Yahoo Swings to Profit, Delays Closure of Verizon Deal

Revenue grew to $1.47 billion versus $1.27 billion in the year-ago same period

Web portal Yahoo Inc. (NASDAQ: YHOO) announced its Q4 FY16 and full year FY16 financial results on January 23rd, 2017.

The Sunnyvale, California-based Company, together with its subsidiaries, provides search and display advertising services on Yahoo properties and affiliate sites worldwide. The company offers Yahoo Search that serves as a guide for users to discover information on the Internet; Yahoo Mail, which connects users to the people and content; and Yahoo Messenger, an instant messaging service, which enables users to connect, communicate, and share experiences in real-time.

It also provides digital content products, including Yahoo News, which gives users to discover, consume, and engage around the news, content, and video; Yahoo Sports, which serves audiences of sports enthusiasts; and Yahoo Finance that offers a range of financial data, information, and tools. Read more about Yahoo’s financial results below.

Q4 FY16 financial highlights

During Q4 FY16, Yahoo’s revenue grew to $1.47 billion versus $1.27 billion in the year ago same period, powered by the strength of new initiatives, including adding to its coverage of major-league hockey, expanding access to Hulu TV show clips, and creating new advertising features.

Cost of revenue – TAC jumped to $509 million from $271 million in the year ago comparable period. During Q4 FY16, a change in revenue presentation related to the Eleventh Amendment to the Microsoft Search Agreement contributed $302 million each to GAAP revenue and Cost of revenue – TAC. Excluding the impact of this change, GAAP revenue would have been $1,167 million, an 8% decline from the year ago corresponding period, and cost of revenue – TAC would have been $207 million, a 24% decline from last year’s same quarter.

As a result of the massive restructuring under CEO Marissa Meyer, Yahoo has written down a chunk of its social network, Tumblr. Yahoo also closed 22 offices and sunsetted more than 120 products and features at Yahoo. Headcount at Yahoo has fallen 18% to 8,500 over the past year. This helped the company swing to profits of $162 million, or $0.17 per diluted share, versus a loss of $4.43 billion, or $(4.70) per diluted share, in the year ago same period.

Full year FY16 financial highlights

For the full-year FY16, Yahoo’s revenue grew to $1.47 billion versus $1.27 billion in the year-ago same period. The Change in Revenue Presentation contributed $812 million to each of GAAP revenue and cost of revenue – TAC during the year. Excluding the impact of this change, GAAP revenue would have been $4,357 million, a 12% decline from 2015, and cost of revenue – TAC would have been $839 million, a 4% decline from 2015. Yahoo was able to narrow its losses to $214 million, or $(0.23) per diluted share, from massive losses of $4.35 billion, or $(4.64) per diluted share, in the previous year.

Segmental highlights

Mavens’ revenue: During Q4 FY16, of the total revenue of $1.47 billion, traffic-driven revenue amounted to $1.22 billion, while $51 million came from non-traffic revenue. Of the total traffic-driven revenue of $1.22 billion, mobile, video, native and social operations (Mavens) accounted for $472 million, with non-Mavens accounting for the remaining $750 million. The Change in Revenue Presentation contributed $140 million and $386 million to Mavens’ revenue, $162 million and $426 million to non-Mavens’ revenue, and $302 million and $812 million to traffic-driven revenue in Q4 FY16 and FY16, respectively.

Mobile revenue: GAAP mobile revenue for Q4 FY16 jumped to $459 million from $291 million in the year ago comparable period. GAAP mobile revenue for the full year FY16 grew to $1,494 million from $1,048 million in the year ago same period. The Change in Revenue Presentation contributed $140 million and $386 million to mobile revenue, $162 million and $426 million to desktop revenue, and $302 million and $812 million to traffic-driven revenue in Q4 FY16 and full year FY16, respectively. Excluding the impact of the Change in Revenue Presentation, mobile revenue would have been $318 million in Q4 FY16 and $1,107 million in FY16.

Search revenue: GAAP search revenue in Q4 FY16 was $767 million compared to $528 million in Q4 FY15. Excluding the impact of the Change in Revenue Presentation, which contributed $302 million to search revenue in Q4 FY16, search revenue decreased by 12% compared to Q4 FY15. GAAP search revenue was $2,673 million for FY16 compared to $2,114 million for FY15.

Cost of revenue – TAC associated with search revenue was $433 million for Q4 FY16 and $1,353 million for the full year FY16. The Change in Revenue Presentation contributed $302 million to cost of revenue – TAC in Q4 FY16. The number of Paid Clicks fell 21% compared to the year-ago period, while Price-per-Click jumped 18%.

Display revenue: GAAP display revenue fell 5% to $573 million in Q4 FY16 versus the year ago same period. For the full year FY16, GAAP display revenue fell 5% to $1,982 million compared to the prior year.

Cost of revenue – TAC associated with display revenue plunged 41% to $76 million in Q4 FY16 and fell 28% to $296 million for the full year FY16 versus the prior year’s periods. The number of Ads Sold grew 4% versus the year-ago period, while Price-per-Ad fell 10%.

Other highlights

Restructuring initiatives and updates: Yahoo launched many features and improvements across Yahoo Mail mobile apps, achieving an industry-leading 4+ star average rating on both iOS and Android throughout the past year. It also added a number of new features to the Yahoo App, including top contributor highlights, an “explore” feature that groups topics into categories.

The company also launched Yahoo View on Android, expanding free access to Hulu TV show clips and movie trailers, and unveiled new advertiser features for Yahoo Gemini including native bid alerts and a new native ad format on Yahoo Mail.

The BrightRoll DSP saw 485% Y-o-Y growth in the Platform display business, through the launches of native on third party supply as well as forecasting and reporting improvements. The Yahoo Mobile Developer Suite reached a footprint of over 940,000 applications, over 2 billion devices. Over 10 million users have adopted Yahoo Account Key, making signing into Yahoo products easier than before.

Delay in closing Verizon deal: Telecom giant Verizon Communications Inc. (NYSE: VZ) agreed to acquire Yahoo’s core internet assets for $4.83 billion on July 25th, 2016. The deal excludes Yahoo’s approximately 3,000 patents worth $1 billion and cash. Yahoo will continue to operate as an independent company until the deal receives shareholders and regulatory approvals. Yahoo has continued to work with Verizon on integration planning for the sale of its core business. In terms of timing, Yahoo had previously stated that it expected to close the transaction in Q1 FY17. However, given work required to meet closing conditions, the transaction is now expected to close in Q2 2017.

Cash position: Cash, cash equivalents, and marketable securities were $7,910 million as of December 31st, 2016, compared to $6,833 million in the year ago same period. The increase is primarily attributed to $1,249 million of cash from operating activities, which includes $157 million in cash dividends received from an equity investee during Q2 FY16 and a cash tax refund of $190 million received during Q1 FY16. The Company also received net cash proceeds of $246 million from the sale of land in Santa Clara during Q2 FY16 and incurred capital expenditures of $235 million in 2016.

Stock Performance

Yahoo’s stock stood at $43.90, gaining 3.54%, at the close on Tuesday, January 24th, 2017, having vacillated between an intraday high of $44.22 and a low of $43.43 during the session. The stock’s trading volume was at 24,931,777 for the day. The Company’s market cap was at $41.93 billion as of Tuesday’s close.

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