Yahoo reports 15 percent revenue decline in third quarter 2016

Yahoo reports 15 percent revenue decline in third quarter 2016
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Yahoo! Inc. is in process of being bought by Verizon, however, it has been very stressful and shakey for Yahoo in recent time. With discovery of huge hack in which data of 500 milion users  has been stolen, plus on top of it, Yahoo spied its users with surveilance tools which were supposed to protect them, the deal with Verzion is under big question, and Yahoo's results could decide whether the deal will go on or fall off.

And the day for results has come. Yahoo! Inc. today reported results for the quarter ended September 30, 2016., and results are a mixed bag of everything, but Marissa Mayer, CEO of Yahoo, seems to be pleased with the results.

"I am pleased with our Q3 results. This quarter, we launched several new products and showed solid financial performance across the board; both are a testimony to the tremendous teamwork, focus, and resilience of our employees. In addition to our continued efforts to strengthen our business, we are busy preparing for integration with Verizon. We remain very confident, not only in the value of our business, but also in the value Yahoo products bring to our users’ lives. To that end, we take deep responsibility in protecting our users and the security of their information. We’re working hard to retain their trust and are heartened by their continued loyalty as seen in our user engagement trends.", said Marissa Mayer, CEO of Yahoo.

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. For the third quarter of 2016, the Change in Revenue Presentation contributed $258 million to each of GAAP revenue and cost of revenue - TAC. Excluding the impact of this change, GAAP revenue would have been $1,048 million, a 15 percent decline from the third quarter of 2015, and cost of revenue - TAC would have been $190 million, a 15 percent decline from the third quarter of 2015.

Business Updates

Yahoo has been busy launching new services and improvements to their network, so we bring the list what have they been working on in last quarter.

  • Launched new mobile experiences for sports fans, including the ability to search and stream Major League Baseball games directly from within the Yahoo Sports app, and an updated Yahoo Fantasy app for iOS that makes it easier for users to navigate and manage multiple teams.
  • Introduced Yahoo View, a new community TV-watching experience on desktop and iPhone, providing users with access to thousands of episodes through our partnership with Hulu.
  • Launched Yahoo Newsroom for iOS and Android, creating a vibrant community around news by making it easier to discover relevant content and participate in conversations.
  • Launched a fast and easy way for users to send and unsend messages, photos, and gifs on their computers with the new Yahoo Messenger desktop app for Windows and Mac, and gave iOS and Android users the ability to send video in one-on-one and group conversations in the Yahoo Messenger mobile app.
  • Launched new and enhanced features on Tumblr to deliver a more immersive and easily accessible experience for users to create, discover and share content that they love, including the redesigned mobile “explore“ feature, support for live photos on the web, and a quick send-a-post feature on Android phones.
  • Streamed live events and shows, including the 2016 First Presidential Debate, NBA Free Agency Show, MLB Game of the Day, and the 2016 Concordia Summit with Warren Buffett.
  • Announced that Yahoo Finance has been chosen again to exclusively host the livestream of Berkshire Hathaway’s Annual Shareholders Meeting.
  • Continued to invest in and grow Yahoo Esports by launching two new live shows, a partnership with Riot Games to reach student League of Legend gamers, and a streaming and content partnership with ESL.
  • Partnered to host Twitter’s live stream of the Thursday night NFL games on Yahoo Sports with a Twitter feed accompanying the live stream.
  • Introduced new capabilities for advertisers through Yahoo Gemini, including search retargeting for native ads and expanded features for Gemini’s custom audience targeting solution that make it easier for marketers to integrate their own data and increase effectiveness on search and native ad spend.
  • Launched program to monetize unaffiliated links on Tumblr to create new revenue opportunities for the platform.

Third Quarter 2016 Financial Highlights

The Change in Revenue Presentation contributed $127 million to Mavens revenue, $131 million to Non-Mavens revenue, and $258 million to traffic-driven revenue in the third quarter of 2016. Mavens revenue represented 38 percent and 42 percent of traffic-driven revenue in the third quarter of 2015 and 2016, respectively. Excluding the impact of the Change in Revenue Presentation, Mavens revenue would have been $397 million and represented 40 percent of traffic-driven revenue in the third quarter of 2016.

The Change in Revenue Presentation contributed $127 million to mobile revenue, $131 million to desktop revenue, and $258 million to traffic-driven revenue in the third quarter of 2016. GAAP mobile revenue for the third quarter of 2015 and 2016 was $271 million and $396 million, respectively. Mobile revenue represented 24 percent and 32 percent of traffic-driven revenue in the third quarter of 2015 and 2016, respectively. Excluding the impact of the Change in Revenue Presentation, mobile revenue would have been $269 million and represented 27 percent of traffic-driven revenue in the third quarter of 2016. Gross mobile revenue for the third quarter of 2015 and 2016 was $424 million and $432 million, respectively. The Change in Revenue Presentation does not impact gross mobile revenue.

GAAP search revenue was $703 million for the third quarter of 2016 compared to $516 million for the third quarter of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed $258 million to search revenue in the third quarter of 2016, search revenue decreased by 14 percent compared to the third quarter of 2015. Gross search revenue was $752 million for the third quarter of 2016, a decrease of 14 percent compared to the third quarter of 2015. The Change in Revenue Presentation does not impact gross search revenue.
Cost of revenue - TAC associated with search revenue was $384 million for the third quarter of 2016. Excluding the impact of the Change in Revenue Presentation, which contributed $258 million to cost of revenue - TAC in the third quarter of 2016, cost of revenue - TAC associated with search revenue increased by 6 percent compared to the third quarter of 2015. The number of Paid Clicks decreased 22 percent compared to the third quarter of 2015.
Price-per-Click increased 9 percent compared to the third quarter of 2015.

GAAP display revenue was $476 million for the third quarter of 2016, a 7 percent decrease compared to the third quarter of 2015. Cost of revenue - TAC associated with display revenue was $63 million for the third quarter of 2016, a 39 percent decrease compared to the third quarter of 2015. The number of Ads Sold decreased 5 percent compared to the third quarter of 2015. Price-per-Ad increased 1 percent compared to the third quarter of 2015.

Cash, cash equivalents, and marketable securities were $7,771 million as of September 30, 2016 compared to $6,833 million as of December 31, 2015, an increase of $938 million. The increase is primarily attributable to $994 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 $194 million during the nine-month period ended September 30, 2016.

“As we continue to plan for integration, we delivered solid Q3 results with net earnings of $163 million and adjusted EBITDA of $229 million, above the high end of our guidance range. We generated strong cash flow through excellent cost and capital expenditure management, further increasing cash and marketable securities by over $900 million since 2015 year-end. Given our Q3 results and our business outlook for Q4, we are on track to deliver on our 2016 Strategic Plan commitment to improve our adjusted EBITDA run rate for the second half of 2016, which equates to increasing our adjusted EBITDA guidance for the year.“, said Ken Goldman, CFO of Yahoo.

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.