Kara Swisher

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Yahoo Slightly Beats Expectations in Fourth-Quarter Earnings, But Revenue and Earnings Still Down

While it was no blowout, Yahoo reported slightly stronger results for the fourth quarter than had been expected by Wall Street today after the markets closed, with revenue down eight percent compared to last year, rather than the predicted 10 percent drop.

Analysts had been estimating that Yahoo (YHOO) would have net revenues of $1.23 billion in the quarter, after commission due to advertisers were taken out.

Instead, it posted $1.258 billion in revenue. Revenue had been $1.38 billion in the same period a year before.

Earnings were right on target to what was expected, $119 million for the quarter, or 11 cents a share. In the same period a year ago, Yahoo has lost $278 million, or 22 cents a share.

Yahoo shares were up almost three percent after the results were unveiled, with the stock rising to $16.45.

BoomTown will liveblog the earnings call, which takes place at 2 pm PT today, where analysts will surely be interested in outlook in the year ahead.

One area of interest will be getting growth back at Yahoo.

Owned-and-operated search revenue was down 15 percent from a year ago, for example, although it was slightly up from the previous quarter and was the first sequential increase since the third quarter of 2008.

Display advertising was down only one percent compared to the same period last year and up significantly on a sequential basis from $399 million in the third quarter of 2009 to $503 million in this quarter.

The results included a four cents a share charge related to costs for the company’s search deal with Microsoft (MSFT).

Here is the press release (without charts and legalese at bottom) from Yahoo on the results:

FOR IMMEDIATE RELEASE

YAHOO! REPORTS FOURTH QUARTER 2009 RESULTS

Company Exceeds Revenue Business Outlook, Demonstrates Ongoing Improvements in Search and Display Advertising

SUNNYVALE, Calif., January 26, 2010–Yahoo! Inc. (NASDAQ: YHOO) today reported results for the fourth quarter and full year ended December 31, 2009.

Revenues were $1,732 million for the fourth quarter of 2009, which exceeded the top end of the Company’s business outlook range. Revenues decreased 4 percent from the fourth quarter of 2008 and increased 10 percent from the third quarter of 2009. Excluding the impact of currency rate fluctuations and divested business lines, revenues for the fourth quarter of 2009 would have declined 5 percent compared to the fourth quarter of 2008. Revenues were $6,460 million for 2009, a decrease of 10 percent compared to 2008. Excluding the impact of currency rate fluctuations and divested business lines, revenues for 2009 would have declined 6 percent compared to 2008.
Income from operations for the fourth quarter of 2009 was $119 million, compared to a loss of $278 million in the fourth quarter of 2008. Income from operations for the fourth quarter of 2009 included $40 million in restructuring charges and $32 million in advisory and retention costs related to the Microsoft search agreement, which amounts were not included in the Company’s business outlook for the fourth quarter of 2009.

Net income per diluted share for the fourth quarter of 2009 was $0.11, including charges of $0.04 per share related to the Microsoft search agreement and restructuring charges. For fourth quarter of 2008, net loss per diluted share was $0.22, including a charge of $0.39 per share primarily related to a goodwill impairment.

Non-GAAP net income per diluted share for the fourth quarter of 2009 was $0.15, compared to $0.21 for the fourth quarter of 2008. Net income per diluted share for 2009 was $0.42, compared to $0.29 for 2008. Non-GAAP net income per diluted share for 2009 was $0.63 compared to $0.70 for 2008.

“The fourth quarter marked a strong finish to 2009, which was a transformative year for Yahoo!,” said Yahoo! Chief Executive Officer Carol Bartz. “We beat the high end of our revenue guidance, saw demand for premium display advertising improve significantly, and grew Owned & Operated search advertising revenue sequentially for the first time since the third quarter of 2008.

“Our business has positive momentum and we feel good as we head into 2010,” said Bartz. “We’re pleased that the midpoint of our Q1 revenue outlook marks the first quarter of year-over-year growth in six quarters.”

Business Highlights

• Owned & Operated display advertising revenue grew 26 percent compared to the third quarter of 2009–compared to a 16 percent increase during the same period in 2008.

• Owned & Operated search advertising revenue continued to stabilize, increasing 4 percent compared to the third quarter of 2009, the first sequential increase since the third quarter of 2008.

• Yahoo! finalized its Search and Advertising Services and Sales Agreement with Microsoft Corporation, and is still hopeful that the transaction can close early this year.

• Yahoo! formed a strategic partnership with Emmy- and Golden Globe-winning producer Ben Silverman’s newly formed content studio Electus, an operating business of IAC/InterActiveCorp. The partnership will produce original programming for Yahoo! users while providing advertisers new opportunities to integrate their brand messages into the next generation of online programming.

• The Company launched Yahoo! Ad Interest Manager, which takes transparency in online advertising to a new level–providing significantly greater control over users’ interactions with interest-based advertising to improve personal relevance and build trust.

“We’re intensely focused on improving execution in all areas of the company, and our solid financial results for the fourth quarter demonstrate the progress we’re making,” said Yahoo! Chief Financial Officer Tim Morse. “We’ll continue to execute against our key financial objectives of accelerating revenue growth, and increasing our operating margin and returns on capital over the next few years.”

Q4 Revenue Results

• In the fourth quarter of 2009, marketing services revenues declined 4 percent and fees revenues declined 7 percent, compared to the fourth quarter of 2008.
• Marketing services revenues increased 11 percent and fees revenues decreased 1 percent, compared to the third quarter of 2009.

• Marketing services revenues from Owned and Operated sites were $971 million for the fourth quarter of 2009, a 9 percent decrease compared to $1,063 million for the same period of 2008. The decrease was primarily driven by a 15 percent decline in search advertising revenue and a 1 percent decline in display advertising revenue.

• Marketing services revenues from Affiliate sites were $564 million for the fourth quarter of 2009, a 6 percent increase compared to $531 million for the same period of 2008.

2009 Revenue Results

• In 2009, marketing services revenues declined 10 percent and fees revenues declined 12 percent, compared to 2008.

• Marketing services revenues from Owned and Operated sites were $3,553 million for 2009, a 12 percent decrease compared to $4,046 million for 2008. The decrease was primarily driven by a 13 percent decline in search advertising revenue and a 9 percent decline in display advertising revenue.

• Marketing services revenues from Affiliate sites were $2,121 million for 2009, a 7 percent decrease compared to $2,270 million for 2008.

Cash Flow and Cash Balance

• Cash flow from operating activities for the fourth quarter of 2009 was $351 million, a 9 percent increase compared to $321 million for the same period of 2008. Cash flow from operating activities for 2009 was $1,310 million, a 30 percent decrease compared to $1,880 million for 2008.

• Free cash flow of $220 million for the fourth quarter of 2009 was flat compared to $219 million for the same period of 2008. Free cash flow for 2009 was $957 million, a 27 percent decrease compared to $1,312 million in 2008.

• Cash, cash equivalents, and investments in marketable debt securities were $4,518 million at December 31, 2009 compared to $3,522 million at December 31, 2008, an increase of $996 million.

Business Outlook

Revenue for the first quarter of 2010 is expected to be in the range of $1,575 million to $1,675 million. Income from operations for the first quarter of 2010 is expected to be in the range of $90 million to $110 million. This business outlook excludes advisory and retention costs related to the Microsoft search agreement and restructuring charges, as these amounts are not currently estimable. See “Yahoo! Inc. Business Outlook.”

Conference Call

Yahoo! will host a conference call to discuss fourth quarter 2009 results at 5:00 p.m. Eastern Time today. A live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://yhoo.client.shareholder.com/results.cfm. In addition, an archive of the webcast can be accessed through the same link. An audio replay of the call will be available for one week following the conference call by calling (888) 286-8010 or (617) 801-6888, reservation number: 72652623.


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