Yahoo! Reports Third Quarter 2012 Results

Yahoo! Reports Third Quarter 2012 Results

Company Reports Significant Earnings Growth

SUNNYVALE, Calif.--(BUSINESS WIRE)-- Yahoo! Inc. (NAS: YHOO) today reported results for the quarter ended September 30, 2012.


Revenue excluding traffic acquisition costs ("Revenue ex-TAC") was $1,089 million for the third quarter of 2012, a 2 percent increase compared to the third quarter of 2011. GAAP revenue was $1,202 million for the third quarter of 2012, a 1 percent decrease from the third quarter of 2011.

Excluding restructuring charges for both years, operating income on a non-GAAP basis was $177 million in the third quarter of 2012 compared to $175 million in the third quarter of 2011. On a GAAP basis, income from operations decreased 14 percent to $152 million in the third quarter of 2012, compared to $177 million in the third quarter of 2011.

In the third quarter of 2012, non-GAAP net earnings per diluted share increased 66 percent year over year to $0.35. Non-GAAP net earnings per diluted share for the third quarter of 2012 excludes a net gain of $2.8 billion related to the sale of Alibaba shares and restructuring charges of $16 million, net of tax. On a GAAP basis, net earnings per diluted share was $2.64 in the third quarter of 2012, compared to $0.23 in the third quarter of 2011.

Financials at a Glance

Quarterly Results (in millions, except percentages and per share amounts)

Q3 2011

Q3 2012

Percent Change

Revenue ex-TAC

$1,072

$1,089

2%

GAAP revenue

$1,217

$1,202

(1)%

Non-GAAP income from operations

$175

$177

1%

GAAP income from operations

$177

$152

(14)%

Non-GAAP net earnings per diluted share

$0.21

$0.35

66%

GAAP net earnings per diluted share

$0.23

$2.64

N/M

N/M - Not meaningful

"Yahoo! had a solid third quarter, and we are encouraged by the stabilization in search and display revenue," said Marissa Mayer, CEO of Yahoo!. "We're taking important steps to position Yahoo! for long-term success, and we're confident that our focus on quality and improving the user experience will drive increased value for our advertisers, partners and shareholders."

Business Highlights

  • Yahoo! strengthened its executive team, appointing Henrique de Castro as chief operating officer; Ken Goldman as chief financial officer; Ron Bell as general counsel; Jacqueline Reses as executive vice president of people and development; and Kathy Savitt as chief marketing officer.

  • Yahoo! closed the initial stage of its share repurchase agreement with Alibaba, receiving pre-tax proceeds valued at $7.6 billion, $6.3 billion in cash and $800 million in preferred shares, as well as a payment of $550 million related to a technology and intellectual property license agreement. Yahoo! announced plans to return $3.65 billion in after-tax proceeds to shareholders, or 85 percent of the net cash proceeds. This amount includes the $646 million Yahoo! has already returned to shareholders through share repurchases since the announcement of the agreement through the third quarter of 2012 of which $190 million was repurchased during the third quarter of 2012.

  • Yahoo! introduced new, interactive and immersive experiences for users across PC, mobile, tablet and connected TV devices. For the 2012 London Games, Yahoo! had over 3 billion page views - more than its page views for the Beijing and Vancouver Games combined. During the first two weeks of the political conventions, Yahoo! had 45 percent more page views and 35 percent more time spent on its election-related experiences compared to 2008.

  • Yahoo! continued to innovate on mobile and connected devices, launching IntoNow 3.0, an innovative and fun way to connect with friends and get more from the TV experience. The number of TV shows tagged on IntoNow has increased approximately 80 percent year over year. Yahoo! also extended its connected TV experience by launching the Yahoo! Connected TV experience in Brazil with AOC and Philco branded devices. Yahoo! introduced new multi-screen Fantasy Football experiences, including a new iOS app for iPad, iPhone and iPod touch.

  • In October 2012, Yahoo! entered into a 364-day, $750 million unsecured revolving credit facility. The facility is currently undrawn and is expected to be used for general corporate purposes.

Third Quarter 2012 Revenue Highlights

  • Display revenue ex-TAC was $452 million, flat compared to the third quarter of 2011.

  • GAAP display revenue was $506 million, a 1 percent increase compared to $502 million for the third quarter of 2011.

  • Search revenue ex-TAC was $414 million, an 11 percent increase compared to $374 million for the third quarter of 2011.

  • GAAP search revenue was $473 million, a 1 percent increase compared to $467 million for the third quarter of 2011.

Cash Flow and Cash Balance

  • Cash flow from operating activities for the third quarter of 2012 was $1,046 million, a 194 percent increase compared to $356 million for the same period of 2011. Excluding a payment of $550 million from Alibaba related to a technology and intellectual property license agreement, cash flow from operating activities for the third quarter of 2012 was $496 million.

  • Free cash flow was $920 million for the third quarter of 2012, a 273 percent increase compared to $247 million for the same period of 2011. Excluding a payment of $550 million from Alibaba related to a technology and intellectual property license agreement, free cash flow for the third quarter of 2012 was $370 million.

  • Cash, cash equivalents, and investments in marketable debt securities were $9.4 billion at September 30, 2012 compared to $2.5 billion at December 31, 2011, an increase of $6.9 billion. We estimate that we will pay approximately $2.5 billion in taxes related to the Alibaba share repurchase agreement, the majority of which will be paid in the fourth quarter of 2012.

  • During the third quarter of 2012, Yahoo! repurchased 12 million shares for $190 million.

Conference Call

Yahoo! will host a conference call to discuss third quarter 2012 results at 5 p.m. Eastern Time today. A live Webcast of the conference call, together with supplemental financial information, can be accessed through the Company's Investor Relations Website at http://investor.yahoo.com/results.cfm. In addition, an archive of the Webcast can be accessed through the same link. An audio replay of the call will be available for one week following the conference call by calling (888) 286-8010 or (617) 801-6888, reservation number: 43594094.

Note Regarding Non-GAAP Financial Measures

This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission ("SEC"): revenue ex-TAC; free cash flow; non-GAAP income from operations; non-GAAP net income; and non-GAAP net income per diluted share. These measures may be different than non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles ("GAAP"). Explanations of the Company's non-GAAP financial measures and reconciliations of these financial measures to the GAAP financial measures the Company considers most comparable are included in the accompanying "Note to Unaudited Condensed Consolidated Financial Statements," "Supplemental Financial Data," and "GAAP to Non-GAAP Reconciliations."

About Yahoo!

Yahoo! is focused on creating deeply personal digital experiences that keep more than half a billion people connected to what matters most to them, across devices and around the globe. Yahoo!'s unique combination of Science + Art + Scale connects advertisers to the consumers who build their businesses. Yahoo! is headquartered in Sunnyvale, California. For more information, visit the pressroom (pressroom.yahoo.net) or the company's blog, Yodel Anecdotal (yodel.yahoo.com).

"Affiliates" refers to the third-party entities that have integrated Yahoo!'s advertising offerings into their Websites or other offerings (those Websites and other offerings, "Affiliate sites").

"Alibaba" means Alibaba Group Holding Limited.

"Search Agreement" refers to the Search and Advertising Services and Sales Agreement between Yahoo! and Microsoft Corporation, as amended.

"TAC" refers to traffic acquisition costs.TAC consists of payments to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo! Properties.

"Yahoo! Properties" refers to the online properties and services that Yahoo! provides to users.

This press release contains forward-looking statements concerning Yahoo!'s expected financial performance, as well as Yahoo!'s strategic and operational plans (including, without limitation, the quotation from management). 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, the impact of changes to our management, and organizational structure and strategic business plan; Yahoo!'s ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with the Search Agreement with Microsoft Corporation; risks related to Yahoo!'s regulatory environment; interruptions or delays in the provision of Yahoo!'s services; security breaches; acceptance by users of new products and services; risks related to joint ventures and the integration of acquisitions; risks related to Yahoo!'s international operations; adverse results in litigation, including intellectual property infringement claims and derivative and class actions; Yahoo!'s ability to protect its intellectual property and the value of its brands; dependence on third parties for technology, services, content, and distribution; and general economic conditions. All information set forth in this press release and its attachments is as of October 22, 2012. Yahoo! does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances. More information about potential factors that could affect the Company's business and financial results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, which are on file with the SEC and available on the SEC's website atwww.sec.gov. Additional information will also be set forth in those sections in Yahoo!'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which will be filed with the SEC in the fourth quarter of 2012.

Yahoo!, the Yahoo! logos, and IntoNow are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or registered trademarks of their respective owners.

Yahoo! Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

December 31,

September 30,

2011

2012

ASSETS

Current assets:

Cash and cash equivalents

$

1,562,390

$

7,560,400

Short-term marketable debt securities

493,189

852,816

Accounts receivable, net

1,037,474

953,671

Prepaid expenses and other current assets

359,483

318,892

Total current assets

3,452,536

9,685,779

Long-term marketable debt securities

474,338

1,013,555

Other long-term investments

-

802,609

Property and equipment, net

1,730,888

1,671,234

Goodwill

3,900,752

3,910,245

Intangible assets, net

254,600

173,918

Other long-term assets

220,628

548,182

Investments in equity interests

4,749,044

2,608,605

Total assets

$

14,782,786

$

20,414,127

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

166,595

$

147,943

Accrued expenses and other current liabilities

846,044

3,049,074

Deferred revenue

194,722

309,265

Total current liabilities

1,207,361

3,506,282

Long-term deferred revenue

43,639

444,415

Capital lease and other long-term liabilities

134,905

127,531

Deferred and other long-term tax liabilities, net

815,534

730,378

Total liabilities

2,201,439

4,808,606

Total Yahoo! Inc. stockholders' equity

12,541,067

15,561,503

Noncontrolling interests

40,280

44,018

Total equity

12,581,347

15,605,521

Total liabilities and equity

$

14,782,786

$

20,414,127

Yahoo! Inc.

Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2012

2011

2012

Revenue

$

1,216,665

$

1,201,732

$

3,660,046

$

3,640,759

Operating expenses:

Cost of revenue - Traffic acquisition costs

144,991

112,829

447,918

393,945

Cost of revenue - Other

239,002

282,081

720,017

814,513

Sales and marketing

290,520

269,272

832,827

827,450

Product development

229,230

217,301

683,558

645,407

General and administrative

129,954

135,249

384,674

395,637

Amortization of intangibles

8,435

8,084

25,067

27,893

Restructuring charges, net

(2,721

)

24,727

8,091

159,536

Total operating expenses

1,039,411

1,049,543

3,102,152

3,264,381

Income from operations

177,254

152,189

557,894

376,378

Other income, net

18,046

4,607,656

17,407

4,630,109

Income before income taxes and earnings in equity interests

195,300

4,759,845

575,301

5,006,487

Provision for income taxes

(55,731

)

(1,774,094

)

(163,480

)

(1,857,036

)

Earnings in equity interests

158,775

175,265

349,857

527,499

Net income

298,344

3,161,016

761,678

3,676,950

Less: Net income attributable to noncontrolling interests

(5,053

)

(778

)

(8,423

)

(3,738

)

Net income attributable to Yahoo! Inc.

$

293,291

$

3,160,238

$

753,255

$

3,673,212

Net income attributable to Yahoo! Inc. common stockholders per share - diluted

$

0.23

$

2.64

$

0.58

$

3.02