*Fourth Quarter Revenue and Profitability Exceed Expectations;
Full Year 2010 Operating Income Doubles Year Over Year*
SUNNYVALE, California, January 25, 2011 – Yahoo! Inc. today reported results for the fourth quarter and full year ended December 31, 2010.
Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,205 million for the fourth quarter of 2010, a 4 percent decrease from the fourth quarter of 2009, primarily due to the revenue share with Microsoft. GAAP revenue was $1,525 million for the fourth quarter of 2010, a 12 percent decrease from the fourth quarter of 2009, primarily due to the required change in revenue presentation and the revenue share with Microsoft associated with the Search Agreement. For transitioned markets (U.S. and Canada in the fourth quarter), Yahoo! now reports revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. Excluding the impact of these two items as well as the divestitures of Zimbra and HotJobs and the exit of the paid inclusion business, revenue for the fourth quarter of 2010 increased 3 percent compared to the fourth quarter of 2009.
Income from operations increased by 85 percent to $220 million in the fourth quarter of 2010, compared to $119 million in the fourth quarter of 2009. Income from operations included restructuring charges of $38 million and $40 million in the fourth quarter of 2010 and 2009, respectively. Excluding these items, income from operations grew 62 percent in the fourth quarter of 2010 compared to the fourth quarter of 2009.
Net earnings per diluted share increased by 120 percent to $0.24 per diluted share in the fourth quarter of 2010, compared to $0.11 per diluted share in the fourth quarter of 2009. Net earnings per diluted share included restructuring charges of $0.02 per diluted share for the fourth quarters of both 2010 and 2009.
Financials at a Glance
|Quarterly Results (in millions, except percentages and per share amounts)|
|Q4 2009||Q4 2010||Percent Change|
|Income from operations||$119||$220||85%|
|Net earnings per diluted share||$0.11||$0.24||120%|
“We just completed a very encouraging quarter and year for Yahoo!, where we saw our plans to turn around the company gain momentum,” said Carol Bartz, CEO of Yahoo!. “For the year, operating income, margins, EPS, and return on invested capital doubled. Display advertising grew 17%. We completed the important North America Search transition to Microsoft on schedule and with high quality. We introduced new and updated products at a faster pace. And our content properties – like Yahoo! Sports and Yahoo! Finance – continued to innovate and extend their massive lead.“
- Operating margin expanded from 7 percent in the fourth quarter of 2009 to 14 percent in the fourth quarter of 2010. Excluding restructuring charges of $40 million and $38 million in the fourth quarters of 2009 and 2010, respectively, operating margin expanded from 9 percent to 17 percent.
- Completed the transition from Yahoo!’s Search Marketing platform to Microsoft’s search advertising platform (adCenter) in the U.S. and Canada at the end of October.
- Yahoo! announced the beta launch of a Local Offers program in which Yahoo! is partnering with more than a dozen online and offline local “deal” providers (including Groupon and Valpak) in an effort to build one of the largest and most comprehensive repositories of local offers on the Internet.
- Yahoo! introduced the first phase of its integration with Zynga that allows users to launch, play, and share Zynga’s popular games like Mafia Wars and FishVille on Yahoo! Messenger, Yahoo! Games, My Yahoo!, Yahoo! Toolbar, and Yahoo! Pulse.
- Yahoo! introduced Twitter integration that allows users to connect their Yahoo! and Twitter accounts globally to see and share Twitter updates on the Yahoo! homepage, Yahoo! Messenger, Yahoo! Mail, and Yahoo! Pulse.
- Yahoo! launched the Yahoo! Messenger Beta that allows users to play social games from publishers like Zynga, ELEX and OMGPOP, share their status across networks, and view, comment on, and “like” updates from Yahoo! Pulse, Flickr, Facebook, and Twitter — all from within Yahoo! Messenger. Interoperability with Facebook Chat also broadens the group of friends with whom users can instantly connect and chat on Yahoo! Messenger.
- Yahoo! launched the new Yahoo! Mail Beta, a faster, easier, safer, and more social communications experience that helps users around the world be more engaged, productive and connected than ever.
- Yahoo! introduced the Yahoo! Contributor Network platform that enables authors to reach an audience of millions by publishing their creative content on Yahoo!. The Yahoo! Contributor Network is an evolution of the Associated Content platform that brings contributions from more than 400,000 writers, photographers, and videographers to some of the Internet’s most popular media destinations, including Yahoo! News, Yahoo! Finance, Yahoo! Sports, and even the Yahoo! homepage, among many others.
- Yahoo! continued to unveil original programming including the Weekend Edition on Yahoo! News, a new weekend program offering compelling original video and relevant editorial content, programmed for the weekend audience and an extension of the Who Knew program on omg!, sponsored by Toyota.
- Yahoo! named Ross Levinsohn as its EVP, Americas and Wayne Powers as its SVP, Advertising Sales for North America.
Search Alliance Costs and Reimbursements
Yahoo!’s results for the fourth quarter of 2010 reflect $66 million in search operating cost reimbursements from Microsoft under the Search Agreement, which amount is equal to the search operating costs incurred by Yahoo! in the fourth quarter. Our search operating costs declined in the fourth quarter, compared to the third quarter, because we completed the transition of the U.S. and Canada to Microsoft’s search platform in October. Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are removed from our cost structure. Our business outlook for total expenses reflects these savings as well as planned reinvestments.
Yahoo!’s results for the fourth quarter of 2010 also reflect transition cost reimbursements from Microsoft under the Search Agreement of $21 million. In the fourth quarter, transition cost reimbursements were equal to the transition costs incurred by Yahoo! related to the Search Agreement. Therefore, the net impact of the transition costs and reimbursements were neutral to total operating expenses in the fourth quarter, as expected.
Fourth Quarter 2010 Revenue Results
- GAAP display revenue increased 14 percent to $635 million, compared to $560 million for the fourth quarter of 2009.
- Display revenue ex-TAC increased 16 percent to $567 million, compared to $490 million for the fourth quarter of 2009.
- GAAP search revenue was $640 million, a 27 percent decrease compared to $875 million for the fourth quarter of 2009.
- Search revenue ex-TAC was $388 million, an 18 percent decrease compared to $473 million for the fourth quarter of 2009.
Cash Flow and Cash Balance
- Cash flow from operating activities for the fourth quarter of 2010 was $403 million, a 15 percent increase compared to $351 million for the same period of 2009.
- Free cash flow was $155 million for the fourth quarter of 2010, a 29 percent decrease compared to $220 million for the same period of 2009.
- Cash, cash equivalents, and investments in marketable debt securities were $3,629 million at December 31, 2010 compared to $4,518 million at December 31, 2009, a decrease of $889 million. During the year ended December 31, 2010, Yahoo! repurchased 119 million shares for $1,749 million.
Revenue ex-TAC for the first quarter of 2011 is expected to be in the range of $1,020 million to $1,080 million. 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!’s Advertising Network in transitioned markets. Yahoo! reports the net revenue it receives under the Search Agreement as revenue and no longer presents the associated TAC within cost of revenue. Accordingly, for transitioned markets Yahoo! reports GAAP revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. For markets that have not yet transitioned, revenue continues to be recorded on a gross basis, and TAC is recorded in cost of revenue. Microsoft’s revenue share in the first quarter of 2011 is expected to be approximately $36 million. GAAP revenue for the first quarter of 2011 is expected to be in the range of $1,150 million to $1,230 million. Total expenses (cost of revenue plus total operating expenses) for the first quarter of 2011 is expected to be in the range of $1,020 million to $1,070 million. Total expenses less TAC for the first quarter of 2011 is expected to be in the range of $890 million to $920 million. Income from operations for the first quarter of 2011 is expected to be in the range of $130 million to $160 million.
Business outlook for revenue ex-TAC is being provided to reflect the underlying dynamics of the business during the Microsoft transition and to facilitate comparisons to prior periods.
Yahoo! will host a conference call to discuss fourth quarter 2010 results at 5 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 https://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: 89411245.