received. Please refer to supporting Table 5 for Free Cash Flow Calculation.

(2) Microsoft search operating cost reimbursements and transition cost reimbursements were recognized on the income statement but not received as cash in the first quarter of 2010.

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Business Outlook

(1) Total expenses is calculated as Cost of revenue plus Total operating expenses.

(2) D&A refers to Depreciation & amortization and SBC refers to Stock-based compensation expense.

The above business outlook is based on information and expectations as of July 20, 2010. Yahoo! does not intend, and undertakes no duty, to update this businessoutlook to reflect subsequent events or circumstances; however, Yahoo! may update this business outlook or any portion thereof at any time at its discretion.

Please refer to supporting Table 3 for reconciliations of Total expenses to Total expenses less TAC, and Total expenses less TAC, D&A and SBC.

$ in millions Q310

Current Outlook

FY10

Current Outlook

Revenue $1,570-$1,650 -

Traffic Acquisition Costs (TAC) $465-$485 -

Total expenses(1) less TAC $945-$965 $3,795-$3,835

Total expenses less TAC, D&A, andSBC(2)

$735-$745 $2,910-2,940

Income from Operations $160-$200 -

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7/20/2010

Appendix


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Table 1 Revenue ex-TAC Calculation by SegmentReconciliations of GAAP Revenue to Revenue ex-TAC

$ in millions Q109 Q209 Q309 Q409 Q110 Q210

Americas

GAAP Revenue

TAC

Revenue ex-TAC

$1,216

(294)

$922

$1,186

(294)

$892

$1,178

(299)

$878

$1,273

(308)

$965

$1,155

(282)

$873

$1,133

(282)

$851EMEA

GAAP Revenue

TAC

Revenue ex-TAC

$147

(53)

$94

$150

(55)

$95

$143

(51)

$92

$159

(49)

$110

$142

(53)

$88

$141

(50)

$90

Asia Pacific

GAAP Revenue

TAC

Revenue ex-TAC

$218

(77)

$141

$237

(87)

$150

$255

(94)

$161

$300

(116)

$184

$300

(131)

$169

$328

(141)

$187

Worldwide

GAAP Revenue

TAC

Revenue ex-TAC

$1,580

(424)

$1,156

$1,573

(437)

$1,136

$1,575

(444)

$1,131

$1,732

(474)

$1,258

$1,597

(467)

$1,130

$1,601

(473)

$1,128

Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC.

Note: In Q210 we reorganized our business segments into three regions-Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes,prior period amounts have been reclassified to conform to the current presentation.

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Table 2 Revenue and Direct Costs by Segment

$ in millions Q209 Q210

Revenue by Segment:

Americas

EMEA

Asia PacificTotal Revenue

Direct costs by segment(1):

Americas

EMEAAsia Pacific

Global Operating Costs(2)

Restructuring charges, net

Depreciation and amortization

Stock-based compensation

GAAP Income from Operations

$1,186.1

150.2

236.6$1,572.9

$441.3

87.8122.9

469.8

65.0

197.7

112.5

$75.8

$1,133.2

140.5

327.7$1,601.4

$427.4

80.4176.8

515.8

10.1

158.0

57.6

$175.4

(1) Direct costs for each segment include TAC, other cost of revenue, and other operating expenses that are directly attributable to the segment such as employeecompensation expense, local sales and marketing expenses, and facilities expenses.

(2) Global operating costs include product development, service engineering and operations, marketing, customer advocacy, general and administrative, and other

corporate expenses that are managed on a global basis and that are not directly attributable to any segment.

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Table 3 Reconciliations of Total Expenses to TotalExpenses less TAC and Total Expenses less TAC, D&A, and

SBC

(1) Total expenses for Q110 reflect $43 million of transition cost reimbursements from Microsoft recorded in Q110 for transition costs incurred by Yahoo! in Q309 and Q409.

(2) We are unable to provide Total expenses or TAC on a forward-looking basis for the full year.

(3) We expect the sum of D&A and SBC for the full year to be approximately $885-$895 million.

The above business outlook for Q310 and FY10 is based on information and expectations as of July 20, 2010. Yahoo! does not intend, and undertakes no duty, to update this businessoutlook to reflect subsequent events or circumstances; however, Yahoo! may update this business outlook or any portion thereof at any time at its discretion.

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Table 4 - Non-GAAP Operating Income CalculationReconciliation of GAAP Operating Income to Non-GAAP Operating Income, with Details onAdjustments

(1) Non-GAAP Net income excludes reimbursements for prior periods. For the three months ended March 31, 2010 Yahoo! accrued $67 million of transition costreimbursements from Microsoft for transition costs incurred by Yahoo! in 2009 and the first quarter of 2010, partially offset by $24 million of transition costsincurred by Yahoo! in the first quarter of 2010. No adjustment is made for search operating cost reimbursements from Microsoft, because the underlying costswere incurred in the period the reimbursements were accrued.

(2) Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Googleagreement, the proxy contest, and related litigation defense.

(3) Non-GAAP operating margin is calculated as Non-GAAP income from operations divided by GAAP revenue.

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Table 5 - Free Cash Flow CalculationReconciliation of Cash Flow from Operating Activities to FCF

$ in millions Q109 Q209 Q309 Q409 Q110 Q210Free Cash Flow

Cash Flow from Operating Activities

Excess Tax Benefits from Stock-Based Awards

Acquisition of Property & Equipment, Net

Dividends Received

Total

$262.3

22.1

(70.5)

-

$214.0

$341.8

45.1

(94.7)

(26.1)

$266.0

$355.1

2.9

(98.9)

(1.5)

$257.7

$351.1

38.4

(169.7)

-

$219.7

$143.6

32.9

(112.5)

-

$63.9

$347.0

31.1

(190.3)

(60.9)

$126.9

Note: Free Cash Flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based awards), less netcapital expenditures and dividends received. The excess tax benefits from stock-based awards, as reported on the statements of cash flows in cash flows from financing activities,represent the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for optionsexercised/awards released in current and prior periods.

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Table 6 Non-GAAP Net Income Per Share CalculationReconciliation of GAAP Net Income Attributable to Yahoo! Inc. and GAAP Net

Income Attributable to Yahoo! Inc. Common Stockholders Per Share - Diluted toNon-GAAP Net Income and Non-GAAP Net Income Per Share - Diluted

in millions except per share amounts Q109 Q209 Q309 Q409 Q110 Q210

GAAP Net Income Attributable to Yahoo! Inc.

Adjustments

Non-GAAP Net Income

GAAP Net Income Attributable to Yahoo! Inc. CommonStockholders Per Share - Diluted

Non-GAAP Net Income Per Share - Diluted

Diluted Shares Outstanding

$117.6

5.6

$123.1

$0.08

$0.09

1,406.5

$141.4

4.0

$145.4

$0.10

$0.10

1,414.3

$186.1

(40.8)

$145.3

$0.13

$0.10

1,424.9

$153.0

47.2

$200.2

$0.11

$0.14

1,417.0

$310.2

(91.4)

$218.8

$0.22

$0.15

1,413.4

$213.3

6.6

$219.9

$0.15

$0.16

1,390.2

Note: All per share amounts are based on fully diluted share counts. Please refer to supporting Table 7 for details on Adjustments.

Beginning in Q110, our presentation of Non-GAAP net income no longer excludes stock-based compensation expense and its related tax effects. For comparison purposes, prior periodamounts have been revised to conform to the current presentation.

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Table 7 - Non-GAAP Net Income CalculationReconciliation of GAAP Net Income Attributable to Yahoo! Inc. to Non-GAAP Net Income, withDetails on Adjustments

(1) Non-GAAP Net income excludes reimbursements for prior periods. For the three months ended March 31, 2010 Yahoo! accrued $67 million of transition costreimbursements from Microsoft for transition costs incurred by Yahoo! in 2009 and the first quarter of 2010, partially offset by $24 million of transition costsincurred by Yahoo! in the first quarter of 2010. No adjustment is made for search operating cost reimbursements from Microsoft, because the underlying costswere incurred in the same period the reimbursements were accrued.

(2) Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google

agreement, the proxy contest, and related litigation defense.

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