Stock Update (NASDAQ:YHOO): Yahoo! Inc. Announces 4Q And Full Year 2016 Financial Results


Yahoo! Inc. (NASDAQ:YHOO) reported results for the quarter and full year ended December 31, 2016.

“I’m very pleased with our Q4 results and incredibly proud of the team’s execution on our 2016 strategic plan, particularly given the uniquely eventful past year for Yahoo. What we have achieved reflects some of the most impressive teamwork, focus, and resilience I’ve seen throughout my career. We continued to build our mobile and native businesses — delivering nearly $1.5 billion in mobile revenue and over $750 million in native revenue — while operating the company at the lowest cost structure in a decade. With our 2016 and Q4 financial results ahead of plan, and the continued stability in our user engagement trends, the opportunities ahead with Verizon look bright,” said Marissa Mayer, CEO of Yahoo. “In addition to integration planning, our top priority continues to be enhancing security for our users. With security protocols and password changes in place, approximately 90% of our daily active users have already taken or do not need to take remedial action to protect their accounts, and we’re aggressively continuing to drive this number up. Our commitment to our users is unwavering, and we continue to be encouraged by their loyalty to us and their ongoing patronage of our products.”

As previously announced, beginning in the second quarter of 2016, GAAP revenue and cost of revenue – TAC are impacted by a required change in revenue presentation related to the Eleventh Amendment to the Microsoft Search Agreement (“Change in Revenue Presentation,” as discussed below). For the fourth quarter of 2016, the Change in Revenue Presentation contributed $302 million to each of GAAP revenue and cost of revenue – TAC. Excluding the impact of this change, GAAP revenue would have been $1,167 million, an 8 percent decline from the fourth quarter of 2015, and cost of revenue – TAC would have been $207 million, a 24 percent decline from the fourth quarter of 2015. For the full year of 2016, the Change in Revenue Presentation contributed $812 million to each of GAAP revenue and cost of revenue – TAC. Excluding the impact of this change, GAAP revenue would have been $4,357 million, a 12 percent decline from 2015, and cost of revenue – TAC would have been $839 million, a 4 percent decline from 2015.

Business Updates

  • Continued to launch features and improvements across Yahoo Mail mobile apps, achieving an industry-leading 4+ star average rating on both iOS and Android throughout the past year.
  • Added a number of new features to the Yahoo App, including top contributor highlights, an “explore” feature that groups topics into categories, and curated lists from our editorial team to showcase the best of Yahoo.
  • Launched Yahoo Sports “Game of the Day” for the 2016-17 season of NHL, connecting fans with free live games and in-game highlights; partnered with Twitter to host the live stream of Thursday night NFL games.
  • Launched curated watchlists created by industry experts on Yahoo Finance to help users discover trending topics and new investment opportunities.
  • Launched Yahoo View on Android, expanding free access to Hulu TV show clips and movie trailers.
  • Launched Yahoo Answers Now, a new community-focused app which helps users pose questions and receive answers quickly from members who have relevant experiences and expertise.
  • Launched new advertiser features for Yahoo Gemini including native bid alerts and a new native ad format on Yahoo Mail.
  • The BrightRoll DSP saw 485% YoY growth in the Platform display business, through the launches of native on 3rd party supply as well as forecasting and reporting improvements.
  • The Yahoo Mobile Developer Suite reached a footprint of over 940,000 applications, over 2 billion devices.
  • Over 10M users have now adopted Yahoo Account Key to make signing into Yahooproducts easier than ever before.

Transaction Update

Yahoo has continued to work with Verizon on integration planning for the sale of its core business. In terms of timing, Yahoo had previously stated that it expected to close the transaction in Q1. However, given work required to meet closing conditions, the transaction is now expected to close in Q2 of 2017. The company is working expeditiously to close the transaction as soon as practicable in Q2.

Fourth Quarter and Full Year 2016 Financial Highlights

Mavens Revenue*:

Mobile Revenue*:

Search Revenue:

  • GAAP search revenue was $767 million for the fourth quarter of 2016 compared to $528 million for the fourth quarter of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed $302 million to search revenue in the fourth quarter of 2016, search revenue decreased by 12 percent compared to the fourth quarter of 2015. GAAP search revenue was $2,673 million for the full year of 2016 compared to $2,114 million for the full year of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed $812 million to search revenue for the full year of 2016, search revenue decreased by 12 percent compared to the full year of 2015.
  • Gross search revenue was $821 million for the fourth quarter of 2016, a decrease of 6 percent compared to the fourth quarter of 2015. Gross search revenue was $3,159 millionfor the full year of 2016, a decrease of 13 percent compared to the prior year. The Change in Revenue Presentation does not impact gross search revenue.
  • Cost of revenue – TAC associated with search revenue was $433 million for the fourth quarter of 2016. Excluding the impact of the Change in Revenue Presentation, which contributed $302 million to cost of revenue – TAC in the fourth quarter of 2016, cost of revenue – TAC associated with search revenue decreased by 7 percent compared to the fourth quarter of 2015. Cost of revenue – TAC associated with search revenue was $1,353 million for the full year of 2016. Excluding the impact of the Change in Revenue Presentation, which contributed $812 million to cost of revenue – TAC in the full year of 2016, cost of revenue – TAC associated with search revenue increased by 16 percent compared to the full year of 2015.
  • The number of Paid Clicks decreased 21 percent compared to the fourth quarter of 2015.
  • Price-per-Click increased 18 percent compared to the fourth quarter of 2015.

Display Revenue:

  • GAAP display revenue was $573 million for the fourth quarter of 2016, a 5 percent decrease compared to the fourth quarter of 2015. GAAP display revenue was $1,982 million for the full year of 2016, a 5 percent decrease compared to the prior year.
  • Cost of revenue – TAC associated with display revenue was $76 million for the fourth quarter of 2016, a 41 percent decrease compared to the fourth quarter of 2015. Cost of revenue – TAC associated with display revenue was $296 million for the full year of 2016, a 28 percent decrease compared to the full year of 2015.
  • The number of Ads Sold increased 4 percent compared to the fourth quarter of 2015.
  • Price-per-Ad decreased 10 percent compared to the fourth quarter of 2015.

Cash, Cash Equivalents, and Marketable Securities:

Cash, cash equivalents, and marketable securities were $7,910 million as of December 31, 2016 compared to $6,833 million as of December 31, 2015, an increase of $1,077 million. The increase is primarily attributable to $1,249 million of cash from operating activities, which includes $157 million in cash dividends received from an equity investee during the second quarter of 2016 and a cash tax refund of $190 million received during the first quarter of 2016. The Company also received net cash proceeds of $246 million from the sale of land in Santa Clara during the second quarter of 2016 and incurred capital expenditures of $235 million in 2016.

“I am very pleased with how we executed against our 2016 plan, achieving GAAP revenue of nearly $5.2 billion, and revenue ex-TAC within our original guidance range at $3.5 billion. We achieved adjusted EBITDA of $873 million (and recorded a GAAP net loss of $214 million for the year), which is well above the high end of our original guidance range for adjusted EBITDA,” said Ken Goldman, CFO of Yahoo. “We’re especially proud of attaining GAAP operating cash flow of $1.25 billion. Through excellent cost and capital expenditure management, we increased our year-end cash and marketable securities in 2016 by $1.1 billion to $7.9 billion. Our ability to manage our short term cash expenses contributed to delivering a very strong second half of 2016, with GAAP net earnings of $325 million and adjusted EBITDA of $553 million, above the high end of our guidance range for those quarters.”

Change in Revenue Presentation

As previously announced, pursuant to the Eleventh Amendment to the Microsoft Search Agreement, the Company completed the transition of its exclusive sales responsibilities to Microsoft for Microsoft’s paid search services to premium advertisers in the United States, Canada, and Europe on April 1, 2016 and in its remaining markets (other than Taiwan and Hong Kong) on June 1, 2016. Following the transition in each respective market, Yahoo is considered the principal in the sale of traffic to Microsoft and other customers because Yahoo is the primary obligor in its arrangements with Microsoft and has discretion in how search queries from Affiliate sites will be fulfilled and monetized. As a result, beginning in the second quarter of 2016, amounts paid to Affiliates under the Microsoft Search Agreement in the transitioned markets are recorded as cost of revenue – TAC rather than as a reduction to GAAP revenue, resulting in GAAP revenue from the Microsoft Search Agreement being reported on a gross rather than net basis. Taiwan and Hong Kong are not being transitioned, and TAC in those markets continues to be reported as a reduction to revenue.

Shares of Yahoo are trading at $42.68, up $0.28 or 0.66% in after-hours trading Monday. YHOO has a 1-year high of $44.92 and a 1-year low of $26.15. The stock’s 50-day moving average is $40.43 and its 200-day moving average is $41.13.

On the ratings front, YHOOhas been the subject of a number of recent research reports. In a report released today, Needham analyst Laura Martin maintained a Hold rating on YHOO. Separately, on January 18, BMO’s Daniel Salmon reiterated a Hold rating on the stock and has a price target of $42.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Laura Martin and Daniel Salmon have a yearly average return of 18.3% and 6.0% respectively. Martin has a success rate of 67% and is ranked #63 out of 4361 analysts, while Salmon has a success rate of 73% and is ranked #609.

Sentiment on the street is mostly neutral on YHOO stock. Out of 5 analysts who cover the stock, 4 suggest a Hold rating and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $46.00, which represents a potential upside of 10% from where the stock is currently trading.

Yahoo!, Inc. operates as a digital media company that is focused on informing, connecting, and entertaining users through research, communications, and digital content products. It operates through the following geographical segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific. 

 

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