Yahoo Conference Call Highlights

Yahoo! Inc. YHOO reported its third quarter earnings on Tuesday. Shares of the company are up 5 percent.

Below are some key highlights from its conference call.

• We had a good solid third quarter.
• We delivered $1.094 billion in revenue ex-TAC and $1.148 billion in GAAP revenue.
• This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue.
• We achieved this revenue growth through strong momentum in our new areas of investment: mobile, social, native and video, despite industry headwinds in some of our large legacy businesses.
• Our results were outside and above the top of our guidance range by $34 million on revenue ex-TAC and $48 million on GAAP revenue.
• Returning now to Q3, we see strength in search and mobile.
• Our investment businesses of social, mobile, native and video are collectively growing 80% year-over-year, and we are gaining momentum in the four key areas of our strategy: search, communications, digital magazines and video.
• Our results in display are mixed with the new investment areas growing triple digits.
• Our Price-Per-Click is up in almost all regions as we continue to find ways to enhance the performance of our search ads.
• We saw strong click growth in the Americas, for example, where clicks grew 9% year-over-year.
• However, we saw fewer clicks year-over-year in our Asia Pacific region, in total resulting in flat clicks year-over-year.
• Search across both PC and mobile continues to be a highlight, where we see a lot of momentum and opportunity.
• Speaking of mobile, I'm delighted to report to you today that our revenue in mobile is now material.
• In Q3 we saw mobile revenues in excess of $200 million on a GAAP basis.
• Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year.
• This maps to GAAP revenue of more than $700 million in 2014.
• We've invested deeply in mobile and those investments are paying off.
• Our mobile revenue more than doubled year-over-year.
• Not only are our mobile products attracting praise and engagement from users and industry awards, they're generating meaningful revenue for Yahoo.
• Fundamentally, we are moving from a company that makes web pages and monetizes them through banner ads to a company that makes mobile apps and monetizes them through native ads.
• We've affected this transformation remarkably quickly with 44% of our display ads now being native and our mobile revenue now being material.
• For instance, the number of ads sold is up 24% year-over-year.
• This really represents an increase in our user engagement, especially on mobile.
• Our price per ad declined 24% year-over-year.
• We feel the pricing of our mobile ads, in particular, will improve over time with better targeting and increased advertiser demand.

Alibaba:

• I'd like to compliment Jack Ma, Joe Tsai, the Alibaba management team and the underwriters on a very successful IPO.
• I'd also like to compliment our founder, Jerry Yang, on his foresight to invest in Alibaba,where he has now joined the board.
• In May 2012, prior to the current management's arrival at Yahoo, myself included, Yahoo entered into an agreement with Alibaba regarding the sale of our shares.
• The May 2012 agreement specified a number of things including: 1) the immediate sale of approximately 520 million shares of Alibaba at a $35 billion market valuation; 2) the sale of 262 million shares in the IPO; and 3) the lockup of those shares not sold in the IPO, approximately 262 million shares, for one year after the IPO.
• Upon current management's arrival in Q3 2012, we immediately recognized two things: Alibaba had the potential to appreciate considerably in value, and also that we needed to improve the relationship between the two companies.
• The first sale, completed in 2012, yielded $4.3 billion to the company in after-tax proceeds.
• In September 2012, we promised to return $3 billion of those proceeds to shareholders.
• Over the past two years, through Q2 2014, we went on to return $6.2 billion to shareholders, more than double our commitment.
• In Q3 and Q4 to date, we returned an additional $1.6 billion, bringing the total to more than $7.7 billion in capital returned during Ken's and my tenure.
• The IPO sale netted approximately $6 billion in - after taxes to the company.

Mobile:

• Today the number of monthly active users on Yahoo and Tumblr exceeds 1 billion users. That's up at least 6% over the last year.
• And our mobile traffic has grown even faster.
• Across Yahoo and Tumblr, on a device basis, we now see more than half a billion, 550 million, monthly active users on mobile.
• This is a different metric than we've reported on in the past.
• Combined with Tumblr and device-based, so for reference and continuity, we believe mobile monthly active users are up approximately 17% from a year ago, showing strong growth on an already large user base.
• Further, mobile monthly active users have more than doubled since the beginning of our mobile investment.

Tumblr:

• We acquired Tumblr a little more than 15 months ago.
• Over the past 15 months, they have seen strong growth.
• Their audience grew 40% from 300 million to more than 420 million users.
• The number of registered blogs nearly doubled from 105 million to 206 million.
• Mobile monthly users of their mobile app grew by 50%.
• Today, more than 260 of the world's top brands not only have a presence on Tumblr, but also advertise and spend on the platform and that number grows every day.
• Tumblr's revenue is growing nicely, and we anticipate them achieving more than $100 million in revenue as well as positive EBITDA in 2015.

Guidance:

• We bought back approximately 8 million shares for $282 million through September.
• We expect to see improvements with revenue growth in 2015 and beyond.
• Short-term expenses are expected to be approximately flat sequentially as we look for margin leverage in Q4.
• For Q4 guidance, we expect the following: GAAP revenue range of $1.2 billion to $1.24 billion.
• Revenue ex-TAC in the range of $1.14 billion to $1.18 billion, EBITDA in the range of $340 million to $380 million with short-term operating expenses roughly flat at $800 million and non-GAAP operating income in the range of $190 million to $230 million.