Yahoo! Inc. (NASDAQ:YHOO) today reported results for the quarter
ended March 31, 2015.
“Yahoo is amidst a multi-year transformation to return an iconic
company to greatness. This quarter, we saw encouraging revenue
growth of 8%, with display revenue growing a modest 2% and search
growing 20% on a GAAP basis. Our mobile GAAP revenue reached $234
million in Q1, growing 61% year-over-year,” said Marissa Mayer, CEO
of Yahoo. “We anticipated that we would grow GAAP revenue ahead of
revenue ex-TAC and EBITDA, and that’s precisely what we saw this
quarter. For the next phase of the transformation, we will focus on
accelerating our GAAP revenue growth while managing our margins and
costs.”
Q1 2014 Q1 2015 GAAP revenue $1,133 million
$1,226 million Revenue ex-TAC $1,087 million $1,043 million
Adjusted EBITDA $306 million $231 million Net earnings $312 million
$21 million GAAP net earnings per diluted share $0.29 $0.02
Non-GAAP net earnings per diluted share $0.38 $0.15
Business Highlights
- GAAP Revenue Growth:
- Yahoo’s GAAP revenue grew this quarter,
primarily as a result of the Company’s performance in search and
display. GAAP Revenue was $1,226 million, up 8% and near the
midpoint of our guidance after adjusting for Mozilla TAC. This is
the first time the Company has seen Q1 growth in display since
2011.
- Search Volume Up in Q1 2015, Mozilla
Partnership Paying Off:
- Yahoo saw an increase in search volume
in Q1 2015, with searches reaching a five-year high. The
partnership between Yahoo and Mozilla was key to this volume
increase.
- Amended Search Partnership with
Microsoft:
- Yahoo announced an amended search
partnership with Microsoft to improve the search experience, create
value for advertisers and establish ongoing stability for partners.
Yahoo now has increased flexibility to enhance the search
experience on any platform, since the partnership is non-exclusive
for both desktop and mobile. Yahoo will continue to serve Bing ads
and search results for at least 51% of its desktop search
traffic.
- Developer Tools:
- At Yahoo’s first Yahoo Mobile Developer
Conference, the Company launched the Yahoo Mobile Developer Suite,
which empowers developers through Flurry technology to measure,
advertise, monetize and enhance their apps. The Yahoo Mobile
Developer Suite includes Flurry Analytics with Explorer, Yahoo App
Publishing, Yahoo App Marketing, Yahoo Search in Apps, and Flurry
Pulse.
- New Features on Yahoo Mail:
- Yahoo Mail introduced updates including
contact cards (contact information including photo, phone number,
job title, and links to social profiles), on-demand passwords
(eliminating the need for users to remember complex passwords), an
end-to-end encryption extension, and refined search options.
- Yahoo App introduced new interactive
features encompassing Yahoo digital magazines, Yahoo Weather and
Yahoo News Digest.
- Media Partnerships & Digital
Magazines:
- The Company launched three new digital
magazines this quarter: Yahoo Politics, Yahoo TV, and Yahoo
Autos.
- Yahoo was chosen by Snapchat as a
launch partner to bring the day’s most important headlines from
Yahoo News directly to Snapchatters through a new editorial feature
of the popular app: Snapchat Discover.
- Yahoo announced an expansion of its
relationship with Disney/ABC Television Group, including a new
“Yahoo Your Day” series on Good Morning America.
- Advertising Partnerships:
- Yahoo landed high-profile video,
display, native and social ad deals with brands like Old Navy,
Honda and the City of Las Vegas on Yahoo Properties including
Tumblr and Tourney Pick‘Em, as well as the Yahoo Screen series
Community.
- Ad Technology:
- Yahoo leveraged its recent acquisition
of BrightRoll by integrating Audience Ads data into BrightRoll’s
video demand side platform, giving video advertisers access to
exclusive Yahoo audience data. BrightRoll also launched an advanced
campaign insights and reporting tool for video advertisers.
First Quarter 2015 Financial Highlights
Mavens Revenue:
Q1 2014 Q1 2015 Mavens revenue
$ 230 million
$ 363 million
Non-Mavens revenue 802 million 744 million
Total traffic-driven revenue
$1,032 million $1,107 million
Non-traffic-driven revenue
101 million 119 million GAAP revenue
$1,133 million
$1,226 million
Mavens revenue represented 22 percent of traffic-driven revenue
in the first quarter of 2014, and increased to 33 percent in the
first quarter of 2015.
Mobile Revenue:
Q1 2014 Q1 2015 Mobile revenue
$ 145 million
$ 234 million
PC revenue 887 million 873 million
Total traffic-driven revenue
$1,032 million $1,107 million
Non-traffic-driven revenue
101 million 119 million GAAP revenue $1,133 million $1,226 million
Mobile revenue represented 14 percent of traffic-driven revenue
in the first quarter of 2014, and increased to 21 percent in the
first quarter of 2015.
Gross mobile revenue for the first quarter of 2014 and 2015 was
approximately $231 million and $391 million, respectively.
Search Revenue:
- Gross search revenue was $956 million
for the first quarter of 2015, an increase of 20 percent compared
to the first quarter of 2014.
- GAAP search revenue was $532 million
for the first quarter of 2015, an increase of 20 percent compared
to the first quarter of 2014. Search revenue from the Mozilla
traffic is being recognized on a gross basis as a result of the
terms of the agreement, therefore increasing GAAP revenue and also
increasing TAC.
- Search revenue ex-TAC was $432 million
for the first quarter of 2015, a decrease of 3 percent compared to
the first quarter of 2014.
- The number of Paid Clicks increased
approximately 21 percent compared to the first quarter of
2014.
- Price-per-Click increased approximately
3 percent compared to the first quarter of 2014.
Display Revenue:
- GAAP display revenue was $464 million
for the first quarter of 2015, a 2 percent increase compared to the
first quarter of 2014.
- Display revenue ex-TAC was $381 million
for the first quarter of 2015, a 7 percent decrease compared to the
first quarter of 2014.
- The number of Ads Sold increased
approximately 29 percent compared to the first quarter of
2014.
- Price-per-Ad decreased approximately 17
percent compared to the first quarter of 2014.
Cash, Cash Equivalents, and Marketable Securities:
- Cash, cash equivalents, and marketable
securities were $6.9 billion as of March 31, 2015 compared to $10.2
billion as of December 31, 2014, a decrease of $3.3 billion.
- During the first quarter of 2015, Yahoo
repurchased approximately 4 million shares of its common stock for
$204 million and satisfied the $3.3 billion income tax liability
related to the sale of Alibaba Group ADSs in 2014.
“We are tightly managing our overall cost structure as EBITDA
remains a key measurement for the Company,” said Ken Goldman, CFO
of Yahoo. “In Q1 2015, we took actions to optimize functions,
remove inefficiencies and align resources to help focus our
organizations on top priorities. We plan to continue to actively
manage our cost base to grow profitability and EBITDA over
time.”
Live Stream
Yahoo will live stream a video broadcast of the Company's first
quarter 2015 financial results at 2 p.m. Pacific Time/5 p.m.
Eastern Time today. The live stream will be broadcast from Yahoo’s
Sunnyvale studio and will be available exclusively on Yahoo Finance
at finance.yahoo.com. The Company will provide its business outlook
for the second quarter during the presentation. Supplemental
financial information can be accessed through the Company’s
Investor Relations website at investor.yahoo.net. The video will be
archived after the event at investor.yahoo.net and will be
available for 90 days following the broadcast.
Non-GAAP Financial Measures
This press release and its attachments include the
following financial measures defined as non-GAAP financial
measures by the Securities and Exchange Commission (“SEC”): gross
mobile revenue; gross search revenue; revenue ex-TAC; adjusted
EBITDA; non-GAAP income from operations; non-GAAP net earnings;
non-GAAP net earnings per share - diluted; and free cash flow.
Gross mobile revenue is GAAP mobile revenue plus the related
revenue share with third parties. Gross search revenue is GAAP
search revenue plus the related revenue share with third parties.
Revenue ex-TAC is GAAP revenue less traffic acquisition costs.
Adjusted EBITDA, non-GAAP income from operations, non-GAAP net
earnings and non-GAAP net earnings per share - diluted, exclude
from the most comparable GAAP financial measures certain gains,
losses, and expenses that we do not believe are indicative of
ongoing results, and exclude stock-based compensation
expense. Adjusted EBITDA also excludes taxes, depreciation,
amortization of intangible assets, other income, net (which
includes interest), earnings in equity interests, and net income
attributable to noncontrolling interests. Free cash flow is GAAP
net cash provided by operating activities (adjusted to include
excess tax benefits from stock-based awards), less acquisition of
property and equipment, net and dividends received from equity
investees.
These measures may be different than non-GAAP financial measures
used by other companies. The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with generally accepted accounting principles (“GAAP”).
Explanations of the Company’s non-GAAP financial measures and
reconciliations of these financial measures to the GAAP financial
measures the Company considers most comparable are included in the
accompanying “Note to Unaudited Condensed Consolidated Financial
Statements,” “Supplemental Financial Data and GAAP to Non-GAAP
Reconciliations,” and “GAAP to Non-GAAP Reconciliations.”
About Yahoo
Yahoo is a guide focused on making users’ digital habits
inspiring and entertaining. By creating highly personalized
experiences for our users, we keep people connected to what matters
most to them, across devices and around the world. In turn, we
create value for advertisers by connecting them with the audiences
that build their businesses. Yahoo is headquartered in Sunnyvale,
California, and has offices located throughout the Americas, Asia
Pacific (APAC) and the Europe, Middle East and Africa (EMEA)
regions. For more information, visit the pressroom
(pressroom.yahoo.net) or the Company's blog (yahoo.tumblr.com).
“Ads Sold” consist of display ad impressions for paying
advertisers on Yahoo Properties and Affiliate sites.
“Affiliates” refers to the third-party entities that have
integrated Yahoo’s advertising offerings into their Websites or
other offerings (those Websites and other offerings, “Affiliate
sites”).
“Alibaba Group” means Alibaba Group Holding Limited.
“Gross mobile revenue” is GAAP mobile revenue plus the related
revenue share with third parties.
“Gross search revenue” is GAAP search revenue plus the related
revenue share with third parties.
“Mavens revenue” is revenue generated from, without duplication:
(i) mobile (as defined below), (ii) video ads and video ad
packages, (iii) native ads, and (iv) Tumblr ads and fees.
“Mobile revenue” is revenue generated in connection with user
activity on mobile devices, including smartphones and tablets,
regardless of whether the device is accessing a mobile-optimized
service. Mobile revenue is generated primarily from search and
display ads. Mobile revenue also includes leads, listings and fees
revenue and ecommerce revenue allocated to user activity on mobile
devices.
“Net earnings” means net income attributable to Yahoo! Inc., and
“net earnings per diluted share” means net income attributable to
Yahoo! Inc. common stockholders per share – diluted.
“Non-Mavens revenue” is revenue generated from search ads and
traditional (i.e., non-native, non-video, non-Tumblr) display ads
served on PCs and also includes leads, listings and fees revenue
and ecommerce revenue allocated to user activity on PCs.
“Non-traffic-driven revenue” is revenue not arising from user
activity on Yahoo Properties or Affiliate sites, and includes
royalty revenue, license fee revenue, amortization under the
technology and intellectual property license agreement with Alibaba
Group and all other revenue that is not traffic-driven.
“Paid Clicks” are clicks by end-users on sponsored search
listings (excluding native ads) on Yahoo Properties and Affiliate
sites.
“PC” means a desktop computer, and “PC revenue” is revenue
generated from search and display ads served on PCs and also
includes leads, listings and fees revenue and ecommerce revenue
allocated to user activity on PCs.
“Price-per-Ad” is defined as display revenue divided by our
total number of Ads Sold.
“Price-per-Click” is defined as Search click-driven revenue
divided by our total number of Paid Clicks.
“Search Agreement” refers to the Search and Advertising Services
and Sales Agreement between Yahoo and Microsoft Corporation, as
amended.
“Search click-driven revenue” is gross search revenue excluding
the Microsoft RPS guarantee and search revenue from Yahoo
Japan.
“TAC” refers to traffic acquisition costs. TAC consists of
payments to Affiliates and payments made to companies that direct
consumer and business traffic to Yahoo Properties.
“Yahoo”, “Company” and “we” refers to Yahoo! Inc. and its
consolidated subsidiaries.
“Yahoo Properties” refers to the online properties and services
that Yahoo provides to users.
We periodically review, refine and update our methodologies for
monitoring, gathering, and counting number of Ads Sold and Paid
Clicks, and for calculating Search click-driven revenue,
Price-per-Ad and Price-per-Click. Commencing this quarter, Yahoo’s
display volume and price metrics (Ads Sold and Price-per-Ad)
include (a) results from Yahoo Properties worldwide (other
than China and Japan, where Yahoo branded sites are operated by
third-party licensees), whereas previously those metrics excluded
countries and regions where historical data was not previously
retained in a manner that would support period-to-period
comparisons; (b) results from Affiliate sites (including Affiliates
of Flurry and BrightRoll) and (c) historical Tumblr data commencing
with the second quarter of 2013, whereas previously Tumblr data was
limited to (i) native ad results commencing with the first quarter
of 2014 and (ii) other display ad results commencing with the third
quarter of 2014. Prior period amounts have been updated to conform
to the current presentation.
Additional information about how “Ads Sold,” “Paid Clicks,”
“Price-per-Ad,” “Price-per-Click” and “Search click-driven revenue”
are defined and calculated is included under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2014, which is on file with the SEC
and available on the SEC's website at www.sec.gov.
This press release contains forward-looking statements
concerning Yahoo's expected financial performance and Yahoo's
strategic and operational plans (including, without limitation, the
quotations from management). Risks and uncertainties may cause
actual results to differ materially from the results predicted, and
reported results should not be considered as an indication of
future performance. The potential risks and uncertainties include,
among others, possible delays or the failure in satisfying
conditions to completion of our proposed spin-off of our remaining
stake in Alibaba Group into a newly-formed registered investment
company or other factors, including adverse regulatory developments
or determinations or adverse changes in, or interpretations of, tax
laws, rules or regulations, that could delay or prevent completion
of the proposed spin-off or cause the terms of the proposed
spin-off to be modified; risks related to realization of the
expected benefits of the spin-off to Yahoo and its shareholders;
risks related to acceptance by users of new products and services
(including, without limitation, products and services for mobile
devices and alternative platforms); risks related to Yahoo's
ability to compete with new or existing competitors; reduction in
spending by, or loss of, advertising customers; risks associated
with the Search Agreement with Microsoft Corporation; risks related
to acquiring or developing compelling content; risks related to
joint ventures and the integration of acquisitions; risks related
to possible impairment of goodwill or other assets; risks related
to Yahoo’s ability to protect its intellectual property and the
value of its brands; adverse results in litigation; security
breaches; interruptions or delays in the provision of Yahoo’s
services; risks related to Yahoo’s regulatory environment; risks
related to fluctuations in foreign currency exchange rates; risks
related to Yahoo's international operations; dependence on third
parties for technology, services, content, and distribution; risks
related to the calculation of our key operational metrics; and
general economic conditions. All information set forth in this
press release and its attachments is as of April 21, 2015. Yahoo
does not intend, and undertakes no duty, to update this information
to reflect subsequent events or circumstances. More information
about potential factors that could affect the Company's business
and financial results is included under the captions "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report on Form
10-K for the year ended December 31, 2014, which is on file with
the SEC and available on the SEC's website at www.sec.gov.
Additional information will also be set forth in those sections in
Yahoo’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2015, which will be filed with the SEC in the second quarter of
2015.
Yahoo!, Yahoo Aviate, BrightRoll, Flurry, Yahoo Mail, Yahoo
Originals, Yahoo App, Yahoo Weather, Yahoo News and Yahoo News
Digest, Yahoo TV, Yahoo Politics, Yahoo Finance, Yahoo Sports, and
the associated logos are trademarks and/or registered trademarks of
Yahoo! Inc. Tumblr is a registered trademark of Tumblr, Inc. All
other names are trademarks and/or registered trademarks of their
respective owners.
Yahoo! Inc. Unaudited Condensed Consolidated Balance
Sheets (in thousands)
December 31,
March 31,
2014
2015
ASSETS Current assets: Cash and cash
equivalents $ 2,667,916 $ 1,178,475
Short-term marketable securities 5,327,412
4,109,789 Accounts receivable, net 1,032,704
924,411 Prepaid expenses and other current assets
671,075 813,790 Total current assets
9,699,107 7,026,465 Long-term marketable
securities 2,230,892 1,618,544 Property and
equipment, net 1,487,684 1,483,772
Goodwill 5,163,654 5,140,270 Intangible
assets, net 470,842 441,869 Other long-term
assets and investments 550,798 506,600
Investments in Alibaba Group 39,867,789
31,927,985 Investments in equity interests
2,489,578 2,346,201 Total assets
$ 61,960,344 $ 50,491,706
LIABILITIES AND EQUITY Current liabilities:
Accounts payable $ 238,018 $
269,160 Income taxes payable related to sale of Alibaba
Group ADSs 3,282,293 - Other accrued expenses
and current liabilities 671,307 858,353
Deferred revenue 336,963 270,886 Total
current liabilities 4,528,581 1,398,399
Convertible notes 1,170,423 1,185,880
Long-term deferred revenue 20,774 22,228
Other long-term liabilities 143,095 130,826
Deferred tax liabilities related to investment in Alibaba
Group 16,154,906 12,919,754 Deferred and other
long-term tax liabilities, net 1,156,973
1,130,993 Total liabilities 23,174,752
16,788,080 Total Yahoo! Inc. stockholders'
equity 38,741,837 33,658,896 Noncontrolling
interests 43,755 44,730 Total equity
38,785,592 33,703,626 Total liabilities and
equity $ 61,960,344 $ 50,491,706
Yahoo! Inc. Unaudited Condensed Consolidated
Statements of Income (in thousands, except per share
amounts) Three Months Ended
March 31, 2014 2015
Revenue $ 1,132,730 $
1,225,970 Operating expenses: Cost of
revenue - traffic acquisition costs 45,909
183,139 Cost of revenue - other 293,603
285,263 Sales and marketing 302,325
275,357 Product development 268,264
326,747 General and administrative 164,623
173,513 Amortization of intangibles 18,340
20,073 Gain on sale of patents - (2,000
) Restructuring charges, net 9,487
51,232 Total operating expenses
1,102,551 1,313,324 Income
(loss) from operations 30,179 (87,354 )
Other expense, net (13,453 )
(31,063 ) Income (loss) before income taxes
and earnings in equity interests 16,726 (118,417
) Provision for income taxes (4,217
) 40,900 Earnings in equity interests
301,402 99,690 Net income
313,911 22,173 Less: Net income
attributable to noncontrolling interests (2,333 )
(975 ) Net income attributable to Yahoo!
Inc. $ 311,578 $ 21,198
Net income attributable to Yahoo! Inc. common
stockholders per share - diluted (1) $
0.29 $ 0.02 Shares
used in per share calculation - diluted 1,031,420
947,976 Stock-based compensation expense by
function: Cost of revenue - other $ 24,651
$ 6,009 Sales and marketing 50,674
38,121 Product development 13,927
48,221 General and administrative 19,929
23,345 Restructuring charges, net -
2,705
Supplemental
Financial Data:
Revenue ex-TAC $ 1,086,821 $
1,042,831 Adjusted EBITDA $ 306,381
$ 231,113 Free cash flow(2) $
113,962 $ (3,034,922 )
(1) The
impact of outstanding stock awards of entities in which the Company
holds equity interests that are accounted for using the equity
method reduced the Company's diluted earnings per share by $0.01
for the three months ended March 31, 2014.
(2)
During the three months ended March 31,
2015, the Company satisfied the $3.3 billion income tax liability
related to the sale of Alibaba Group ADSs in 2014.
Yahoo! Inc.
Unaudited Condensed Consolidated
Statements of Cash Flows
(in thousands) Three Months
Ended March 31, 2014 2015
CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $ 313,911 $ 22,173
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 123,185 117,061 Amortization
of intangible assets 34,349 34,478 Accretion
of convertible notes discount 14,666 15,457
Stock-based compensation expense 109,181
118,401 Non-cash restructuring charges -
(859 ) Losses from sale of investments, assets,
and other, net 3,550 34,308 Gain on sale of
patents - (2,000 ) Loss on Hortonworks
warrants - 11,909 Earnings in equity
interests (301,402 ) (99,690 )
Tax benefits from stock-based awards 57,667
32,822 Excess tax benefits from stock-based awards
(59,556 ) (37,470 ) Deferred income
taxes 14,488 17,009 Changes in assets and
liabilities, net of effects of acquisitions: Accounts
receivable 98,404 89,923 Prepaid expenses and
other (9,211 ) (64,245 )
Accounts payable 19,492 30,613 Accrued
expenses and other liabilities (240,175 )
89,934 Income taxes payable related to sale of Alibaba
Group ADSs - (3,282,293 ) Deferred
revenue (39,488 ) (65,002 ) Net
cash provided by (used in) operating activities 139,061
(2,937,471 ) CASH FLOWS FROM
INVESTING ACTIVITIES: Acquisition of property and equipment,
net (84,655 ) (134,921 )
Purchases of marketable securities (912,097 )
(712,818 ) Proceeds from sales of marketable
securities 168,926 172,352 Proceeds from
maturities of marketable securities 281,662
2,359,767 Purchases of intangible assets
(1,190 ) (1,160 ) Proceeds from
sales of patents - 20,000 Proceeds from the
settlement of derivative hedge contracts 2,801
19,627 Payments for the settlement of derivative hedge
contracts (600 ) (2,151 )
Acquisitions, net of cash acquired (21,661 )
(23,073 ) Payments for equity investments in
privately held companies (10,399 ) -
Other investing activities, net (566 )
(38 ) Net cash (used in) provided by investing
activities (577,779 ) 1,697,585
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 78,977
36,189 Repurchases of common stock (449,578
) (203,771 ) Excess tax benefits from
stock-based awards 59,556 37,470
Tax withholdings related to net share
settlements of restricted stock awards and restricted stock
units
(125,403 ) (97,426 ) Other financing
activities, net (3,093 ) (4,573 )
Net cash used in financing activities (439,541
) (232,111 ) Effect of exchange rate
changes on cash and cash equivalents (1,315 )
(17,444 ) Net change in cash and cash
equivalents (879,574 ) (1,489,441 )
Cash and cash equivalents, beginning of period
2,077,590 2,667,916 Cash and
cash equivalents, end of period $ 1,198,016
$ 1,178,475
Yahoo! Inc.Note to Unaudited
Condensed Consolidated Financial Statements
This press release and its attachments include the non-GAAP
financial measures of gross mobile revenue; gross search revenue;
revenue excluding traffic acquisition costs (“revenue ex-TAC”);
adjusted EBITDA; non-GAAP income from operations; non-GAAP net
earnings; non-GAAP net earnings per diluted share; and free cash
flow, which are reconciled to revenue (in the case of gross mobile
revenue, gross search revenue and revenue ex-TAC); net income
attributable to Yahoo! Inc. (in the case of adjusted EBITDA and
non-GAAP net earnings); income from operations; net income
attributable to Yahoo! Inc. common stockholders per share –
diluted; and net cash provided by operating activities, which we
believe are the most comparable GAAP measures. Yahoo! Inc.
(together with its consolidated subsidiaries, “Yahoo,” the
“Company,” or “we”) uses these non-GAAP financial measures for
internal managerial purposes and to facilitate period-to-period
comparisons. We describe limitations specific to each non-GAAP
financial measure below. Management generally compensates for
limitations in the use of non-GAAP financial measures by relying on
comparable GAAP financial measures and providing investors with a
reconciliation of the non-GAAP financial measure to the most
directly comparable GAAP financial measure or measures. Further,
management uses non-GAAP financial measures only in addition to and
in conjunction with results presented in accordance with GAAP. We
believe that these non-GAAP financial measures reflect additional
ways of viewing aspects of our operations that, when viewed with
our GAAP results, provide a more complete understanding of factors
and trends affecting our business. These non-GAAP measures should
be considered as a supplement to, and not as a substitute for, or
superior to, revenue, net income attributable to Yahoo! Inc.,
income from operations, net income attributable to Yahoo! Inc.
common stockholders per share – diluted, and net cash provided by
operating activities calculated in accordance with GAAP.
Each of gross mobile revenue and gross search revenue is a
non-GAAP financial measure. Gross mobile revenue is defined as GAAP
mobile revenue plus the related revenue share with third parties.
Gross search revenue is defined as GAAP search revenue plus the
related revenue share with third parties. We present these amounts
to provide investors with additional metrics used by the Company
for evaluation and decision-making purposes and as an indicator of
the size of our presence in the relevant business. To this end,
gross mobile revenue and gross search revenue report the total
receipts generated on Yahoo Properties and Affiliate sites by the
specified relevant Yahoo business (i.e., mobile or search), before
any TAC or other revenue share is paid to the Affiliates and before
any revenue share is allocated to Microsoft or other parties. A
limitation of these non-GAAP measures is that they include revenue
that is recognized by a third party and not by Yahoo; furthermore,
they are measures which we have defined for internal and investor
purposes that may be unique to us, and therefore may not enhance
the comparability of our results to other companies in our industry
who have similar business arrangements but address the impact of
TAC and revenue sharing differently. Management compensates for
these limitations by also relying on the comparable financial
measure GAAP revenue.
Revenue ex-TAC is a non-GAAP financial measure defined as GAAP
revenue less TAC. TAC consists of payments made to Affiliates and
payments made to companies that direct consumer and business
traffic to Yahoo Properties. Based on the terms of the Search
Agreement with Microsoft, Microsoft retains a revenue share of 12
percent of the net (after TAC) search revenue generated on Yahoo
Properties and Affiliate sites in transitioned markets. Yahoo
reports the net revenue it receives under the Search Agreement as
revenue and no longer presents the associated TAC as an expense.
Accordingly, for the current period Yahoo reports GAAP revenue
associated with the Search Agreement on a net (after TAC) basis
rather than a gross basis. For the 2013 comparison periods,
revenue from markets that had not yet transitioned to Microsoft’s
platform was recorded on a gross basis, and the associated TAC was
recorded as a part of operating expenses. We present revenue ex-TAC
to provide investors a metric used by the Company for evaluation
and decision-making purposes and to provide investors with
comparable revenue numbers when comparing periods preceding, during
and following the transition period. A limitation of revenue ex-TAC
is that it is a measure which we have defined for internal and
investor purposes that may be unique to the Company, and therefore
it may not enhance the comparability of our results to other
companies in our industry who have similar business arrangements
but address the impact of TAC differently. Management compensates
for these limitations by also relying on the comparable GAAP
financial measures of revenue and total operating expenses, which
includes TAC in non-transitioned markets.
Adjusted EBITDA is defined as net income attributable to Yahoo!
Inc. before taxes, depreciation, amortization of intangible assets,
stock-based compensation expense, other income, net (which includes
interest), earnings in equity interests, net income attributable to
noncontrolling interests and other gains, losses, and expenses that
we do not believe are indicative of our ongoing results. We present
adjusted EBITDA because the exclusion of certain gains, losses, and
expenses facilitates comparisons of the operating performance of
the Company on a period to period basis. Adjusted EBITDA has
limitations as an analytical tool and should not be considered in
isolation or as a substitute for results reported under GAAP. These
limitations include: adjusted EBITDA does not reflect tax payments
and such payments reflect a reduction in cash available to us;
adjusted EBITDA does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating
revenues in our businesses; adjusted EBITDA does not include
stock-based compensation expense related to the Company’s
workforce; adjusted EBITDA also excludes other income, net (which
includes interest), earnings in equity interests, net income
attributable to noncontrolling interests and other gains, losses,
and expenses that we do not believe are indicative of our ongoing
results, and these items may represent a reduction or increase in
cash available to us; and adjusted EBITDA is a measure that may be
unique to the Company, and therefore it may not enhance the
comparability of our results to other companies in our industry.
Management compensates for these limitations by also relying on the
comparable GAAP financial measure of net income attributable to
Yahoo! Inc., which includes taxes, depreciation, amortization,
stock-based compensation expense, other income, net (which includes
interest), earnings in equity interests, net income attributable to
noncontrolling interests and the other gains, losses and expenses
that are excluded from adjusted EBITDA.
Non-GAAP income from operations is defined as income from
operations excluding certain gains, losses, and expenses that we do
not believe are indicative of our ongoing operating results and
further adjusted to exclude stock-based compensation
expense. Because of the variety of equity awards used by
companies, the varying methodologies for determining stock-based
compensation expense, and the subjective assumptions involved in
those determinations, we believe excluding stock-based compensation
expense enhances the ability of management and investors to
understand the impact of stock-based compensation expense on income
from operations. We consider non-GAAP income from operations to be
a profitability measure which facilitates the forecasting of our
operating results for future periods and allows for the comparison
of our results to historical periods. A limitation of non-GAAP
income from operations is that it does not include all items that
impact our income from operations for the period. Management
compensates for this limitation by also relying on the comparable
GAAP financial measure of income from operations which includes the
gains, losses, and expenses that are excluded from non-GAAP income
from operations.
Non-GAAP net earnings is defined as net income attributable to
Yahoo! Inc. excluding certain gains, losses, expenses, and their
related tax effects that we do not believe are indicative of our
ongoing results and further adjusted to exclude stock-based
compensation expense and its related tax effects. Because of the
variety of equity awards used by companies, the varying
methodologies for determining stock-based compensation expense, and
the subjective assumptions involved in those determinations, we
believe excluding stock-based compensation expense enhances the
ability of management and investors to understand the impact of
stock-based compensation expense on net income and net income per
share. We consider non-GAAP net earnings and non-GAAP net earnings
per diluted share to be profitability measures which facilitate the
forecasting of our results for future periods and allow for the
comparison of our results to historical periods. A limitation of
non-GAAP net earnings and non-GAAP net earnings per diluted share
is that they do not include all items that impact our net income
and net income per diluted share for the period. Management
compensates for this limitation by also relying on the comparable
GAAP financial measures of net income attributable to Yahoo! Inc.
and net income attributable to Yahoo! Inc. common stockholders per
share - diluted, both of which include the gains, losses, expenses
and related tax effects that are excluded from non-GAAP net
earnings and non-GAAP net earnings per diluted share.
Free cash flow is a non-GAAP financial measure defined as net
cash provided by operating activities (adjusted to include excess
tax benefits from stock-based awards), less acquisition of property
and equipment, net and dividends received from equity investees. We
consider free cash flow to be a liquidity measure which provides
useful information to management and investors about the amount of
cash generated by the business after the acquisition of property
and equipment, which can then be used for strategic opportunities
including, among others, investing in the Company's business,
making strategic acquisitions, strengthening the balance sheet, and
repurchasing stock. A limitation of free cash flow is that it does
not represent the total increase or decrease in the cash balance
for the period. Management compensates for this limitation by also
relying on the net change in cash and cash equivalents as presented
in the Company’s unaudited condensed consolidated statements of
cash flows prepared in accordance with GAAP which incorporates all
cash movements during the period.
Yahoo! Inc.
Supplemental Financial Data and GAAP to
Non-GAAP Reconciliations
(in thousands) Three Months Ended
March 31, 2014 2015 Revenue
for groups of similar services: Search $
444,767 $ 531,666 Display
453,224 463,733 Other 234,739
230,571 Total revenue $
1,132,730 $ 1,225,970
Revenue excluding traffic acquisition costs ("revenue ex-TAC")
for groups of similar services: GAAP search
revenue $ 444,767 $ 531,666 TAC
associated with search revenue (686 )
(100,009 ) Search revenue ex-TAC $
444,081 $ 431,657 GAAP
display revenue $ 453,224 $ 463,733
TAC associated with display revenue (44,362 )
(82,434 ) Display revenue ex-TAC $
408,862 $ 381,299
Other GAAP revenue $ 234,739 $
230,571 TAC associated with other GAAP revenue
(861 ) (696 ) Other revenue
ex-TAC $ 233,878 $ 229,875
Revenue ex-TAC: GAAP revenue $
1,132,730 $ 1,225,970 TAC
(45,909 ) (183,139 ) Revenue
ex-TAC $ 1,086,821 $
1,042,831 Revenue ex-TAC by segment:
Americas: GAAP revenue $ 866,928
$ 984,721 TAC (34,094 )
(166,655 ) Revenue ex-TAC $
832,834 $ 818,066
EMEA: GAAP revenue $ 91,570 $
81,086
TAC
(9,193 ) (11,704 ) Revenue
ex-TAC $ 82,377 $ 69,382
Asia Pacific: GAAP revenue $
174,232 $ 160,163 TAC (2,622
) (4,780 ) Revenue ex-TAC $
171,610 $ 155,383
Total revenue ex-TAC $ 1,086,821
$ 1,042,831 Direct costs by
segment (3): Americas $
59,688 $ 55,730 EMEA 21,669
19,898 Asia Pacific 46,820 50,712
Global operating costs (4) 652,263
687,378 Gain on sale of patents -
(2,000 ) Restructuring charges, net
9,487 51,232 Depreciation and amortization
157,534 151,539 Stock-based compensation
expense 109,181 115,696 Income
from operations $ 30,179 $
(87,354 )
(3) Direct costs for each
segment include certain cost of revenue-other and costs associated
with the local sales teams. Prior to the fourth quarter of 2014,
marketing, media, costs associated with Yahoo Properties and ad
operation costs were managed locally and included as direct costs
for each segment. Prior period amounts have been revised to conform
to the current presentation. (4) Global operating
costs include product development, marketing, real estate
workplace, general and administrative, and other corporate expenses
that are managed on a global basis and that are not directly
attributable to any particular segment. Beginning in the fourth
quarter of 2014, marketing, media, costs associated with Yahoo
Properties and other ad operation costs are managed globally and
included as global costs. Prior period amounts have been revised to
conform to the current presentation.
Yahoo! Inc.
Supplemental Financial Data and GAAP to Non-GAAP Reconciliations
(continued) (in thousands) Three Months
Ended March 31, 2014 2015
Reconciliation of net income attributable to Yahoo! Inc. to
adjusted EBITDA: Net income attributable to Yahoo! Inc.
$ 311,578 $ 21,198 Depreciation and
amortization 157,534 151,539 Stock-based
compensation expense 109,181 115,696
Restructuring charges, net 9,487 51,232
Other expense, net 13,453 31,063 Provision
for income taxes 4,217 (40,900 )
Earnings in equity interests (301,402 )
(99,690 ) Net income attributable to
noncontrolling interests 2,333 975
Adjusted EBITDA $ 306,381 $
231,113 Reconciliation of net cash provided
by operating activities to free cash flow: Net cash provided
by (used in) operating activities $ 139,061
$ (2,937,471 ) Acquisition of property and
equipment, net (84,655 ) (134,921 )
Excess tax benefits from stock-based awards 59,556
37,470 Free cash flow(2)
$ 113,962 $ (3,034,922 )
Three Months Ended March 31, 2014
2015 Reconciliation of GAAP mobile revenue to gross
mobile revenue: GAAP mobile revenue $
144,672 $ 233,593 Revenue share with third
parties 86,718 157,877 Gross
mobile revenue $ 231,390 $
391,470 Reconciliation of GAAP search
revenue to gross search revenue: GAAP search revenue
$ 444,767 $ 531,666 Revenue share
with third parties 354,386 424,099
Gross search revenue $ 799,153 $
955,765
(2)
During the three months ended March 31,
2015, the Company satisfied the $3.3 billion income tax liability
related to the sale of Alibaba Group ADSs in 2014.
Yahoo! Inc.
GAAP to Non-GAAP
Reconciliations (in thousands, except per share amounts)
Three Months Ended March 31, 2014
2015 GAAP income from operations $
30,179 $ (87,354 ) (a)
Restructuring charges, net 9,487 51,232
(b) Stock-based compensation expense 109,181
115,696 Non-GAAP income from operations
$ 148,847 $ 79,574
GAAP net income attributable to Yahoo! Inc. $
311,578 $ 21,198 (a)
Restructuring charges, net 9,487 51,232
(b) Stock-based compensation expense 109,181
115,696 (c) Loss on Hortonworks
warrants - 11,909 (d) To adjust
the provision for income taxes to exclude the tax impact of items
(a) through (c) above for the three months ended March 31, 2014 and
2015 (28,622 ) (54,562 )
Non-GAAP net earnings $ 401,624
$ 145,473 GAAP net income
attributable to Yahoo! Inc. common stockholders per share -
diluted (1) $ 0.29 $
0.02 Non-GAAP net earnings per share -
diluted (5) $ 0.38 $
0.15 Shares used in per share calculation -
diluted 1,031,420 947,976
(1) The impact of outstanding stock awards of
entities in which the Company holds equity interests that are
accounted for using the equity method reduced the Company's diluted
earnings per share by $0.01 for the three months ended March 31,
2014.
(5) The impact of outstanding stock awards of
entities in which the Company holds equity interests that are
accounted for using the equity method reduced the Company's
non-GAAP diluted earnings per share by $0.01 for the three months
ended March 31, 2014.
Media Relations Contact:Yahoo! Inc.Sarah Meron,
408-349-4040media@yahoo-inc.comorInvestor Relations
Contact:Yahoo! Inc.Joon Huh, 408-349-3382investorrelations@yahoo-inc.com
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