- Yahoo saw its revenue grow by 8% in Q1 and continued to show progress on mobile.
- High Traffic Acquisition Costs (TAC) dragged profitability in Q1.
- Yahoo's projected revenue growth in Q2 and reduction in TAC are positives.
- Yahoo re-iterated its Q4 target for the Alibaba spin-off and is exploring options for its Yahoo Japan stake.
Yahoo Earnings Q1 2015: Estimates vs Actuals
Yahoo (NASDAQ:YHOO) missed analyst estimates of non-GAAP EPS, but managed to beat estimates of revenue for the quarter, growing at 8.2% YoY.
|Revenue ($ Bn)||1.06||1.23||16%|
Yahoo Analyst Estimates Source: StreetInsider
Yahoo Q1 Earnings: Revenue Growth
Yahoo reported a YoY growth in its revenue, a rarity in recent times, with this quarter being just the second one to record a positive YoY uptick in the last two years.
Analyst’s expected Yahoo to report a YoY decline in revenue and Yahoo’s performance on the revenue front is a positive in the given context. That said, broadly, Yahoo’s revenue performance was a mixed bag, with Traffic Acquisition Costs (TAC) spiking to drag YoY growth rates into the red on an ex-TAC basis.
Yahoo’s 2% growth in display revenue was the first real improvement in a year, up from being flat in Q1 2014 and declining for the rest of the year, on a YoY basis.
Yahoo appears to have gained from its higher search share in the US following its deal with Mozilla, to replace Google as the default search engine on Mozilla’s Firefox browser.
Yahoo’s search revenue grew by 20% YoY, way faster than 5% in Q1 2014, which was its highest YoY growth rate over the rest of 2014.
It’s worth noting though, that Yahoo saw a big spike in Traffic Acquisition Costs (TAC). Yahoo’s overall revenue, search revenue and display revenue excluding TAC, declined on a YoY basis by 4%, 3% and 7% respectively.
As per Yahoo’s CEO Marissa Mayer, search revenue excluding TAC was impacted by “a few one-time issues”, excluding which, search revenue would have “grown modestly”. This includes payments to Mozilla on their recently forged partnership.
Yahoo Performance Metrics
Barring the spike in TAC, on most counts Yahoo’s search business showed improvements. Yahoo saw search clicks rise by 21% YoY, way faster than in any quarter in 2014.
Yahoo’s Price-Per-Click (PPC) rose by 3% YoY, slower than its 2014 average of 12.25%.
The trend of growth in the number of ads sold and declines in ad pricing continued in Yahoo’s display business, with the number of ads sold growing by 29% YoY, and ad pricing declining by 17%.
Yahoo Q1 2015 Earnings: Profitability
Yahoo’s management expressed its intent to now focus on accelerating revenue growth and expanding EBIDTA margins by putting in place cost controls. As for Q1, there weren’t any major changes in Yahoo’s cost structure compared to its average levels in 2014, except in terms of TAC.
Traffic acquisitions costs jumped from an average 5% of revenue during 2014, to account for about 15% of revenue in Q1.
Owing largely to the jump in TAC, Yahoo reported an operating loss of 7.1%. The company’s net margin came in at 1.7%.
Yahoo’s operating cash flows took a $3.28 billion hit owing to taxes due on the sale of stake in Alibaba.
Yahoo Earnings Q1 2015: Other Key Takeaways
Yahoo’s headcount of full-time employees reduced by 1,100 employees to 11,400 in Q1. This could positively impact its profitability going forward.
Yahoo’s modified agreement with Microsoft will allow it greater flexibility being non-exclusive on desktop and mobile, and the cost dynamics could benefit Yahoo. As per Yahoo’s earnings call, the new agreement will let “Yahoo! call on Microsoft for search only, ads only, or both together, paying a fixed cost rather than a revenue share for items that we discard without display.”
Yahoo saw good traction in native ads, with Gemini native ads raking in $100 million in Q1, compared to about $250 million for the full year in 2014.
Mobile revenue accounted for about 20% of Yahoo’s total revenue for the quarter, up from about 17% in Q4 2014. Mobile revenue grew at 61% YoY, with mobile users growing to 600 million monthly users.
Yahoo’s Alibaba Spin-Off And Yahoo Japan
Regarding the company’s plan to spin-off its stake in Alibaba, Yahoo’s CFO Kenneth Goldman re-iterated Q4 2015 as its targeted timeframe.
Quoting from the earnings call:
“Our board and management team remain extremely focused on completing this transaction and tax efficiently distributing potentially $32 billion of value to our shareholders.”
Yahoo also said that it is exploring ways to “handle our stake in Yahoo! Japan.”. Yahoo holds a 35.5% stake in Tokyo listed Yahoo Japan, which is valued at about $8.8 billion based on yesterday’s closing price.
Yahoo Q2 2015 Guidance
Yahoo expects to deliver a 10% YoY growth at the midpoint of its $1.21 – 1.25 billion revenue guidance, with revenue ex-TAC expected to range from $1.01 billion to $1.05 billion.
Adjusted EBITDA is expected to range from $240 million to $260 million, and non-GAAP operating income, from $90 million to $110 million.
At large, Q1 was a positive quarter for the company on most counts. With expectations of ongoing growth in revenue and reduction in TAC, more positives could emerge from Yahoo’s Q2 earnings release.
You can see our Yahoo stock analysis video for a quick round-up of key financials post Q1 2015 earnings.
Yahoo Earnings Preview
- Analysts expect to see a Y/Y decline in Yahoo's revenue and Non-GAAP EPS.
- Yahoo's search share gains in the US could serve as a tailwind.
- Yahoo's display ad-revenue growth and mobile share of revenue will be watched.
Yahoo Q1 2015 Earnings Preview: Video Transcript
Hello and welcome to this Yahoo earnings preview video.
Yahoo Earnings Date & Earnings Schedule
Yahoo is due to release its Q1 2015 earnings on 21 April 2015, post market hours, followed by its earnings call at 5 PM EST.
Yahoo Earnings Analyst Estimates Q1 2015
Analysts expect Yahoo's revenue and non gap earnings per share to decline on a year on year basis.
|Estimates||Dollars - $||Y/Y Growth|
Yahoo Display Ad Revenue Growth
Yahoo's display ad revenue has been on the decline for several quarters, as falling ad prices have out-weighed the growth in the number of ads served.
Yahoo Search Market Share Gains
Yahoo gained search market share in the US in Jan and Feb 2015. This could potentially serve as a tailwind in Q1.
Yahoo Mobile Revenue Growth The Key
Yahoo's mobile revenue growth has been impressive in recent times, with 17% of revenue coming from mobile in twenty fourteen. We'll be keen to see if Yahoo can sustain its mobile revenue growth in Q1.