Description
YHOO Q410EarningsPresentation
Yahoo! Inc. Q4’10 Financial Highlights 1.25.2011
Legal Notice
The matters discussed in this presentation contain forward-looking statements that involve risks and uncertainties concerning Yahoo!’s expected financial performance, and expected reimbursements from Microsoft Corporation (“Microsoft”), as well as Yahoo!’s long-term financial objectives and strategic and operational plans. Actual results may 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 management and organizational changes; the implementation and results of Yahoo!'s ongoing strategic and cost initiatives; Yahoo!'s ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; the demand by customers for Yahoo!'s premium services; 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; failure to manage growth and diversification; adverse results in litigation, including intellectual property infringement claims; Yahoo!'s ability to protect its intellectual property and the value of its brands; dependence on key personnel; dependence on third parties for technology, services, content, and distribution; general economic conditions and changes in economic conditions; and transition and implementation risks associated with the Search and Advertising Services and Sales Agreement between Yahoo! and Microsoft (the “Search Agreement”). Yahoo!’s long-term financial objectives are necessarily based upon a variety of estimates and assumptions which may not be realized and, in addition to the risks identified above, are inherently subject to business, economic, competitive, industry, regulatory, market, and financial uncertainties, many of which are beyond Yahoo!’s control. There can be no assurance that the assumptions made in preparing the long-term financial objectives will prove accurate, and Yahoo!’s long-term financial objectives may not be achieved. All information in this presentation is as of January 25, 2011. 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 factors that could affect Yahoo!’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 Yahoo!’s Annual Report on Form 10-K for the year ended December 31, 2009, as amended, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, which are on file with the Securities and Exchange Commission (“SEC”) and available on the SEC’s web site at www.sec.gov. Additional information will also be set forth in those sections in Yahoo!’s Annual Report on Form 10-K for the year ended December 31, 2010, which will be filed with the SEC in the first quarter of 2011. Throughout this presentation, we have rounded numbers as appropriate. In this presentation, “year to date” (or YTD) refers to the twelve months ended December 31; “year-over-year” (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. 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.
2
Quarterly Overview
1/25/2011
Key Takeaways
• Revenue ex-TAC of $1,205 million was above the midpoint of our guidance and consensus.
• Operating income for Q4’10 and 2010 grew 85% and 100% year-over-year to $220 million and $773 million, respectively.
• Operating margins doubled in both 4Q’10 and full year 2010. Operating margin ex-TAC was 18% in Q4’10 and 17% for the full year. • Display advertising momentum remains strong. Display revenue ex-TAC grew 16% year-over-year in Q4’10 and 17% for the full year. • ROIC more than doubled, improving nearly 2.5 times to 13% in 2010.
4
Financials and Key Metrics at a Glance
$ in millions, except per share amounts
Q4’09
$1,732 $1,258 $119 9%
Q4’10
$1,525 $1,205 $220 18%
Q4’10 YOY
(12%) (4%) 85% +880bps
GAAP Revenue Revenue ex-TAC (1) Operating income (2) Operating margin ex-TAC (3)
Net income attributable to Yahoo! Inc. (4)
Net margin ex-TAC (5) EPS attributable to Yahoo! Inc. – diluted ROIC – last 12 months (6) Page view growth (7) Ending employees
(1)
$153
12% $0.11 5.5%
$312
26% $0.24 13.0%
104%
+1,370bps 120% +750bps (1%)
13,900
13,600
(2%)
(2) (3) (4) (5) (6)
(7)
Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP Revenue less TAC. Please refer to supporting Table 1 for reconciliations of GAAP Revenue to Revenue exTAC. Traffic acquisition costs (TAC) consists of payments made to Affiliate sites and companies that direct traffic to the Yahoo! websites. Affiliate sites refer to Yahoo!’s distribution network of third-party entities who have integrated Yahoo!’s advertising into their websites or their other offerings. GAAP Operating income for Q4’10 includes restructuring charges of $38 million. Excluding these charges, Operating income woul d have been $258 million, and Operating margin ex-TAC would have been 21% in the period. Please refer to Table 5 for calculation of Non-GAAP Operating income and presentation of Operating margin on a GAAP basis. Operating margin ex-TAC is a non-GAAP financial measure calculated as Operating income divided by Revenue ex-TAC. Please refer to Table 5 for GAAP Operating margin. Net income attributable to Yahoo! Inc. for Q4’10 includes restructuring charges of $38 million. Excluding these charges, Net income attributable to Yahoo! Inc., EPS attributable to Yahoo! Inc.-diluted, and Net margin ex-TAC would have been $341 million, $0.26, and 28%, respectively in the period. Please refer to Tables 7 and 8. Net margin ex-TAC is a non-GAAP financial measure calculated as Net income attributable to Yahoo! Inc. divided by Revenue ex-TAC. Please refer to Table 7 for GAAP Net margin. Return on invested capital (ROIC) is presented on a trailing 12 months basis and represents Income from operations after tax divided by Average invested capital. ROIC is calculated as: (Operating income x (1- Effective tax rate))/(average Stockholder’s equity + average Net debt – average Investments in equity interests), where the average of such items is calculated as the average of the amounts at the beginning and ending of the 12-month period. Effective tax rate for the period is calculated as (Provision for income taxes)/(Income before income taxes and earni ngs in equity interests). Net debt is calculated as (Total debt) – ((Cash & cash equivalents) + (Short term and Long term marketable debt securities)). We periodically review and refine our methodology for monitoring, gathering, and counting Page views to more accurately reflect the total number of Web pages viewed by users on Yahoo! properties. Based on this process, from time to time we update our methodology to exclude from the count of Page views interactions with our servers that we 5 determine or believe are not the result of user visits to our Owned and Operated sites.
Revenue ex-TAC Trends
Begin Rev Share with MSFT Revenue ex-TAC
$1,258 $1,156
Microsoft's 12% Revenue Share
$1,237 (1)
Q4’10 HEADWINDS YOY growth in Revenue ex-TAC was negatively impacted in Q4’10 by: 1) $32M from MSFT’s 12% rev share, 2) $21M from the divestiture of HotJobs and Zimbra (2), 3) $27M from the exit of Paid Inclusion (2) Adjusting for these headwinds, Revenue ex-TAC would have grown 2% in Q4’10 vs. Q4’09. (3)
$1,136
$1,131
$1,130
$1,128
$1,124
$1,205
$ in millions Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
GAAP Revenue : $1,580
(1)
(2) (3)
$1,573
$1,575
$1,732
$1,597
$1,601
$1,601
$1,525
Revenue ex-TAC including Microsoft’s 12% revenue share of $32 million is presented for Q4’10 in order to provide comparable Revenue ex-TAC as if we had not shared any revenue with Microsoft. Please refer to slide 14 for more detailed information. Represents the amount of Revenue ex-TAC in Q4’09 that did not recur in Q4’10 due to the intervening divestiture of HotJobs and Zimbra and the discontinuation of our Paid Inclusion ad product, as applicable. Please see supporting Table 2 for Revenue growth on a GAAP basis.
Note: Please refer to supporting Table 1 for reconciliations of GAAP Revenue to Revenue ex-TAC.
6
Revenue ex-TAC Details
$ in millions
Q1’09 $362
(16%)
Q2’09 $379
(18%)
Q3’09 $384
(10%)
Q4’09 $490
(2%)
Q1’10 $427
18%
Q2’10 $445
17%
Q3’10 $448
17%
Q4’10 $567
16%(1)
Display revenue ex-TAC
YOY Growth
Search revenue ex-TAC
YOY Growth
$495
(9%)
$456
(16%)
$452
(18%)
$473
(13%)
$440
(11%)
$438
(4%)
$428
(5%)
$388
(18%) (2)
Other revenue ex-TAC
YOY Growth
$299
(20%)
$301
(12%)
$296
(16%)
$296
(11%)
$263
(12%)
$245
(19%)
$248
(16%)
$250
(15%)
Total revenue ex-TAC
YOY Growth
$1,156
(14%)
$1,136
(16%)
$1,131
(15%)
$1,258
(8%)
$1,130
(2%)
$1,128
(1%)
$1,124
(1%)
$1,205
(4%) (3)
Note: The ex-TAC financial measures presented above are presented on a non-GAAP basis. Please refer to supporting Table 2 for a reconciliation of the differences between the most directly comparable GAAP financial measures and such non-GAAP financial measures. Search revenue ex-TAC and Display revenue ex-TAC include revenue from both Yahoo!’s owned and operated online properties and services and Affiliate sites. Other revenue ex-TAC includes listings revenue generated from a variety of consumer and business listings-based services, transaction revenue generated from facilitating commercial transactions through Yahoo! properties, and fee revenue generated from a variety of consumer and business fee-based services. (1) (2) (3) Display revenue ex-TAC grew 17% from full year 2009 to full year 2010, and 27% from Q3'10 to Q4'10. GAAP Display revenue grew 15% and 24%, respectively, over the same intervals. Search revenue ex-TAC decreased 10% from full year 2009 to full year 2010. GAAP Search revenue decreased 7% over the same interval. YOY growth in Total revenue ex-TAC was negatively impacted in Q4’10 by: 1) $32 million from MSFT’s 12% revenue share, 2) $27 million from discontinuation of our Paid Inclusion ad product, and 3) $21 million, net from the divestitures of HotJobs and Zimbra. Adjusting for these items, YOY growth in Total revenue ex-TAC would have been 2% in Q4’10. Please see Table 2 for Q4’10 Revenue and YOY growth in Revenue on a GAAP basis.
7
Geographic Segment Data
$ in millions
Americas Segment Revenue ex-TAC Direct costs(1) Contribution by segment Segment contribution margin(2) EMEA Segment Revenue ex-TAC Direct costs(1) margin(2) Contribution by segment Segment contribution Asia Pacific Segment Revenue ex-TAC Direct costs(1) Contribution by segment Segment contribution margin(2) $184 (36) $148 81% $211 (40) $171 81% 15% 11% 16% 60bps $110 (29) $81 73% $106 (30) $76 72% (4%) 2% (6%) (170bps) $965 (160) $805 83% $889 (142) $747 84% (8%) (11%) (7%) 60bps
Q4’09
Q4’10
Q4’10 YOY
(1)
Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses. Prior to the fourth quarter of 2010, we included TAC in segment direct costs. For comparison purposes, prior period amounts have been revised to conform to the current presentation. Segment contribution margin is calculated as Contribution by segment divided by Revenue ex-TAC for each segment.
(2)
Note: In Q2’10 we reorganized our business segments into three regions: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes, prior period amounts have been reclassified to conform to the current presentation. Note: Please refer to supporting Table 3, “Revenue and Direct Costs by Segment.”
8
Total Expenses less TAC
$1,140 $1,056 $1,061 $1,040 $942 (2) $953 $985 $935
(1)
D&A + SBC
$ in millions Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
(1) (2) D&A refers to Depreciation & amortization expense, and SBC refers to Stock-based compensation expense. Reflects $43 million of transition cost reimbursements from Microsoft Corp. recorded in Q1’10 for transition costs incurred in Q3’09 and Q4’09. Note: Total expenses less TAC is a non-GAAP financial measure defined as Total expenses (GAAP Cost of revenue plus GAAP Total operating expenses) less TAC. Please refer to supporting Table 4 for reconciliations of Total expenses to Total expenses less TAC.
9
Yahoo! and Microsoft Search Alliance
Q1’10
Operating Cost Savings/ Reimbursements Transition Cost Reimbursements Transition Costs
Q2’10
Q3’10
Q4’10
$35M
$86M
$81M
$66M
Indicative of long-term cost savings, not including 2010 reinvestments
$67M
$43M
Net $0
Net $0
Net $0
($24M)
Net
$78M
$86M
$81M
$66M
Operating Cost Savings + Reimbursements
• Approximately $25M - $30M per month for direct costs of running Yahoo! Search. • Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are removed from our cost structure. •
Transition Cost Reimbursements
Up to $150M of reimbursements that Microsoft will pay to Yahoo! over the next two years as specified in the agreement. Payments relate to specific transition costs. $21M transition costs in Q4, bringing total to $124M through Q4’10.
Transition Costs
• Transition costs include sales training, customer migration, consulting, legal, retention and other costs incurred in connection with the transition of search services to Microsoft.
• •
10
Operating Income
Net transition cost reimbursements from Microsoft
$220 $188 (1) $175 $189
$ in millions
$119 $101 $76 $91
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
Op. margin ex-TAC : 9%
(1) (2) (3)
7%
8%
9% (2)
17%
16%
17%
18%(3)
Operating income for Q1’10 includes $43 million of net transition cost reimbursements from Microsoft. See Table 5 for presentation of Non-GAAP Operating income, which excludes certain items that Yahoo! does not consider indicative of its ongoing operating performance. Excluding restructuring charges of $40 million in Q4'09, Operating income would have been $159 million and Operating margin ex-TAC would have been 13%. Excluding restructuring charges of $38 million in Q4'10, Operating income would have been $258 million and Operating margin ex-TAC would have been 21%.
Note: Operating margin ex-TAC is a non-GAAP financial measure calculated as Operating income divided by Revenue ex-TAC. Please refer to supporting Table 5 for Operating margin on a GAAP basis.
11
Key Balance Sheet Metrics
$ in millions except where noted
Q1’09 $3,691 $913 52 $406
Q2’09 $4,197 $907 53 $417
Q3’09 $4,503 $907 53 $413
Q4’09 $4,518 $1,003 53 $411
Q1’10 $4,244 $900 51 $352
Q2’10 $3,799 $922 52 $347
Q3’10 $3,455 $939 54 $314
Q4’10 $3,629 $1,030 62 $255 $7,774 $2,661
Cash & marketable debt securities (1) Accounts receivable, net DSO (2) Current deferred revenue Market value of 35% ownership in Yahoo Japan (at 12/31/10) (3) Market value of 29% ownership in Alibaba.com (at 12/31/10) (3) (4)
(1) (2) (3) (4)
Cash & marketable debt securities is comprised of Cash and cash equivalents, Short-term marketable debt securities, and Long-term marketable debt securities. DSO (or days sales outstanding) is calculated as Accounts receivable divided by Total revenue multiplied by Days in the period. These pre-tax market values are based on public market share prices for Yahoo Japan and Alibaba.com on December 31, 2010. Yahoo!’s 29% stake in Alibaba.com is held indirectly through its equity interest in Alibaba Group, and the market value presented above does not include estimates for the values of Alibaba Group’s privately held businesses.
12
Key Cash Flow Highlights
$ in millions Share repurchases Q1’09 $0 Q2’09 $0 Q3’09 $91 Q4’09 $23 Q1’10 $385 Q2’10 $496 Q3’10 $868 Q4’10 $0
Net cash provided by operating activities Acquisition of property and equipment, net Free cash flow (1)
$262
$342
$355
$351
$144
$347
$346
$403
$70
$95
$99
$170
$113
$190
$164
$247
$214
$266
$258
$220
$64(2)
$127
$250
$155
(1)
Free cash flow is a non-GAAP financial measure defined as Net cash provided by operating activities (adjusted to include Excess tax benefits from stock-based awards), less Acquisition of property and equipment, net and Dividends received from equity investees. Please refer to supporting Table 6 for reconciliation of GAAP Cash flow from operating activities to Free cash flow. Microsoft search operating cost reimbursements and transition cost reimbursements were recognized on the Income statement but not yet received as cash in the first quarter of 2010.
(2)
13
Example – Impact of change in GAAP revenue presentation and revenue share related to Search Alliance (1)
Pre-Search Alliance Transition
GAAP Revenue Presentation – “Gross” basis
Post-Search Alliance Transition
GAAP Revenue Presentation – “Net” basis
Yahoo! O&O
Affiliate (70% TAC)
Total
Yahoo! O&O
Affiliate (70% TAC)
Total
GAAP Revenue Less: TAC(2)
$100 ($5)
$100 ($70)
$200 ($75)
Search transactions in AdCenter(3) Less: TAC(2) Less: 12% MSFT revenue share(4)
$100 ($5)
$100 ($70)
$200 ($75)
($11)
($4)
($15)
Revenue ex-TAC
$95
$30
$125
GAAP Revenue
$84
$26
$110
(1)
(2) (3) (4)
The numbers presented in this slide are for illustration purposes only and do not reflect actual amounts or actual average TAC rates.
TAC consists of payments made to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo! websites. Represents dollar value of search transactions in Microsoft’s AdCenter platform attributed to Yahoo! Owned and Operated and Affiliate websites. Under the Search Agreement, Yahoo! is entitled to an 88% post-TAC revenue share and Microsoft is entitled to a 12% post-TAC revenue share in transitioned markets.
14
Business Outlook
$ in millions Q1’11 Current Outlook
Revenue ex-TAC
$1,020-$1,080
Total expenses less TAC
$890-$920
Operating income
$130-$160
The above business outlook is based on information and expectations as of January 25, 2011. Yahoo! does not intend, and undertakes no duty, to update this business outlook to reflect subsequent events or circumstances; however, Yahoo! may update this business outlook or any portion thereof at any time at its discretion.
Please refer to supporting Table 9 for reconciliations of outlook for Revenue ex-TAC and Total expenses less TAC.
15
Appendix
1/25/2011
Table 1 – Revenue ex-TAC Calculation by Segment
Reconciliations of GAAP Revenue to Revenue ex-TAC
$ in millions Americas GAAP Revenue TAC Revenue ex-TAC EMEA GAAP Revenue TAC Revenue ex-TAC Asia Pacific GAAP Revenue TAC Revenue ex-TAC Worldwide GAAP Revenue TAC Revenue ex-TAC $1,580 (424) $1,156 $1,573 (437) $1,136 $1,575 (444) $1,131 $1,732 (474) $1,258 $1,597 (467) $1,130 $1,601 (473) $1,128 $1,601 (477) $1,124 $1,525 (320) $1,205 $218 (77) $141 $237 (87) $150 $255 (94) $161 $300 (116) $184 $300 (131) $169 $328 (141) $187 $322 (136) $185 $371 (160) $211 $147 (53) $94 $150 (55) $95 $143 (51) $92 $159 (49) $110 $142 (53) $88 $141 (50) $90 $133 (49) $84 $164 (58) $106 $1,216 (294) $922 $1,186 (294) $892 $1,178 (299) $878 $1,273 (308) $965 $1,155 (282) $873 $1,133 (282) $851 $1,147 (292) $855 $991 (102) $889 Q1’09 Q2’09 Q3’09 Q4’09 Q1’10 Q2’10 Q3’10 Q4’10
Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC. Note: In Q2’10 we reorganized our business segments into three regions: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes, prior period amounts have been reclassified to conform to the current presentation.
17
Table 2 – Revenue Details
Reconciliations of GAAP Revenue Details to Revenue ex-TAC Details
$ in millions
Display GAAP Display revenue YOY Growth $417 (13%) $445 (14%) $445 (9%) $560 (0%) $491 18% $514 16% $514 16% $635 14%
Q1’09
Q2’09
Q3’09
Q4’09
Q1’10
Q2’10
Q3’10
Q4’10
Display TAC
Display revenue ex-TAC Search GAAP Search revenue YOY Growth Search TAC Search revenue ex-TAC Other GAAP Other revenue YOY Growth Other TAC Other revenue ex-TAC Total GAAP Revenue YOY Growth TAC
(55)
$362
(66)
$379
(61)
$384
(70)
$490
(64)
$427
(70)
$445
(66)
$448
(68)
$567
$863 (10%) (368) $495
$825 (12%) (369) $456
$833 (12%) (382) $452
$875 (4%) (402) $473
$841 (3%) (401) $440
$842 2% (404) $438
$839 1% (410) $428
$640 (27%) (252) $388
$300 (20%) (1) $299
$303 (13%) (1) $301
$297 (16%) (1) $296
$298 (11%) (2) $296
$265 (12%) (1) $263
$245 (19%) (0) $245
$248 (16%) (0) $248
$250 (16%) (0) $250
$1,580 (13%) (424)
$1,573 (13%) (437)
$1,575 (12%) (444)
$1,732 (4%) (474)
$1,597 1% (467)
$1,601 2% (473)
$1,601 2% (477)
$1,525 (12%)(1) (320)
Revenue ex-TAC
(1)
$1,156
$1,136
$1,131
$1,258
$1,130
$1,128
$1,124
$1,205
YOY growth in total GAAP Revenue was negatively impacted by: (a) $32 million from Microsoft's 12 percent revenue share, (b) $173 million from the change in GAAP revenue presentation related to the Search Alliance (see slide 14), (c) $27 million from the discontinuance of our Paid Inclusion ad product, and (d) $21 million, net from the divestitures of HotJobs and Zimbra. Adjusting for these items, YOY growth in total Revenue would have been 3% in Q4’10.
Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC.
18
Table 3 – Revenue and Direct Costs by Segment
$ in millions
Revenue by segment: Americas $1,273.1 $990.7
Q4’09
Q4’10
EMEA
Asia Pacific Total revenue TAC Total revenue ex-TAC Direct costs by segment(1): Americas EMEA Asia Pacific Global operating costs(2) Restructuring charges, net Depreciation and amortization Stock-based compensation Income from operations
(1)
158.8
300.1 1,732.0 (473.5) $1,258.5
163.7
370.7 1,525.1 (319.9) $1,205.3
$159.7 29.4 35.8 608.2 40.4 181.8 84.4 $118.8
$141.9 30.1 39.9 510.5 37.7 171.2 54.0 $220.0
Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses. Prior to the fourth quarter of 2010, we included TAC in segment direct costs. For comparison purposes, prior period amounts have been revised to conform to the current presentation. Global operating costs include product development, service engineering and operations, marketing, customer advocacy, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.
(2)
19
Table 4 – Total Expenses
Reconciliations of Total Expenses to Total Expenses less TAC
$ millions
Quarterly Data
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 (1) Q2'10 Q3'10 Q4'10
Total expenses less TAC: Total expenses (GAAP Cost of revenue + GAAP Total operating expenses) Less: Traffic acquisition costs ("TAC") Total expenses less TAC
$ $
1,479 424 1,056
$ $
1,497 437 1,061
$ $
1,484 444 1,040
$ $
1,613 474 1,140
$ $
1,409 467 942
$ $
1,426 473 953
$ $
1,412 477 935
$ $
1,305 320 985
(1)
Total expenses for Q1’10 reflect $43 million of transition cost reimbursements from Microsoft recorded in Q1’10 for transition costs incurred by Yahoo! in Q3’09 and Q4’09.
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Table 5 - Non-GAAP Operating Income Calculation
Reconciliation of GAAP Operating Income to Non-GAAP Operating Income, with Details on Adjustments
$ in thousands
Quarterly Data
Q1'09 Q2'09 $ 75,753 $ Q3'09 91,499 $ Q4'09
(4)
Year Ended
Q1'10 Q2'10 $ 175,372 $ Q3'10 189,155 $ Q4'10
(4)
12/31/2009 $ 386,692 $
12/31/2010 772,524
GAAP Operating income
$
100,685
118,755
$
188,021
219,976
(a) (b)
Transition costs, net of reimbursements from Microsoft(1) Incremental costs for advisors related to strategic alternatives and related matters (2) Restructuring charges, net $ $
3,709
2,596
11,287 854
32,013 -
(43,300) -
-
-
-
43,300 7,159
(43,300) -
(c)
4,801 109,195 1,580,042 6% 7% $ $
65,002 143,351 1,572,897 5% 9% $ $
16,689 120,329 1,575,399 6% 8% $ $
40,409 191,177 1,731,977 7% 11% $ $
4,412 149,133 1,596,960 12% 9% $ $
10,052 185,424 1,601,379 11% 12% $ $
5,758 194,913 1,601,203 12% 12% $ $
37,735 257,711 1,525,109 14% 17% $ $
126,901 564,052 6,460,315 6% 9% $ $
57,957 787,181 6,324,651 12% 12%
Non-GAAP Operating income GAAP Revenue GAAP Operating margin Non-GAAP Operating margin(3)
(1)
Non-GAAP Operating income excludes reimbursements for prior periods. The net reimbursement adjustment of $43 million in Q1'10 is equal to the transition costs of $11 million and $32 million incurred in the three months ended September 30, 2009 and December 31, 2009, respectively, in connection with the Search Agreement. Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense. Non-GAAP Operating margin is calculated as Non-GAAP Operating income divided by GAAP Revenue. Excluding restructuring charges of $40 million in Q4’09 and $38 million in Q4’10, Operating income would have been $159 million in Q4’09 and $258 million in Q4’10, an increase of 62% (whereas GAAP Operating income increased by 85% between the same periods). Excluding the restructuring charges, Operating margin would have been 9% in Q4’09 and 17% in Q4’10, an increase of 800 basis points (whereas GAAP Operating margin increased 800 basis points between the same periods).
(2) (3) (4)
21
Table 6 - Free Cash Flow Calculation
Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow
$ in millions
Free cash flow: Cash flow from operating activities Excess tax benefits from stock-based awards Acquisition of property & equipment, net Dividends received from equity investees Total
Q1’09
$262.3 22.1 (70.5) $214.0
Q2’09
$341.8 45.1 (94.7) (26.1) $266.0
Q3’09
$355.1 2.9 (98.9) (1.5) $257.7
Q4’09
$351.1 38.4 (169.7) $219.7
Q1’10
$143.6 32.9 (112.5) $63.9
Q2’10
$347.0 31.1 (190.3) (60.9) $126.9
Q3’10
$346.5 67.6 (163.9) $250.2
Q4’10
$403.1 (0.6) (247.4) $155.2
Note: Free cash flow (FCF) is a non-GAAP financial measure defined as GAAP Net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less net capital expenditures and dividends received. The excess tax benefits from stock-based awards, as reported on the statements of cash flows in cash flows from financing activities, represent the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for options exercised/awards released in current and prior periods.
22
Table 7 – Non-GAAP Net Income Per Share Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. and GAAP Net Income Attributable to Yahoo! Inc. Common Stockholders Per Share - Diluted to Non-GAAP Net Income and Non-GAAP Net Income Per Share - Diluted
in millions, except per share amounts
GAAP Net income attributable to Yahoo! Inc.
Q1’09
$117.6
Q2’09
$141.4
Q3’09
$186.1
Q4’09
$153.0
Q1’10
$310.2
Q2’10
$213.3
Q3’10
$396.1
Q4’10
$312.0
Adjustments
Non-GAAP Net income GAAP Revenue GAAP Net margin Non-GAAP Net margin GAAP Net income attributable to Yahoo! Inc. common Stockholders per share – diluted Non-GAAP Net income per share - diluted Diluted shares outstanding
5.6
$123.1 $1,580.0 7% 8% $0.08 $0.09 1,406.5
4.0
$145.4 $1,572.9 9% 9% $0.10 $0.10 1,414.3
(40.8)
$145.3 $1,575.4 12% 9% $0.13 $0.10 1,424.9
47.2
$200.2 $1,732.0 9% 12% $0.11 $0.14 1,417.0
(90.3)
$219.9 $1,597.0 19% 14% $0.22 $0.15 1,413.4
6.8
$220.1 $1,601.4 13% 14% $0.15 $0.16 1,390.2
(175.4)
$220.8 $1,601.2 25% 14% $0.29 $0.16 1,343.1
28.5
$340.5 $1,525.1 20% 22% $0.24 $0.26 1,311.7
(1)
Non GAAP Net margin is calculated as Non-GAAP Net income divided by GAAP Revenue.
Note: All per share amounts are based on fully diluted share counts. Please refer to supporting Table 8 for details on Adjustments. Beginning in Q1’10, our presentation of Non-GAAP Net income no longer excludes stock-based compensation expense and its related tax effects. For comparison purposes, prior period amounts have been revised to conform to the current presentation.
23
Table 8 - Non-GAAP Net Income Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. to Non-GAAP Net Income, with Details on Adjustments
$ in thousands
Quarterly Data
Q1'09 Q2'09 $ 141,387 $ Q3'09 186,093 $ Q4'09 152,954 $ Q1'10 310,191 $ Q2'10 213,321 $ Q3'10 396,131 $ Q4'10 312,020
GAAP Net income attributable to Yahoo! Inc. Transition costs net of reimbursements from Microsoft (1) Incremental costs for advisors related to strategic alternatives and related matters (2) Restructuring charges, net Gain on sale of Gmarket investment Gain on sale of the Company's direct investment in Alibaba.com Gain on sale of HotJobs Gain on sale of Zimbra, Inc. To adjust the provision for income taxes to reflect the tax impact of items (a) - (g)
$
117,558
(a) (b) (c) (d) (e) (f) (g) (h)
3,709 4,801 (2,957)
2,596 65,002 (66,684) 3,103
11,287 854 16,689 (98,167) 28,516
32,013 40,409 (25,200)
(43,300) 4,412 (66,130) 14,686
10,052 (3,271)
5,758 (186,345) 5,223
37,735 (9,207)
Non-GAAP Net income
$
123,111
$
145,404
$
145,272
$
200,176
$
219,859
$
220,102
$
220,767
$
340,548
(1)
Non-GAAP Net income excludes reimbursements for prior periods. The net $43 million reimbursement adjustment in Q1'10 is equal to the transition costs of $11 million and $32 million incurred in the three months ended September 30, 2009 and December 31, 2009, respectively, in connection with the Search Agreement. Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense.
(2)
24
Table 9 – Business Outlook Reconciliations
Reconciliations of Outlook for GAAP Revenue to Revenue ex-TAC and Total expenses to Total expenses less TAC
Three Months Ending March 31, 2011
(in millions) Revenue excluding TAC: GAAP Revenue (1) Less: TAC
(1)
$ $
1,150 - 1,230 130 - 150 1,020 - 1,080
Revenue ex-TAC Total expenses less TAC: Total expenses (GAAP Cost of revenue + GAAP Total operating expenses) (1) Less: TAC Total expenses less TAC
$ $
1,020 - 1,070 130 - 150 890 - 920
(1)
As a result of the required change in revenue presentation and the revenue share with Microsoft in transitioned markets, Yahoo!’s Q1’11 business outlook at the midpoint of the ranges for GAAP Revenue and TAC is lower than it otherwise would have been by approximately $207 million and $171 million, respectively.
The above business outlook is based on information and expectations as of January 25, 2011. Yahoo! does not intend, and undertakes no duty, to update the business outlook to reflect subsequent events or circumstances; however, Yahoo! may update the business outlook or any portion thereof at any time at its discretion.
25
doc_164049217.pdf
YHOO Q410EarningsPresentation
Yahoo! Inc. Q4’10 Financial Highlights 1.25.2011
Legal Notice
The matters discussed in this presentation contain forward-looking statements that involve risks and uncertainties concerning Yahoo!’s expected financial performance, and expected reimbursements from Microsoft Corporation (“Microsoft”), as well as Yahoo!’s long-term financial objectives and strategic and operational plans. Actual results may 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 management and organizational changes; the implementation and results of Yahoo!'s ongoing strategic and cost initiatives; Yahoo!'s ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; the demand by customers for Yahoo!'s premium services; 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; failure to manage growth and diversification; adverse results in litigation, including intellectual property infringement claims; Yahoo!'s ability to protect its intellectual property and the value of its brands; dependence on key personnel; dependence on third parties for technology, services, content, and distribution; general economic conditions and changes in economic conditions; and transition and implementation risks associated with the Search and Advertising Services and Sales Agreement between Yahoo! and Microsoft (the “Search Agreement”). Yahoo!’s long-term financial objectives are necessarily based upon a variety of estimates and assumptions which may not be realized and, in addition to the risks identified above, are inherently subject to business, economic, competitive, industry, regulatory, market, and financial uncertainties, many of which are beyond Yahoo!’s control. There can be no assurance that the assumptions made in preparing the long-term financial objectives will prove accurate, and Yahoo!’s long-term financial objectives may not be achieved. All information in this presentation is as of January 25, 2011. 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 factors that could affect Yahoo!’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 Yahoo!’s Annual Report on Form 10-K for the year ended December 31, 2009, as amended, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, which are on file with the Securities and Exchange Commission (“SEC”) and available on the SEC’s web site at www.sec.gov. Additional information will also be set forth in those sections in Yahoo!’s Annual Report on Form 10-K for the year ended December 31, 2010, which will be filed with the SEC in the first quarter of 2011. Throughout this presentation, we have rounded numbers as appropriate. In this presentation, “year to date” (or YTD) refers to the twelve months ended December 31; “year-over-year” (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. 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.
2
Quarterly Overview
1/25/2011
Key Takeaways
• Revenue ex-TAC of $1,205 million was above the midpoint of our guidance and consensus.
• Operating income for Q4’10 and 2010 grew 85% and 100% year-over-year to $220 million and $773 million, respectively.
• Operating margins doubled in both 4Q’10 and full year 2010. Operating margin ex-TAC was 18% in Q4’10 and 17% for the full year. • Display advertising momentum remains strong. Display revenue ex-TAC grew 16% year-over-year in Q4’10 and 17% for the full year. • ROIC more than doubled, improving nearly 2.5 times to 13% in 2010.
4
Financials and Key Metrics at a Glance
$ in millions, except per share amounts
Q4’09
$1,732 $1,258 $119 9%
Q4’10
$1,525 $1,205 $220 18%
Q4’10 YOY
(12%) (4%) 85% +880bps
GAAP Revenue Revenue ex-TAC (1) Operating income (2) Operating margin ex-TAC (3)
Net income attributable to Yahoo! Inc. (4)
Net margin ex-TAC (5) EPS attributable to Yahoo! Inc. – diluted ROIC – last 12 months (6) Page view growth (7) Ending employees
(1)
$153
12% $0.11 5.5%
$312
26% $0.24 13.0%
104%
+1,370bps 120% +750bps (1%)
13,900
13,600
(2%)
(2) (3) (4) (5) (6)
(7)
Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP Revenue less TAC. Please refer to supporting Table 1 for reconciliations of GAAP Revenue to Revenue exTAC. Traffic acquisition costs (TAC) consists of payments made to Affiliate sites and companies that direct traffic to the Yahoo! websites. Affiliate sites refer to Yahoo!’s distribution network of third-party entities who have integrated Yahoo!’s advertising into their websites or their other offerings. GAAP Operating income for Q4’10 includes restructuring charges of $38 million. Excluding these charges, Operating income woul d have been $258 million, and Operating margin ex-TAC would have been 21% in the period. Please refer to Table 5 for calculation of Non-GAAP Operating income and presentation of Operating margin on a GAAP basis. Operating margin ex-TAC is a non-GAAP financial measure calculated as Operating income divided by Revenue ex-TAC. Please refer to Table 5 for GAAP Operating margin. Net income attributable to Yahoo! Inc. for Q4’10 includes restructuring charges of $38 million. Excluding these charges, Net income attributable to Yahoo! Inc., EPS attributable to Yahoo! Inc.-diluted, and Net margin ex-TAC would have been $341 million, $0.26, and 28%, respectively in the period. Please refer to Tables 7 and 8. Net margin ex-TAC is a non-GAAP financial measure calculated as Net income attributable to Yahoo! Inc. divided by Revenue ex-TAC. Please refer to Table 7 for GAAP Net margin. Return on invested capital (ROIC) is presented on a trailing 12 months basis and represents Income from operations after tax divided by Average invested capital. ROIC is calculated as: (Operating income x (1- Effective tax rate))/(average Stockholder’s equity + average Net debt – average Investments in equity interests), where the average of such items is calculated as the average of the amounts at the beginning and ending of the 12-month period. Effective tax rate for the period is calculated as (Provision for income taxes)/(Income before income taxes and earni ngs in equity interests). Net debt is calculated as (Total debt) – ((Cash & cash equivalents) + (Short term and Long term marketable debt securities)). We periodically review and refine our methodology for monitoring, gathering, and counting Page views to more accurately reflect the total number of Web pages viewed by users on Yahoo! properties. Based on this process, from time to time we update our methodology to exclude from the count of Page views interactions with our servers that we 5 determine or believe are not the result of user visits to our Owned and Operated sites.
Revenue ex-TAC Trends
Begin Rev Share with MSFT Revenue ex-TAC
$1,258 $1,156
Microsoft's 12% Revenue Share
$1,237 (1)
Q4’10 HEADWINDS YOY growth in Revenue ex-TAC was negatively impacted in Q4’10 by: 1) $32M from MSFT’s 12% rev share, 2) $21M from the divestiture of HotJobs and Zimbra (2), 3) $27M from the exit of Paid Inclusion (2) Adjusting for these headwinds, Revenue ex-TAC would have grown 2% in Q4’10 vs. Q4’09. (3)
$1,136
$1,131
$1,130
$1,128
$1,124
$1,205
$ in millions Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
GAAP Revenue : $1,580
(1)
(2) (3)
$1,573
$1,575
$1,732
$1,597
$1,601
$1,601
$1,525
Revenue ex-TAC including Microsoft’s 12% revenue share of $32 million is presented for Q4’10 in order to provide comparable Revenue ex-TAC as if we had not shared any revenue with Microsoft. Please refer to slide 14 for more detailed information. Represents the amount of Revenue ex-TAC in Q4’09 that did not recur in Q4’10 due to the intervening divestiture of HotJobs and Zimbra and the discontinuation of our Paid Inclusion ad product, as applicable. Please see supporting Table 2 for Revenue growth on a GAAP basis.
Note: Please refer to supporting Table 1 for reconciliations of GAAP Revenue to Revenue ex-TAC.
6
Revenue ex-TAC Details
$ in millions
Q1’09 $362
(16%)
Q2’09 $379
(18%)
Q3’09 $384
(10%)
Q4’09 $490
(2%)
Q1’10 $427
18%
Q2’10 $445
17%
Q3’10 $448
17%
Q4’10 $567
16%(1)
Display revenue ex-TAC
YOY Growth
Search revenue ex-TAC
YOY Growth
$495
(9%)
$456
(16%)
$452
(18%)
$473
(13%)
$440
(11%)
$438
(4%)
$428
(5%)
$388
(18%) (2)
Other revenue ex-TAC
YOY Growth
$299
(20%)
$301
(12%)
$296
(16%)
$296
(11%)
$263
(12%)
$245
(19%)
$248
(16%)
$250
(15%)
Total revenue ex-TAC
YOY Growth
$1,156
(14%)
$1,136
(16%)
$1,131
(15%)
$1,258
(8%)
$1,130
(2%)
$1,128
(1%)
$1,124
(1%)
$1,205
(4%) (3)
Note: The ex-TAC financial measures presented above are presented on a non-GAAP basis. Please refer to supporting Table 2 for a reconciliation of the differences between the most directly comparable GAAP financial measures and such non-GAAP financial measures. Search revenue ex-TAC and Display revenue ex-TAC include revenue from both Yahoo!’s owned and operated online properties and services and Affiliate sites. Other revenue ex-TAC includes listings revenue generated from a variety of consumer and business listings-based services, transaction revenue generated from facilitating commercial transactions through Yahoo! properties, and fee revenue generated from a variety of consumer and business fee-based services. (1) (2) (3) Display revenue ex-TAC grew 17% from full year 2009 to full year 2010, and 27% from Q3'10 to Q4'10. GAAP Display revenue grew 15% and 24%, respectively, over the same intervals. Search revenue ex-TAC decreased 10% from full year 2009 to full year 2010. GAAP Search revenue decreased 7% over the same interval. YOY growth in Total revenue ex-TAC was negatively impacted in Q4’10 by: 1) $32 million from MSFT’s 12% revenue share, 2) $27 million from discontinuation of our Paid Inclusion ad product, and 3) $21 million, net from the divestitures of HotJobs and Zimbra. Adjusting for these items, YOY growth in Total revenue ex-TAC would have been 2% in Q4’10. Please see Table 2 for Q4’10 Revenue and YOY growth in Revenue on a GAAP basis.
7
Geographic Segment Data
$ in millions
Americas Segment Revenue ex-TAC Direct costs(1) Contribution by segment Segment contribution margin(2) EMEA Segment Revenue ex-TAC Direct costs(1) margin(2) Contribution by segment Segment contribution Asia Pacific Segment Revenue ex-TAC Direct costs(1) Contribution by segment Segment contribution margin(2) $184 (36) $148 81% $211 (40) $171 81% 15% 11% 16% 60bps $110 (29) $81 73% $106 (30) $76 72% (4%) 2% (6%) (170bps) $965 (160) $805 83% $889 (142) $747 84% (8%) (11%) (7%) 60bps
Q4’09
Q4’10
Q4’10 YOY
(1)
Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses. Prior to the fourth quarter of 2010, we included TAC in segment direct costs. For comparison purposes, prior period amounts have been revised to conform to the current presentation. Segment contribution margin is calculated as Contribution by segment divided by Revenue ex-TAC for each segment.
(2)
Note: In Q2’10 we reorganized our business segments into three regions: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes, prior period amounts have been reclassified to conform to the current presentation. Note: Please refer to supporting Table 3, “Revenue and Direct Costs by Segment.”
8
Total Expenses less TAC
$1,140 $1,056 $1,061 $1,040 $942 (2) $953 $985 $935
(1)
D&A + SBC
$ in millions Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
(1) (2) D&A refers to Depreciation & amortization expense, and SBC refers to Stock-based compensation expense. Reflects $43 million of transition cost reimbursements from Microsoft Corp. recorded in Q1’10 for transition costs incurred in Q3’09 and Q4’09. Note: Total expenses less TAC is a non-GAAP financial measure defined as Total expenses (GAAP Cost of revenue plus GAAP Total operating expenses) less TAC. Please refer to supporting Table 4 for reconciliations of Total expenses to Total expenses less TAC.
9
Yahoo! and Microsoft Search Alliance
Q1’10
Operating Cost Savings/ Reimbursements Transition Cost Reimbursements Transition Costs
Q2’10
Q3’10
Q4’10
$35M
$86M
$81M
$66M
Indicative of long-term cost savings, not including 2010 reinvestments
$67M
$43M
Net $0
Net $0
Net $0
($24M)
Net
$78M
$86M
$81M
$66M
Operating Cost Savings + Reimbursements
• Approximately $25M - $30M per month for direct costs of running Yahoo! Search. • Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are removed from our cost structure. •
Transition Cost Reimbursements
Up to $150M of reimbursements that Microsoft will pay to Yahoo! over the next two years as specified in the agreement. Payments relate to specific transition costs. $21M transition costs in Q4, bringing total to $124M through Q4’10.
Transition Costs
• Transition costs include sales training, customer migration, consulting, legal, retention and other costs incurred in connection with the transition of search services to Microsoft.
• •
10
Operating Income
Net transition cost reimbursements from Microsoft
$220 $188 (1) $175 $189
$ in millions
$119 $101 $76 $91
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
Op. margin ex-TAC : 9%
(1) (2) (3)
7%
8%
9% (2)
17%
16%
17%
18%(3)
Operating income for Q1’10 includes $43 million of net transition cost reimbursements from Microsoft. See Table 5 for presentation of Non-GAAP Operating income, which excludes certain items that Yahoo! does not consider indicative of its ongoing operating performance. Excluding restructuring charges of $40 million in Q4'09, Operating income would have been $159 million and Operating margin ex-TAC would have been 13%. Excluding restructuring charges of $38 million in Q4'10, Operating income would have been $258 million and Operating margin ex-TAC would have been 21%.
Note: Operating margin ex-TAC is a non-GAAP financial measure calculated as Operating income divided by Revenue ex-TAC. Please refer to supporting Table 5 for Operating margin on a GAAP basis.
11
Key Balance Sheet Metrics
$ in millions except where noted
Q1’09 $3,691 $913 52 $406
Q2’09 $4,197 $907 53 $417
Q3’09 $4,503 $907 53 $413
Q4’09 $4,518 $1,003 53 $411
Q1’10 $4,244 $900 51 $352
Q2’10 $3,799 $922 52 $347
Q3’10 $3,455 $939 54 $314
Q4’10 $3,629 $1,030 62 $255 $7,774 $2,661
Cash & marketable debt securities (1) Accounts receivable, net DSO (2) Current deferred revenue Market value of 35% ownership in Yahoo Japan (at 12/31/10) (3) Market value of 29% ownership in Alibaba.com (at 12/31/10) (3) (4)
(1) (2) (3) (4)
Cash & marketable debt securities is comprised of Cash and cash equivalents, Short-term marketable debt securities, and Long-term marketable debt securities. DSO (or days sales outstanding) is calculated as Accounts receivable divided by Total revenue multiplied by Days in the period. These pre-tax market values are based on public market share prices for Yahoo Japan and Alibaba.com on December 31, 2010. Yahoo!’s 29% stake in Alibaba.com is held indirectly through its equity interest in Alibaba Group, and the market value presented above does not include estimates for the values of Alibaba Group’s privately held businesses.
12
Key Cash Flow Highlights
$ in millions Share repurchases Q1’09 $0 Q2’09 $0 Q3’09 $91 Q4’09 $23 Q1’10 $385 Q2’10 $496 Q3’10 $868 Q4’10 $0
Net cash provided by operating activities Acquisition of property and equipment, net Free cash flow (1)
$262
$342
$355
$351
$144
$347
$346
$403
$70
$95
$99
$170
$113
$190
$164
$247
$214
$266
$258
$220
$64(2)
$127
$250
$155
(1)
Free cash flow is a non-GAAP financial measure defined as Net cash provided by operating activities (adjusted to include Excess tax benefits from stock-based awards), less Acquisition of property and equipment, net and Dividends received from equity investees. Please refer to supporting Table 6 for reconciliation of GAAP Cash flow from operating activities to Free cash flow. Microsoft search operating cost reimbursements and transition cost reimbursements were recognized on the Income statement but not yet received as cash in the first quarter of 2010.
(2)
13
Example – Impact of change in GAAP revenue presentation and revenue share related to Search Alliance (1)
Pre-Search Alliance Transition
GAAP Revenue Presentation – “Gross” basis
Post-Search Alliance Transition
GAAP Revenue Presentation – “Net” basis
Yahoo! O&O
Affiliate (70% TAC)
Total
Yahoo! O&O
Affiliate (70% TAC)
Total
GAAP Revenue Less: TAC(2)
$100 ($5)
$100 ($70)
$200 ($75)
Search transactions in AdCenter(3) Less: TAC(2) Less: 12% MSFT revenue share(4)
$100 ($5)
$100 ($70)
$200 ($75)
($11)
($4)
($15)
Revenue ex-TAC
$95
$30
$125
GAAP Revenue
$84
$26
$110
(1)
(2) (3) (4)
The numbers presented in this slide are for illustration purposes only and do not reflect actual amounts or actual average TAC rates.
TAC consists of payments made to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo! websites. Represents dollar value of search transactions in Microsoft’s AdCenter platform attributed to Yahoo! Owned and Operated and Affiliate websites. Under the Search Agreement, Yahoo! is entitled to an 88% post-TAC revenue share and Microsoft is entitled to a 12% post-TAC revenue share in transitioned markets.
14
Business Outlook
$ in millions Q1’11 Current Outlook
Revenue ex-TAC
$1,020-$1,080
Total expenses less TAC
$890-$920
Operating income
$130-$160
The above business outlook is based on information and expectations as of January 25, 2011. Yahoo! does not intend, and undertakes no duty, to update this business outlook to reflect subsequent events or circumstances; however, Yahoo! may update this business outlook or any portion thereof at any time at its discretion.
Please refer to supporting Table 9 for reconciliations of outlook for Revenue ex-TAC and Total expenses less TAC.
15
Appendix
1/25/2011
Table 1 – Revenue ex-TAC Calculation by Segment
Reconciliations of GAAP Revenue to Revenue ex-TAC
$ in millions Americas GAAP Revenue TAC Revenue ex-TAC EMEA GAAP Revenue TAC Revenue ex-TAC Asia Pacific GAAP Revenue TAC Revenue ex-TAC Worldwide GAAP Revenue TAC Revenue ex-TAC $1,580 (424) $1,156 $1,573 (437) $1,136 $1,575 (444) $1,131 $1,732 (474) $1,258 $1,597 (467) $1,130 $1,601 (473) $1,128 $1,601 (477) $1,124 $1,525 (320) $1,205 $218 (77) $141 $237 (87) $150 $255 (94) $161 $300 (116) $184 $300 (131) $169 $328 (141) $187 $322 (136) $185 $371 (160) $211 $147 (53) $94 $150 (55) $95 $143 (51) $92 $159 (49) $110 $142 (53) $88 $141 (50) $90 $133 (49) $84 $164 (58) $106 $1,216 (294) $922 $1,186 (294) $892 $1,178 (299) $878 $1,273 (308) $965 $1,155 (282) $873 $1,133 (282) $851 $1,147 (292) $855 $991 (102) $889 Q1’09 Q2’09 Q3’09 Q4’09 Q1’10 Q2’10 Q3’10 Q4’10
Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC. Note: In Q2’10 we reorganized our business segments into three regions: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. For comparison purposes, prior period amounts have been reclassified to conform to the current presentation.
17
Table 2 – Revenue Details
Reconciliations of GAAP Revenue Details to Revenue ex-TAC Details
$ in millions
Display GAAP Display revenue YOY Growth $417 (13%) $445 (14%) $445 (9%) $560 (0%) $491 18% $514 16% $514 16% $635 14%
Q1’09
Q2’09
Q3’09
Q4’09
Q1’10
Q2’10
Q3’10
Q4’10
Display TAC
Display revenue ex-TAC Search GAAP Search revenue YOY Growth Search TAC Search revenue ex-TAC Other GAAP Other revenue YOY Growth Other TAC Other revenue ex-TAC Total GAAP Revenue YOY Growth TAC
(55)
$362
(66)
$379
(61)
$384
(70)
$490
(64)
$427
(70)
$445
(66)
$448
(68)
$567
$863 (10%) (368) $495
$825 (12%) (369) $456
$833 (12%) (382) $452
$875 (4%) (402) $473
$841 (3%) (401) $440
$842 2% (404) $438
$839 1% (410) $428
$640 (27%) (252) $388
$300 (20%) (1) $299
$303 (13%) (1) $301
$297 (16%) (1) $296
$298 (11%) (2) $296
$265 (12%) (1) $263
$245 (19%) (0) $245
$248 (16%) (0) $248
$250 (16%) (0) $250
$1,580 (13%) (424)
$1,573 (13%) (437)
$1,575 (12%) (444)
$1,732 (4%) (474)
$1,597 1% (467)
$1,601 2% (473)
$1,601 2% (477)
$1,525 (12%)(1) (320)
Revenue ex-TAC
(1)
$1,156
$1,136
$1,131
$1,258
$1,130
$1,128
$1,124
$1,205
YOY growth in total GAAP Revenue was negatively impacted by: (a) $32 million from Microsoft's 12 percent revenue share, (b) $173 million from the change in GAAP revenue presentation related to the Search Alliance (see slide 14), (c) $27 million from the discontinuance of our Paid Inclusion ad product, and (d) $21 million, net from the divestitures of HotJobs and Zimbra. Adjusting for these items, YOY growth in total Revenue would have been 3% in Q4’10.
Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC.
18
Table 3 – Revenue and Direct Costs by Segment
$ in millions
Revenue by segment: Americas $1,273.1 $990.7
Q4’09
Q4’10
EMEA
Asia Pacific Total revenue TAC Total revenue ex-TAC Direct costs by segment(1): Americas EMEA Asia Pacific Global operating costs(2) Restructuring charges, net Depreciation and amortization Stock-based compensation Income from operations
(1)
158.8
300.1 1,732.0 (473.5) $1,258.5
163.7
370.7 1,525.1 (319.9) $1,205.3
$159.7 29.4 35.8 608.2 40.4 181.8 84.4 $118.8
$141.9 30.1 39.9 510.5 37.7 171.2 54.0 $220.0
Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses. Prior to the fourth quarter of 2010, we included TAC in segment direct costs. For comparison purposes, prior period amounts have been revised to conform to the current presentation. Global operating costs include product development, service engineering and operations, marketing, customer advocacy, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.
(2)
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Table 4 – Total Expenses
Reconciliations of Total Expenses to Total Expenses less TAC
$ millions
Quarterly Data
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 (1) Q2'10 Q3'10 Q4'10
Total expenses less TAC: Total expenses (GAAP Cost of revenue + GAAP Total operating expenses) Less: Traffic acquisition costs ("TAC") Total expenses less TAC
$ $
1,479 424 1,056
$ $
1,497 437 1,061
$ $
1,484 444 1,040
$ $
1,613 474 1,140
$ $
1,409 467 942
$ $
1,426 473 953
$ $
1,412 477 935
$ $
1,305 320 985
(1)
Total expenses for Q1’10 reflect $43 million of transition cost reimbursements from Microsoft recorded in Q1’10 for transition costs incurred by Yahoo! in Q3’09 and Q4’09.
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Table 5 - Non-GAAP Operating Income Calculation
Reconciliation of GAAP Operating Income to Non-GAAP Operating Income, with Details on Adjustments
$ in thousands
Quarterly Data
Q1'09 Q2'09 $ 75,753 $ Q3'09 91,499 $ Q4'09
(4)
Year Ended
Q1'10 Q2'10 $ 175,372 $ Q3'10 189,155 $ Q4'10
(4)
12/31/2009 $ 386,692 $
12/31/2010 772,524
GAAP Operating income
$
100,685
118,755
$
188,021
219,976
(a) (b)
Transition costs, net of reimbursements from Microsoft(1) Incremental costs for advisors related to strategic alternatives and related matters (2) Restructuring charges, net $ $
3,709
2,596
11,287 854
32,013 -
(43,300) -
-
-
-
43,300 7,159
(43,300) -
(c)
4,801 109,195 1,580,042 6% 7% $ $
65,002 143,351 1,572,897 5% 9% $ $
16,689 120,329 1,575,399 6% 8% $ $
40,409 191,177 1,731,977 7% 11% $ $
4,412 149,133 1,596,960 12% 9% $ $
10,052 185,424 1,601,379 11% 12% $ $
5,758 194,913 1,601,203 12% 12% $ $
37,735 257,711 1,525,109 14% 17% $ $
126,901 564,052 6,460,315 6% 9% $ $
57,957 787,181 6,324,651 12% 12%
Non-GAAP Operating income GAAP Revenue GAAP Operating margin Non-GAAP Operating margin(3)
(1)
Non-GAAP Operating income excludes reimbursements for prior periods. The net reimbursement adjustment of $43 million in Q1'10 is equal to the transition costs of $11 million and $32 million incurred in the three months ended September 30, 2009 and December 31, 2009, respectively, in connection with the Search Agreement. Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense. Non-GAAP Operating margin is calculated as Non-GAAP Operating income divided by GAAP Revenue. Excluding restructuring charges of $40 million in Q4’09 and $38 million in Q4’10, Operating income would have been $159 million in Q4’09 and $258 million in Q4’10, an increase of 62% (whereas GAAP Operating income increased by 85% between the same periods). Excluding the restructuring charges, Operating margin would have been 9% in Q4’09 and 17% in Q4’10, an increase of 800 basis points (whereas GAAP Operating margin increased 800 basis points between the same periods).
(2) (3) (4)
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Table 6 - Free Cash Flow Calculation
Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow
$ in millions
Free cash flow: Cash flow from operating activities Excess tax benefits from stock-based awards Acquisition of property & equipment, net Dividends received from equity investees Total
Q1’09
$262.3 22.1 (70.5) $214.0
Q2’09
$341.8 45.1 (94.7) (26.1) $266.0
Q3’09
$355.1 2.9 (98.9) (1.5) $257.7
Q4’09
$351.1 38.4 (169.7) $219.7
Q1’10
$143.6 32.9 (112.5) $63.9
Q2’10
$347.0 31.1 (190.3) (60.9) $126.9
Q3’10
$346.5 67.6 (163.9) $250.2
Q4’10
$403.1 (0.6) (247.4) $155.2
Note: Free cash flow (FCF) is a non-GAAP financial measure defined as GAAP Net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less net capital expenditures and dividends received. The excess tax benefits from stock-based awards, as reported on the statements of cash flows in cash flows from financing activities, represent the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for options exercised/awards released in current and prior periods.
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Table 7 – Non-GAAP Net Income Per Share Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. and GAAP Net Income Attributable to Yahoo! Inc. Common Stockholders Per Share - Diluted to Non-GAAP Net Income and Non-GAAP Net Income Per Share - Diluted
in millions, except per share amounts
GAAP Net income attributable to Yahoo! Inc.
Q1’09
$117.6
Q2’09
$141.4
Q3’09
$186.1
Q4’09
$153.0
Q1’10
$310.2
Q2’10
$213.3
Q3’10
$396.1
Q4’10
$312.0
Adjustments
Non-GAAP Net income GAAP Revenue GAAP Net margin Non-GAAP Net margin GAAP Net income attributable to Yahoo! Inc. common Stockholders per share – diluted Non-GAAP Net income per share - diluted Diluted shares outstanding
5.6
$123.1 $1,580.0 7% 8% $0.08 $0.09 1,406.5
4.0
$145.4 $1,572.9 9% 9% $0.10 $0.10 1,414.3
(40.8)
$145.3 $1,575.4 12% 9% $0.13 $0.10 1,424.9
47.2
$200.2 $1,732.0 9% 12% $0.11 $0.14 1,417.0
(90.3)
$219.9 $1,597.0 19% 14% $0.22 $0.15 1,413.4
6.8
$220.1 $1,601.4 13% 14% $0.15 $0.16 1,390.2
(175.4)
$220.8 $1,601.2 25% 14% $0.29 $0.16 1,343.1
28.5
$340.5 $1,525.1 20% 22% $0.24 $0.26 1,311.7
(1)
Non GAAP Net margin is calculated as Non-GAAP Net income divided by GAAP Revenue.
Note: All per share amounts are based on fully diluted share counts. Please refer to supporting Table 8 for details on Adjustments. Beginning in Q1’10, our presentation of Non-GAAP Net income no longer excludes stock-based compensation expense and its related tax effects. For comparison purposes, prior period amounts have been revised to conform to the current presentation.
23
Table 8 - Non-GAAP Net Income Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. to Non-GAAP Net Income, with Details on Adjustments
$ in thousands
Quarterly Data
Q1'09 Q2'09 $ 141,387 $ Q3'09 186,093 $ Q4'09 152,954 $ Q1'10 310,191 $ Q2'10 213,321 $ Q3'10 396,131 $ Q4'10 312,020
GAAP Net income attributable to Yahoo! Inc. Transition costs net of reimbursements from Microsoft (1) Incremental costs for advisors related to strategic alternatives and related matters (2) Restructuring charges, net Gain on sale of Gmarket investment Gain on sale of the Company's direct investment in Alibaba.com Gain on sale of HotJobs Gain on sale of Zimbra, Inc. To adjust the provision for income taxes to reflect the tax impact of items (a) - (g)
$
117,558
(a) (b) (c) (d) (e) (f) (g) (h)
3,709 4,801 (2,957)
2,596 65,002 (66,684) 3,103
11,287 854 16,689 (98,167) 28,516
32,013 40,409 (25,200)
(43,300) 4,412 (66,130) 14,686
10,052 (3,271)
5,758 (186,345) 5,223
37,735 (9,207)
Non-GAAP Net income
$
123,111
$
145,404
$
145,272
$
200,176
$
219,859
$
220,102
$
220,767
$
340,548
(1)
Non-GAAP Net income excludes reimbursements for prior periods. The net $43 million reimbursement adjustment in Q1'10 is equal to the transition costs of $11 million and $32 million incurred in the three months ended September 30, 2009 and December 31, 2009, respectively, in connection with the Search Agreement. Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense.
(2)
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Table 9 – Business Outlook Reconciliations
Reconciliations of Outlook for GAAP Revenue to Revenue ex-TAC and Total expenses to Total expenses less TAC
Three Months Ending March 31, 2011
(in millions) Revenue excluding TAC: GAAP Revenue (1) Less: TAC
(1)
$ $
1,150 - 1,230 130 - 150 1,020 - 1,080
Revenue ex-TAC Total expenses less TAC: Total expenses (GAAP Cost of revenue + GAAP Total operating expenses) (1) Less: TAC Total expenses less TAC
$ $
1,020 - 1,070 130 - 150 890 - 920
(1)
As a result of the required change in revenue presentation and the revenue share with Microsoft in transitioned markets, Yahoo!’s Q1’11 business outlook at the midpoint of the ranges for GAAP Revenue and TAC is lower than it otherwise would have been by approximately $207 million and $171 million, respectively.
The above business outlook is based on information and expectations as of January 25, 2011. Yahoo! does not intend, and undertakes no duty, to update the business outlook to reflect subsequent events or circumstances; however, Yahoo! may update the business outlook or any portion thereof at any time at its discretion.
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doc_164049217.pdf