q2 2014 yahoo earnings slides
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Yahoo Confidential & Proprietary2
This presentation contains forward-looking statements concerning the expected financial performance of Yahoo! Inc. and its
consolidated subsidiaries (we, Yahoo or the Company) and Yahoos strategic and operational plans. Risks and uncertainties
may cause actual results to differ materially from the results predicted, and reported results should not be considered as an
indication of future performance. The potential risks and uncertainties include, among others, acceptance by users of new products
and services (including, without limitation, products and services for mobile devices and alternative platforms); Yahoo's ability to
compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with theSearch and Advertising Services and Sales Agreement (the Search Agreement) between Yahoo and Microsoft Corporation
(Microsoft); risks related to acquiring or developing compelling content; risks related to joint ventures and the integration of
acquisitions; risks relating to possible impairment of goodwill or other assets; risks related to fluctuations in foreign currency
exchange rates; risks related to Yahoos regulatory environment; Yahoos ability to protect its intellectual property and the value of
its brands; adverse results in litigation; security breaches; interruptions or delays in the provision of Yahoos services; risks related
to Yahoo's international operations; risks related to the calculation of our key operational metrics; dependence on third parties for
technology, services, content, and distribution; and general economic conditions. All information in this presentation is as of July 15,
2014. Yahoo does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances;however, Yahoo may update its business outlook, or any portion thereof, at any time in its discretion. More information about
potential risk factors that could affect Yahoos business and financial results is included in Yahoos filings with the Securities and
Exchange Commission (SEC) including its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, which is
available on the SECs web site at www.sec.gov.
Throughout this presentation, we have rounded numbers as appropriate. In this presentation, year-over-year (y/y or YOY) refers to
the change from the corresponding period in the prior fiscal year to the specified period in the specified year; and quarter-over-
quarter (or QOQ) refers to the change from the immediately preceding fiscal quarter to the specified quarter.
We periodically review, refine, and update our methodologies for monitoring, gathering, and counting number of paid clicks and ads
sold, and for calculating price-per-click and price-per-ad. Based on this process, from time to time we may update such
methodologies.
Yahoo and the Yahoo logos are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or
registered trademarks of their respective owners.
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Key Takeaways from Q214
4
Revenue ex-TAC of $1,040 million decreased 3% in the quarter on aYOY basis.
Display revenue ex-TAC of $394 million decreased 7% in the quarter ona YOY basis.
Search revenue ex-TAC of $428 million increased 6% in the quarter ona YOY basis.
We repurchased ~21 million shares of stock at an average price of
$34.94 for $719 million in the second quarter.
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Financials and Key Metrics at a Glance ($ in millions, except share amounts)
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Q213 Q214 YOY
GAAP revenue $1,135 $1,084 (4%)
Revenue ex-TAC $1,071 $1,040 (3%)
Adjusted EBITDA $369 $340 (8%)
Income from operationsIncome from operations margin ex-TAC
$13713%
$384%
(72%)(900bps)
Non-GAAP operating incomeNon-GAAP operating income margin ex-TAC
$20919%
$19419%
(7%)0bps
Earnings in equity interests $225 $256 14%
Net earningsNet margin ex-TAC
$33131%
$27026%
(19%)(500bps)
EPS attributable to Yahoo! Inc. diluted $0.30 $0.26 (15%)
Non-GAAP EPS diluted $0.35 $0.37 5%
Shares used in per share calculation diluted 1,095 1,015 (7%)
Acquisition of property and equipment, net $82 $107 31%
Free cash flow $131 $186 41%
Cash and marketable securities $4,791 $4,311 (10%)
Number of employees (at end of quarter) 11,700 12,300 5%
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GAAP Revenue Trends ($ in millions)
$1,140 $1,135 $1,139
$1,266
$1,133
$1,084
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
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Revenue ex-TAC Trends ($ in millions)
$1,074 $1,071 $1,081
$1,200
$1,087
$1,040
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
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Americas$791(74%)
EMEA$86(8%)
APAC$193(18%)
Q213 = $1,071
Q214 = $1,040
SourceGeography
Americas
$775(75%)
EMEA$88(8%)
APAC$177(17%)
Display$423(39%)
Search$403(38%)
Other$245(23%)
Display$394(38%)
Search
$428(41%)
Other$219(21%)
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Revenue ex-TAC by Geography & Source ($ in millions)
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Revenue ex-TAC by Source ($ in millions)
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Q113 Q213 Q313 Q413 Q114 Q214
Search revenue ex-TACYOY Growth
$409
6%
$403
5%
$426
3%
$461
8%
$444
9%
$428
6%
Display revenue ex-TACYOY Growth
$402
(11%)
$423
(11%)
$421
(7%)
$491
(6%)
$409
2%
$394
(7%)
Other revenue ex-TACYOY Growth
$264
10%
$245
10%
$233
4%
$248
(9%)
$234
(11%)
$219
(10%)
Total revenue ex-TACYOY Growth
$1,074
0%
$1,071
(1%)
$1,081
(1%)
$1,200
(2%)
$1,087
1%
$1,040
(3%)
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Geographic Segment Data($ in millions)
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Q213 Q214 YOY
Amer icas
Revenue ex-TAC $791 $775 (2%)
Direct costs(1) $186 $181 (3%)
Contribution $605 $594 (2%)
Americas contribution margin(2) 76% 77% 100bps
EMEA (Europe, Middle East, and Africa)
Revenue ex-TAC $86 $88 2%
Direct costs(1) $42 $39 (7%)
Contribution $44 $49 11%
EMEA contribution margin(2) 51% 56% 500bps
Asia Paci fic (APAC)
Revenue ex-TAC $193 $177 (8%)
Direct costs(1) $49 $45 (8%)
Contribution $144 $132 (8%)
Asia Pacific contribution margin(2) 74% 75% 100bps
(1) Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment.
(2) Contribution margin is calculated as contribution divided by revenue ex-TAC for each segment.
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$689 $702$750 $722
$780$700
$162 $160$158
$148
$158
$147
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Depreciation and Amortization
$847(2)$851 $862
Non-GAAP Total Operating Expenses($ in millions)
14
$908$870 (1)
$938
2013 2014
(1) Q413 includes a benefit of $70 million from a patent sale, the proceeds of which offset certain operating expenses. Excluding the impact of such patent sale, Non-GAAP total
operating expenses, as adjusted, would have been $940 million in Q413.(2) Q214 includes a benefit of $62 million from patent sales, the proceeds of which offset certain operating expenses. Excluding the impact of such patent sales, Non-GAAP total
operating expenses, as adjusted, would have been $909 million in Q214.
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Adjusted EBITDA($ in millions)
$386$369
$331
$478
$306
$340
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
36% 34% 31% 40% 28% 33%Adjusted EBITDAmargin ex-TAC
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2013 2014
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$224$209
$173
$330
$149
$194
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
21% 19% 16% 28% 14% 19%Non-GAAPoperating incomemargin ex-TAC
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Non-GAAP Operating Income ($ in millions)
2013 2014
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Earnings in Equity Interests* ($ in millions)
$218 $225 $233 $222
$301
$256
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Earnings in Equity Interests
Yahoo Japan(~36% Ownership)
January March
2013 2014 YOY
Revenue $1,121 $1,055 (6%)
Gross profit $934 $861 (8%)
Income from operations $551 $478 (13%)
Net Income $348 $314 (10%)
Net income attributable to YahooJapan
$346 $311 (10%)
*The Company currently owns approximately 24% of Alibaba Group and approximately 36% of Yahoo Japan. The Company records its share of their results, any related amortizat ion expense, and in the case of AlibabaGroup any related tax impact, one quarter in arrears within earnings in equity interests in the condensed consolidated statements of income.Note: The financial information presented in the tables above is derived from the financial statements of Alibaba Group (prepared under U.S. GAAP) and Yahoo Japan (prepared under Japanese GAAP). The Company
adjusted the Yahoo Japan financial information to address differences between Japanese GAAP and U.S. GAAP that materially impact the presented amounts. Earnings from our equity interest in Yahoo Japan were
recorded using an average exchange rate of 92.05 USD/JPY and 102.81 USD/JPY for the periods January-March 2013 and January-March 2014, respectively.(1) Certain prior period amounts have been reclassified to conform to the current period presentation with no effect on previously reported net income or stockholders' equity.18
Alibaba Group(~24% Ownership)
January - March
2013 2014 YOY
Revenue $1,382 $1,966 42%
Gross profit(1) $1,019 $1,399 37%
Income from operations(1) $709 $891 26%
Net Income $680 $926 36%
Net income attributable toordinary shareholders of AlibabaGroup
$669 $906 36%
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Key Balance Sheet Metrics ($ in millions)
Q113 Q213 Q313 Q413 Q114 Q214
Assets
Cash and marketable securities $5,395 $4,791 $3,215 $4,997 $4,571 $4,311
Accounts receivable, net $944 $942 $844 $980 $880 $824
Alibaba Group preference shares $831
Property and equipment, net $1,613 $1,580 $1,536 $1,489 $1,479 $1,470
Total assets $16,491 $16,226 $14,906 $16,805 $16,593 $16,457
Liabilities and Equity
Current deferred revenue $308 $295 $294 $294 $291 $288
Total current liabilities $1,139 $1,178 $1,193 $1,340 $1,195 $1,194
Total equity $14,186 $13,859 $12,546 $13,131 $12,963 $12,731
Total liabilities and equity $16,491 $16,226 $14,906 $16,805 $16,593 $16,457
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Key Cash Flow Highlights ($ in millions)
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Q113 Q213 Q313 Q413 Q114 Q214
Net cash provided by operating activities $219 $331 $288 $358 $139 $357
Acquisition of property and equipment, net ($70) ($82) ($78) ($109) ($85) ($107)
Dividends received from equity investees ($12) ($123) ($84)
Excess tax benefits from stock-based awards $13 $6 $29 $17 $60 $20
Free cash flow $150 $131 $239 $266 $114 $186
Acquisitions, net of cash acquired $10 $1,014 $163 $60 $22
Repurchases of common stock $775 $653 $1,685 $231 $450 $719
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Business Outlook ($ in millions)
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Note: The above business outlook is based on information and expectations as of July 15, 2014. Yahoo does not intend, and undertakes no duty, to update this business outlook to reflectsubsequent events or circumstances; however, Yahoo may update this business outlook or any portion thereof at any time at its discretion.
Q314 Current Outlook
GAAP revenue $1,060 - $1,100
Revenue ex-TAC $1,020 - $1,060
Adjusted EBITDA $220 - $260
Non-GAAP operating income $70 - $110
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Appendix
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Table 1 Revenue ex-TAC by SegmentReconciliations of GAAP Revenue to Revenue ex-TAC
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$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
Amer icas
GAAP revenue $842 $829 $851 $960 $867 $806
TAC (38) (37) (36) (48) (34) (30)
Revenue ex-TAC $805 $791 $815 $912 $833 $775
EMEA
GAAP revenue $95 $97 $89 $104 $92 $98
TAC (12) (11) (10) (10) (9) (10)
Revenue ex-TAC $83 $86 $79 $94 $82 $88
Asia Paci fic
GAAP revenue $203 $209 $199 $202 $174 $181
TAC (17) (16) (12) (8) (3) (3)
Revenue ex-TAC $186 $193 $187 $195 $172 $177
Worldwide
GAAP revenue $1,140 $1,135 $1,139 $1,266 $1,133 $1,084
TAC (66) (64) (58) (66) (46) (44)
Revenue ex-TAC $1,074 $1,071 $1,081 $1,200 $1,087 $1,040
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Table 2 Revenue DetailsReconciliations of GAAP Revenue to Revenue ex-TAC by Source
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$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
Search
GAAP search revenue $425 $418 $435 $464 $445 $428
YOY growth (10%) (9%) (8%) (4%) 5% 2%
Search TAC (16) (15) (9) (2) (1) (1)
Search revenue ex-TAC $409 $403 $426 $461 $444 $428
Display
GAAP display revenue $455 $472 $470 $553 $453 $436
YOY growth (11%) (12%) (7%) (6%) 0% (8%)
Display TAC (53) (49) (49) (62) (44) (42)
Disp lay revenue ex-TAC $402 $423 $421 $491 $409 $394
Other
GAAP other revenue $261 $245 $234 $249 $235 $220
YOY growth 9% 11% 5% (9%) (10%) (10%)
Other TAC 3 (1) (1) (1) (1) (1)
Other revenue ex-TAC $264 $245 $233 $248 $234 $219
Total
GAAP revenue $1,140 $1,135 $1,139 $1,266 $1,133 $1,084
YOY growth (7%) (7%) (5%) (6%) (1%) (4%)
TAC (66) (64) (58) (66) (46) (44)Revenue ex-TAC $1,074 $1,071 $1,081 $1,200 $1,087 $1,040
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Table 3 Revenue and Direct Costs by Segment
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$ in mill ions Q213 Q214
Revenue by segment:
Americas $829 $806
EMEA 97 98
Asia Pacific 209 181
Total revenue $1,135 $1,084
TAC (64) (44)
Total revenue ex-TAC $1,071 $1,040
Direct costs by segment:
Americas $186 $181
EMEA 42 39
Asia Pacific 49 45
Global operating costs(1) 424 436
Restructuring charges, net 4 53
Depreciation and amortization 160 147
Stock-based compensation expense 68 102
Income from operations $137 $38
(1) Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a globalbasis and that are not directly attributable to any particular segment.
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Table 4 Total Operating ExpensesReconciliations of GAAP Total Operating Expenses to Total OperatingExpenses less TAC, and to Non-GAAP Total Operating Expenses
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$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
GAAP to tal operat ing expenses $954 $998 $1,046 $1,092 $1,103 $1,046
Less: Traffic acquisition costs (66) (64) (58) (66) (46) (44)
Total operat ing expenses less TAC $888 $934 $988 $1,026 $1,057 $1,002
Less: Restructuring (reversals) charges, net (7) 4 (1) 8 9 53
Less: Stock-based compensation expense 45 102 81 85 109 102
Less: Goodwill impairment charge 64
Non-GAAP to tal operat ing expenses $851 $828 $908 $870(1) $938 $847(2)
(1) Q413 includes a benefit of $70 million from a patent sale, the proceeds of which offset certain operating expenses. Excluding the impact of such patent
sale, Non-GAAP total operating expenses, as adjusted, would have been $940 million in Q413.(2) Q214 includes a benefit of $62 million from patent sales, the proceeds of which offset certain operating expenses. Excluding the impact of such patent
sales, Non-GAAP total operating expenses, as adjusted, would have been $909 million in Q214.
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(1) GAAP net margin is calculated as GAAP net earnings divided by GAAP revenue.
Table 5 Adjusted EBITDAReconciliation of GAAP Net Earnings to Adjusted EBITDA
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$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
GAAP net earnings $390 $331 $297 $348 $312 $270
(a) Depreciation and amortization 162 160 158 148 158 147
(b) Stock-based compensation expense 45 68 81 85 109 102
(c) Restructuring (reversals) charges, net (7) 4 (1) 8 9 53
(d) Other income (expense), net (17) (24) (5) 3 13 14
(e) Provision for income taxes 30 50 32 41 4 8
(f) Earnings in equity interests (218) (225) (233) (222) (301) (256)
(g) Net income attributable to noncontrolling interests 1 4 2 3 2 3
(h) Goodwill impairment charge - - - 64 - -
Adjusted EBITDA $386 $369 $331 $478 $306 $340
Adjusted EBITDA margin ex-TAC 36% 34% 31% 40% 28% 33%
GAAP net margin(1) 34% 29% 26% 28% 28% 25%
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Table 6 Non-GAAP Operating IncomeReconciliation of GAAP Income from Operations to Non-GAAP Operating Income
$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
GAAP income from operat ions $186 $137 $93 $174 $30 $38
(a) Restructuring (reversals) charges, net (7) 4 (1) 8 9 53
(b) Stock-based compensation expense 45 68 81 85 109 102
(c) Goodwill impairment charge 64
Non-GAAP operating inc ome $224 $209 $173 $330 $149 $194
GAAP operating income margin 16% 12% 8% 14% 3% 4%
Non-GAAP operating income margin(1) 20% 18% 15% 26% 13% 18%
Non-GAAP operating income margin ex-TAC 21% 19% 16% 28% 14% 19%
(1) Non-GAAP operating income margin is calculated as Non-GAAP operating income divided by GAAP revenue.
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Table 7 Free Cash FlowReconciliation of GAAP Net Cash Provided by Operating Activities to FreeCash Flow
$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214
GAAP net cash prov ided by operating activi ties $219 $331 $288 $358 $139 $357
Excess tax benefits from stock-based awards 13 6 29 17 60 20
Acquisition of property and equipment, net (70) (82) (78) (109) (85) (107)
Dividends received from equity investees (12) (123) (84)
Free cash flow $150 $131 $239 $266 $114 $186
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Table 11 Additional Reconciliations
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Non-GAAP Tax Rate On a GAAP basis in Q214, provision for income taxes was $8
million and tax rate was 33%. Excluding the effect of stock-based compensation (whichdecreased provision for income taxes by $24 million on a GAAP basis), and netrestructuring charges (which decreased provision for income taxes by $19 million on aGAAP basis), provision for income taxes, as adjusted, would have been $51 million andtax rate, as adjusted, would have been 28% on a non-GAAP basis.