Analyst Conference Summary

Yahoo
YHOO

conference date: January 29, 2008 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2007 (4th quarter 2007)


Forward-looking statements

Overview: Not pretty; net income down year over year, both GAAP and non-GAAP, despite increasing revenues. Investing heavily for future profit. Speed-talking executives emitted loads of words that basically amounted to saying we are doing things now that will make us look good in 2009. Thus they ran out the time and took very few questions from analysts.

Basic data:

Revenues were $1.83 billion, up 3% sequentially from $1.77 billion and up 8% from $1.70 billion in the year-earlier quarter.

Net income was $206 million up 36% sequentially from $151 million but down 23% from $269 million year-earlier.

Earnings per share (EPS) were $0.15 up 36% sequentially from $0.11 but down 21% from $0.19 year-earlier.

Guidance:

GAAP revenue to decline $150 to $200 million from change in broadband deals in 2008.

2008 44 to 46% tax rate, but cash tax 17 to 20%.

Q1 will have a restructuring charge outside of guidance. Alibaba gain also not in guidance.

Q1 GAAP revenue $1.68 to $1.84 billion with $1.28 to $1.38 billion revenue excluding TAC. Operating Cash Flow of $400 to $500 million.

Full year 2008 revenues of $7.2 to $8.0 billion. Revenue ex-TAC $5.35 to $5.95 billion. Operating Cash Flow $1.725 to $1.975 billion. Capital expenditures will be $675 to $775 million.

Mid to high teens revenue growth through 2008.

Double digit cash flow growth in 2009.

Conference Highlights:

Underlying positive trends may not be obvious in the numbers.

In 2008 we are taking an aggressive investment possible, which we are confident will give the best long term returns. Advertising is pivotal as the market is rapidly changing and the market will consolidate to a few players. Our strategy is to build internally and acquire critical technologies; that remains a key investment priority. Display ad build out continues. Display revenue was up 20%, partly due to acquisitions. Auto, pharma, and consumer packaged goods revenues were particularly good; pockets of weakness in financial and some other types of ads.

We aim to improve the experience of consumers. Consumer starting points tend to attract the majority of ad revenue.

We are also realigning the work force against the key initiatives, with targeted cuts and redeployment of talent.

Announced renewal of partnership with AT&T for mobile advertisements.

We are de-emphasizing third party operations, including photos and music.

Still trying to change the game in search. New mobile interface.

Marketing services revenues were $1.59 billion,up 7% y/y. From Owned and Operated sites revenues were $1.03 billion, up 21%. From Affiliate sites revenues were $555 million, down 13%. Fee revenues were $242 million, up 14%.

Revenues excluding TAC (traffic acquisition costs) were $1.40 billion, up 14%.

Gross profit was $1.13 billion. Operating income was $191 million.

Cash flow from operating activities was $657 million, up 293% y/y. Free cash flow was $330 million, up 19%. Operating cash flow was $527 million. $2.4 billion in cash and securities.

Non-GAAP net income was $280 million, down from $297 million year-earlier. Non-GAAP EPS was $0.20, versus $0.21 year-earlier.

Cost of revenues was $702 million. Operating expenses were $939 million. Other income was $44 million. Included $15 million in legal costs, more than usual. 17% cash tax rate for year.

14,300 employees at end of year, including about 200 from acquisitions.

Q&A:

Guidance for organic growth in display? High teens.

Revenue per headcount higher than competitors? Our overall costs are lower than our two major competitors.

Investment strategy? They are long term investments, especially in China [so no, won't sell them to buy-back shares].

Macroeconomic impact in display and search ads? We have not changed our guidance based on unknowns in economy. Based on feedback from our customers and other known factors. We saw some pockets of weakness in Q4, but offsetting pockets of strength. Strength of growth in online advertising so far has overcome any cyclic nature of advertising as a whole.

Asking investors to have patients. What causes your expectations of growth in 2nd half of 2008? We are not in the business of economic forecasting. We have shown good display growth in 2nd half of 2007, about 20%. In meantime we need to cycle through some broadband deal expenses. We do believe we are making the right investments that differentiate ourselves from the market.

10x to 3x ratio of pricing of guaranteed versus non-guaranteed pricing, with non-guaranteed going up, which is a great trend. Click-through rates have also improved. We believe we gained display market share from Q3.

Affiliate revenue drop was mainly from pricing. They are being given a higher percent of revenue.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2008 William P. Meyers