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Yahoo! Q1 Conference Call Highlights

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Yahoo! (NASDAQ: YHOO) reported its first quarter earnings on April 15, 2014. Shares of the company are up about 6.55 percent or $2.24 per share. Below are some key takeaways from its conference call:

Marissa Mayer, Yahoo!'s Chief Executive Officer:

• I'm very pleased that we delivered $1,087 million of revenue ex-TAC in Q1, around the midpoint of our guidance. In fact, the first quarter of 2014 was Yahoo!'s best Q1 revenue ex-TAC since 2010.

• We're encouraged by the stability and early signs of growth in our core business.

• First, our search revenue grew 9% year-over-year, marking the 9th consecutive quarter of growth. Second, and rather significantly, we saw our first quarter of Q1 growth in display revenue ex-TAC since 2011. This modest 2% growth ends the previously declining trend.

• In 2013 with the exception of search revenue increasing on an ex-TAC basis, we saw declines across-the-board. However, this quarter, we saw a growth across search and display ex-TAC and search GAAP.

• Meanwhile, display GAAP revenue remains stable after quarters of decline. I regard this as an important indicator of early success in our core business.

• Fundamentally, we think about growth in terms of five phases. There's negative growth, essentially decline, stability, modest growth, market growth, and share gaining growth.

• I should also note that the number of ads sold in Q1 grew, reinforcing a year-long trend and increasing to 7% year-over-year. Part of this growth, of course, has been driven by our mobile business.

• A little less than a year ago, we acquired Summly, and immediately integrated that technology into the Yahoo! app. Now we are leveraging the Summly technology for the next-generation of summarization experiences with Yahoo! News Digest.

• Our mail offering is just over 16-years-old. As a company, we need to invest in modernizing and fortifying the infrastructure underlying
mail to the same degree that we've invested in features. We have a vision that makes our communications the absolute best in the industry. There's plenty of room for continued innovation here, and we're just getting started.

Ken Goldman, Yahoo!'s Chief Financial Officer:

• So let me put this in context by covering the areas of our business in which we have executed well. First, in search, search continues to perform well, and revenue ex-TAC grew year over year for the ninth consecutive quarter.

• Our ongoing improvements in technology, ad formats, and overall user experience are clearly leading to better modernization. Second in display, underlying metrics for display have begun to show improvement last year, but Q1 represents the first quarter of display revenue ex-TAC growth since mid-2012. 

• As Marissa has previously outlined, we are expecting mobile, social, video, and native to be future catalysts within display, and growth has accelerated within these four growth businesses.

• Third on capital returns for shareholders, in Q1 we purchased another $450 million worth of shares, bringing our total repurchases to approximately 267 million shares or just under $6 billion since the beginning of 2012. This far exceeds the amount spent on acquisitions.

• Now for the areas in which much work remains, more transparency and detail on our operating metrics; we do appreciate that investors want to learn more detail about our operating metrics and our business, especially in our key growth businesses like mobile, video, and Tumblr.

• Now, I'll start with the financial highlights for Q1 as seen on slide 5. Q1 GAAP revenue is $1.133 billion and revenue ex-TAC was $1.087 billion, both within our guidance range.

• Non-GAAP net income was $402 million. Once again, we saw strong performance in our earnings and equity interest line, which grew 39% year-over-year, driven by the Alibaba Group. Non-GAAP EPS was $0.38, which was flat versus prior year period as our fully diluted share count decreased 7% to 1.031 billion shares for Q1. Finally, free cash flow was $114 million for the quarter.

Mobile:

• Mayer: Our growth in mobile has also been driven by our commitment to iteration and innovation. Over the past year, we've increased the frequency with which we update our apps by 35%.

• Mayer: We are now releasing more updates per app than any other major player in the industry and the results speak for themselves. Mobile mail has seen a 15% quarter-over-quarter growth in daily active users. 

• Mayer: Meanwhile, the Yahoo! app continues to lead the news app category, ranked number one on apple's App Store and number two on Google Play. Since launched last April, we've seen daily active users triple. Our gorgeous Weather app remains a point of strength with 5X growth in daily active users since launch, and nearly 50% growth in the last quarter alone.

• Mayer: Finally, with regard to mobile traffic, I'm excited today to announce that Yahoo! has more than 430 million monthly mobile users, a 30% growth year-over-year. Now, more than half of Yahoo!'s total monthly audience joins us on a mobile device.

• Mayer: While we are focused on being mobile first, we think about our entire business, including our mobile products, in terms of four key areas; search, communications, digital magazines, and video, all powered by Flickr and Tumblr.

• Mayer: When you look at the success of our mobile products, it really follows the trajectory of the virtuous cycle we've talked about over the past earnings calls. We've hired incredible people. The mobile team has grown more than 130% year over year. Great people have built incredible products, accelerating our ability to release, iterate, and execute.

• Mayer: In Q1, Tumblr's monthly mobile active users grew 71% year over year, with more than 60% of daily active users accessing the platform on mobile devices. Additionally in Q1, we saw 122% growth in Tumblr's mobile engagement versus Q1 of 2013.

Search:

• Mayer: First, I'd like to turn to search. As I mentioned at the beginning of the call, Q1 marked our 9th consecutive quarter of search revenue growth ex-TAC. Our growth in mobile search is an important part of long-term strategy.

• Mayer: This quarter, we saw nearly 100% growth across almost every measure of our mobile search business. We're investing in the future of mobile search. Last quarter, we announced the acquisition of Aviate, whose technology will play a central role in the future of contextual, personalized mobile search at Yahoo!.

• Mayer: In February, we announced a partnership with Yelp. Now, when users search for a local business in the United States, they'll immediately see user reviews, business information, and star ratings from Yelp. To enhance this, we added a new photo viewing experience with high quality photos from our partners, the businesses themselves, and Yelp.

• Goldman: Search revenue ex-TAC continues to show nice growth with a gain of 9% versus the prior year. 

• Goldman: Paid Click growth was healthy, but a bit slower than prior quarters due primarily to a decrease in affiliate traffic in both APAC and

Americas regions. We also face a tougher comp in Q1 as Paid Clicks grew 17% in Q1 of 2013 versus a 13% comparison we faced in Q4 of last year. Price-per-Click grew 8% in Q1, driven primarily by a favorable mix shift as more search clicks came from Yahoo! Properties relative to Affiliates.

• Goldman: Price-per-Ad fell 5% as our relatively new lower-priced stream ads once again resulted in a negative mix shift. Price-per-Ad excluding our Stream product was up 7% in the quarter, driven primarily by strong pricing in our premium segment and higher sell-through rates on key ad units, such as the homepage and the login page.

Gaming:

• Mayer: We kicked off Q1 with extensive coverage of the Winter Olympics. In addition to our own editorial coverage of the Sochi Games, we expanded our existing partnership with NBC Sports, giving users access to the networks exclusive digital video rights, including live competition streams and highlights.

• Mayer: Throughout the game, we saw an almost 30% increase in page views compared to our coverage of the 2010 games in Vancouver. Just days after the closing ceremony, our sports fanatics were back at it with March Madness.

• Mayer: Yahoo! powered the first ever $1 billion Bracket Challenge. We provided up-to-the-minute coverage, scores, and insights across mobile and desktop and we saw record engagement numbers on mobile sports, with nearly 1 million downloads over the course of the tournament.

• Mayer: Yahoo! continues to be a market leader in sports and fantasy sports. This quarter, we announced we are now the Official Commissioner and Fantasy Partner of Major League Baseball, building on similar partnerships with the NBA and the NHL.

Posted-In: Earnings News Guidance Management Events

 

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