Yahoo! Inc. (NASDAQ: YHOO) today reported results for the
quarter ended March 31, 2017.
“Our Q1 performance reflects solid financial and operational
execution in the new year, with more than $1.3 billion in GAAP
revenue delivered. These results are the product of our teams’
tremendous focus and dedication to our users and advertisers,” said
Marissa Mayer, CEO of Yahoo. “As we enter our final quarter as an
independent company, we are committed to finishing strong and
planning for the best possible integration with Verizon. With the
transaction anticipated to complete in June, I’ve never been more
proud of the improvements we’ve made to the business and the value
we’ve delivered to our shareholders.”
Q1 2016 Q1 2017 GAAP revenue $1,087 million
$1,327 million Cost of revenue –TAC $228 million $494 million Loss
from operations $(167) million $(59) million Non-GAAP income from
operations $7 million $73 million Net earnings $(99) million $99
million Adjusted EBITDA $147 million $188 million GAAP net earnings
per diluted share $(0.10) $0.10 Non-GAAP net earnings per diluted
share $0.08 $0.18
Cash, cash equivalents, and marketable
securities
$7,130 million
$8,021 million
Net cash provided by operating
activities
$366 million
$214 million
As previously announced, beginning in the second quarter of
2016, GAAP revenue and cost of revenue – TAC are impacted by a
required change in revenue presentation related to the Eleventh
Amendment to the Microsoft Search Agreement (“Change in Revenue
Presentation,” as discussed below). For the first quarter of 2017,
the Change in Revenue Presentation contributed $304 million to each
of GAAP revenue and cost of revenue – TAC. Excluding the impact of
this change, GAAP revenue would have been $1,023 million, a 6
percent decrease from the first quarter of 2016, and cost of
revenue – TAC would have been $190 million, a 17 percent decrease
from the first quarter of 2016.
Business Updates
- Doubled the number of users enrolled in
Yahoo Account Key in Q1 2017, allowing users to more easily
sign in to their Yahoo account using their mobile phone.
- Updated Yahoo Answers Now with
new engagement features like social sharing, question of the day,
and notification controls.
- Launched Captain, a mobile bot
assistant to help users manage lists and reminders, and coordinate
family or group activities.
- Introduced new features on Yahoo
Mail including Caller ID to integrate contact information from
emails, and improved email search to surface most relevant “Top
Results”.
- Launched a newly designed Yahoo
Homepage featuring News, Sports, and Finance alignment to make
content more easily discoverable and personalized for users.
- Livestreamed coverage of the
Presidential Inauguration on Yahoo News, the NBA Trade Deadline on
Yahoo Sports’ The Vertical, and Yahoo’s inaugural All Markets
Summit on Yahoo Finance.
- Yahoo Sports launched Tourney
Pick’em game with brand partnerships from Lexus and Pizza Hut,
Yahoo Fantasy Baseball with rich data and featured MLB “Game of the
Day” video content, and Yahoo Daily Fantasy in the UK.
Transaction Update
Yahoo continues to work with Verizon on integration planning for
the sale of its operating business. The Company anticipates the
closing to occur in June 2017.
First Quarter 2017 Financial Highlights
Mavens Revenue*:
Q1 2016 Q1 2017 Mavens revenue
$
390 million
$
529 million
Non-Mavens revenue 644 million 742 million Total traffic-driven
revenue
$
1,034 million
$
1,271 million
Non-traffic-driven revenue 53 million 56 million GAAP revenue
$
1,087 million
$
1,327 million
* The Change in Revenue Presentation contributed $138 million to
Mavens revenue, $166 million to Non-Mavens revenue, and $304
million to traffic-driven revenue in the first quarter of 2017.
Mavens revenue represented 38 percent of traffic-driven revenue
in the first quarter of 2016, and increased to 42 percent in the
first quarter of 2017. Excluding the impact of the Change in
Revenue Presentation, Mavens revenue would have been $391 million,
and represented 40 percent of traffic-driven revenue, in the first
quarter of 2017.
Mobile Revenue*:
Q1 2016 Q1 2017 Mobile revenue
$
260 million
$
412 million
Desktop revenue 774 million 859 million Total traffic-driven
revenue
$
1,034 million
$
1,271 million
Non-traffic-driven revenue 53 million 56 million GAAP revenue
$
1,087 million
$
1,327 million
* The Change in Revenue Presentation contributed $138 million to
mobile revenue, $166 million to desktop revenue, and $304 million
to traffic-driven revenue in the first quarter of 2017.
GAAP mobile revenue for the first quarter of 2016 and 2017 was
$260 million and $412 million, respectively.
Mobile revenue represented 25 percent of traffic-driven revenue
in the first quarter of 2016, and increased to 32 percent in the
first quarter of 2017. Excluding the impact of the Change in
Revenue Presentation, mobile revenue would have been $274 million,
and represented 28 percent of traffic-driven revenue, in the first
quarter of 2017.
Gross mobile revenue for the first quarter of 2016 and 2017 was
$412 million and $447 million, respectively. The Change in Revenue
Presentation does not impact gross mobile revenue.
Search Revenue:
- GAAP search revenue was $745 million
for the first quarter of 2017 compared to $492 million for the
first quarter of 2016. Excluding the impact of the Change in
Revenue Presentation, which contributed $304 million to search
revenue in the first quarter of 2017, search revenue decreased by
10 percent compared to the first quarter of 2016.
- Gross search revenue was $799 million
for the first quarter of 2017, a decrease of 3 percent compared to
the first quarter of 2016. The Change in Revenue Presentation does
not impact gross search revenue.
- Cost of revenue – TAC associated with
search revenue was $435 million for the first quarter of 2017.
Excluding the impact of the Change in Revenue Presentation, which
contributed $304 million to cost of revenue – TAC in the first
quarter of 2017, cost of revenue – TAC associated with search
revenue decreased by 9 percent compared to the first quarter of
2016.
- The number of Paid Clicks decreased 12
percent compared to the first quarter of 2016.
- Price-per-Click increased 10 percent
compared to the first quarter of 2016.
Display Revenue:
- GAAP display revenue was $456 million
for the first quarter of 2017, a 2 percent decrease compared to the
first quarter of 2016.
- Cost of revenue – TAC associated with
display revenue was $58 million for the first quarter of 2017, a 30
percent decrease compared to the first quarter of 2016.
- The number of Ads Sold increased 2
percent compared to the first quarter of 2016.
- Price-per-Ad remained the same as the
first quarter of 2016.
Cash, Cash Equivalents, and Marketable Securities:
Cash, cash equivalents, and marketable securities were $8,021
million as of March 31, 2017 compared to $7,910 million as of
December 31, 2016, an increase of $111 million.
“We feel incredibly proud that we executed so well against our
2016 plan and kicked off 2017 on a positive note by achieving our
internal operating goals,” said Ken Goldman, CFO of Yahoo. “Not
only did we meet our internal GAAP revenue goal of $1.3 billion,
but we also continued managing our capital and cash operating
expenditures closely, ending the quarter with over $8 billion in
cash, cash equivalents, and marketable securities, representing an
increase of nearly $900 million year over year. As we prepare to
close the sale of this iconic company to Verizon, I’m very pleased
with what we have accomplished with regard to the achievement of
our operating and financial plans.”
Change in Revenue Presentation
As previously announced, pursuant to the Eleventh Amendment to
the Microsoft Search Agreement, the Company completed the
transition of its exclusive sales responsibilities to Microsoft for
Microsoft’s paid search services to premium advertisers in the
United States, Canada, and Europe on April 1, 2016 and in its
remaining markets (other than Taiwan and Hong Kong) on June 1,
2016. Following the transition in each respective market, Yahoo is
considered the principal in the sale of traffic to Microsoft and
other customers because Yahoo is the primary obligor in its
arrangements with Microsoft and has discretion in how search
queries from Affiliate sites will be fulfilled and monetized. As a
result, beginning in the second quarter of 2016, amounts paid to
Affiliates under the Microsoft Search Agreement in the transitioned
markets are recorded as cost of revenue – TAC rather than as a
reduction to GAAP revenue, resulting in GAAP revenue from the
Microsoft Search Agreement being reported on a gross rather than
net basis. Taiwan and Hong Kong are not being transitioned, and TAC
in those markets continues to be reported as a reduction to
revenue.
Supplemental Financial and Other Information
Supplemental financial and other information can be accessed
through the Company’s Investor Relations website at investor.yahoo.net.
Non-GAAP Financial Measures
This press release includes adjusted GAAP revenue and cost of
revenue – TAC amounts that exclude the effect of the Change in
Revenue Presentation related to the Eleventh Amendment that took
place in the second quarter of 2016. We believe providing this
additional information to investors is useful because it provides
investors with comparable revenue and cost of revenue – TAC
measures for comparison to our historical reported financial
information.
This press release and its attachments also include the
following additional financial measures defined as non-GAAP
financial measures by the Securities and Exchange Commission
(“SEC”): gross mobile revenue; gross search revenue; revenue
ex-TAC; adjusted EBITDA; non-GAAP income from operations; non-GAAP
net earnings; non-GAAP net earnings per share – diluted; and free
cash flow.
Gross mobile revenue is GAAP mobile revenue plus the related
revenue share with third parties. Gross search revenue is GAAP
search revenue plus the related revenue share with third parties.
Revenue ex-TAC is GAAP revenue less cost of revenue – TAC. Adjusted
EBITDA, non-GAAP income from operations, non-GAAP net earnings, and
non-GAAP net earnings per share – diluted, exclude from the most
comparable GAAP financial measures certain gains, losses, and
expenses that we do not believe are indicative of ongoing results,
and exclude stock-based compensation expense. Adjusted EBITDA
also excludes taxes, depreciation, amortization of intangible
assets, other (expense) income, net (which includes interest, among
other items), earnings in equity interests, and net income
attributable to noncontrolling interests. Free cash flow is a
non-GAAP financial measure defined as net cash provided by
operating activities (adjusted for periods prior to the first
quarter of 2017 to include excess tax benefits from stock-based
awards), less acquisition of property and equipment, net (i.e.,
acquisition of property and equipment less proceeds received from
disposition of property and equipment) and dividends received from
equity investees.
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 Supplemental Financial Data and GAAP to
Non-GAAP Reconciliations,” “Supplemental Financial Data and GAAP to
Non-GAAP Reconciliations,” and “GAAP to Non-GAAP
Reconciliations.”
About Yahoo
Yahoo is a guide to digital information discovery, focused on
informing, connecting, and entertaining users through its search,
communications, and digital content products. By creating highly
personalized experiences, Yahoo helps users discover the
information that matters most to them around the world –– on mobile
or desktop. Yahoo creates value for advertisers with a streamlined,
simple advertising technology stack that leverages Yahoo’s data,
content, and technology to connect advertisers with their target
audiences. Yahoo is headquartered in Sunnyvale, California, and has
offices located throughout the Americas, Asia Pacific (APAC), and
the Europe, Middle East and Africa (EMEA) regions. For more
information, visit the pressroom (pressroom.yahoo.net) or the Company's blog
(yahoo.tumblr.com).
“Ads Sold” consist of display ad impressions for paying
advertisers on Yahoo Properties and Affiliate sites.
“Affiliates” are third-party entities that have integrated
Yahoo’s advertising offerings into their websites or other
offerings (those websites and other offerings, “Affiliate
sites”).
“Alibaba Group” means Alibaba Group Holding Limited.
“Desktop computer” means a desktop or laptop computer, and
“desktop revenue” is revenue generated from search and display ads
served on Desktop computers and also includes leads, listings, and
fees revenue and ecommerce revenue allocated to user activity on
Desktop computers.
“Gross mobile revenue,” a non-GAAP measure, is GAAP mobile
revenue plus the related revenue share with third parties.
“Gross search revenue,” a non-GAAP measure, is GAAP search
revenue plus the related revenue share with third parties.
“Mavens revenue” is revenue generated from, without duplication:
(i) mobile (as defined below), (ii) video ads and video ad
packages, (iii) native ads, and (iv) Tumblr and Polyvore ads and
fees.
“Microsoft Search Agreement” refers to the Search and
Advertising Services and Sales Agreement between Yahoo and
Microsoft Corporation, as amended.
“Mobile revenue” is revenue generated in connection with user
activity on mobile devices, including smartphones and tablets,
regardless of whether the device is accessing a mobile-optimized
service. Mobile revenue is generated primarily from search and
display ads. Mobile revenue also includes leads, listings, and fees
revenue and ecommerce revenue allocated to user activity on mobile
devices.
“Native revenue” is revenue generated from native ads (search
and display) on Yahoo Properties as well as third-party partner
publisher sites and mobile apps. Native ads are visually rich, are
positioned as a seamless part of the users' experience, and come in
a variety of formats, like text, image, and video. Yahoo offers
native ads through Yahoo Gemini and BrightRoll.
“Net earnings” means net income (loss) attributable to Yahoo!
Inc., and “net earnings per diluted share” means net income (loss)
attributable to Yahoo! Inc. common stockholders per share –
diluted.
“Non-Mavens revenue” is revenue generated from search ads and
traditional (i.e., non-native, non-video, non-Tumblr, non-Polyvore)
display ads served on Desktop computers and also includes leads,
listings, and fees revenue and ecommerce revenue allocated to user
activity on Desktop computers.
“Non-traffic-driven revenue” is revenue not arising from user
activity on Yahoo Properties or Affiliate sites, and includes
royalty revenue, license fee revenue, amortization under the
technology and intellectual property license agreement with Alibaba
Group through the third quarter of 2015, and all other revenue that
is not traffic-driven.
“Paid Clicks” are clicks by end-users on sponsored search
listings (excluding native ads) on Yahoo Properties and Affiliate
sites.
“Price-per-Ad” is defined as display revenue divided by our
total number of Ads Sold.
“Price-per-Click” is defined as Search click-driven revenue
divided by our total number of Paid Clicks.
“Search click-driven revenue” is gross search revenue excluding
search revenue from Yahoo Japan.
“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,” “Company,” and “we” refer to Yahoo! Inc. and its
consolidated subsidiaries.
“Yahoo Properties” refers to the online properties and services
that Yahoo provides to users.
We periodically review, refine, and update our methodologies for
monitoring, gathering, and counting number of Ads Sold and Paid
Clicks, and for calculating Search click-driven revenue,
Price-per-Ad, and Price-per-Click. Methodology changes are applied
consistently to all periods presented. No changes were made in the
currently reported period.
Additional information about how “Ads Sold,” “Paid Clicks,”
“Price-per-Ad,” “Price-per-Click,” and “Search click-driven
revenue” are defined and calculated is included under the caption
"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, 2016, which is on file with the SEC
and available on the SEC's website at www.sec.gov.
This press release (including, without limitation, the
quotations from management) contains forward-looking statements
concerning Yahoo's expected financial performance and Yahoo's
strategic and operational plans and their projected impact, as well
as, Yahoo's announced transaction with Verizon Communications Inc.
(“Verizon”). 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.
With respect to the proposed sale of Yahoo’s operating business to
Verizon (the “Sale Transaction”), risks and uncertainties include,
among others, (i) the inability to consummate the transaction in a
timely manner or at all, due to the inability to obtain or delays
in obtaining approval of Yahoo’s stockholders, the necessary
regulatory approvals, or satisfaction of other conditions to the
closing of the Sale Transaction; (ii) the existence or occurrence
of any event, change or other circumstance that could give rise to
the termination of the Stock Purchase Agreement, which, in addition
to other adverse consequences, could result in the Company
incurring substantial fees, including, in certain circumstances,
the payment of a termination fee to Verizon under the Amended Stock
Purchase Agreement; (iii) potential adverse effects on Yahoo’s
relationships with its existing and potential advertisers,
suppliers, customers, vendors, distributors, landlords, licensors,
licensees, joint venture partners and other business partners; (iv)
the implementation of the Sale Transaction will require significant
time, attention and resources of Yahoo’s senior management and
others within Yahoo, potentially diverting their attention from the
conduct of Yahoo’s business; (v) costs, fees, expenses and charges
related to or triggered by the Sale Transaction; (vi) the net
proceeds that the Company will receive from Verizon is subject to
uncertainties as a result of the purchase price adjustments in the
Amended Stock Purchase Agreement; (vii) restrictions on the conduct
of Yahoo’s business, including the ability to make certain
acquisitions and divestitures, enter into certain contracts, and
incur certain indebtedness and expenditures until the earlier of
the completion of the Sale Transaction or the termination of the
Amended Stock Purchase Agreement; (viii) potential adverse effects
on Yahoo’s business, properties or operations caused by Yahoo
implementing the Sale Transaction or foregoing opportunities that
Yahoo might otherwise pursue absent the pending Sale Transaction;
(ix) the initiation or outcome of any legal proceedings or
regulatory proceedings that may be instituted against Yahoo and its
directors and/or officers relating to the Sale Transaction; and (x)
following the closing of the Sale Transaction, the Company will be
required to register and be regulated as an investment company
under the Investment Company Act of 1940, which will result in,
among other things, the Company having to comply with the
regulations thereunder, certain stockholders potentially being
prohibited from holding or acquiring shares of the Company, and the
Company likely being removed from the Standard and Poor’s 500 Index
and other indices which could have an adverse impact on the
Company’s share price following the Sale Transaction. Additional
potential risks and uncertainties include, among others, risks
related to Yahoo’s ability to continue to attract and maintain
mobile users and grow its mobile revenue; risks related to Yahoo’s
ability to continue to grow Mavens revenue; risks related to
Yahoo’s ability to grow users, user engagement and pageviews; risks
related to growing advertiser engagement; risk of potential
reduction in spending by, or loss of, advertising customers; risks
associated with the Microsoft Search Agreement and the Services
Agreement with Google Inc.; risks related to Yahoo’s ability to
provide innovative search experiences and other products and
services that differentiate its services and generate significant
traffic; risks associated with Yahoo’s ability to manage its
operating expenses effectively and improve profitability; risks
related to acceptance by users of new products and services; risks
related to Yahoo’s ability to compete with new or existing
competitors; dependence on third parties for technology, services,
content, and distribution; risks related to acquiring or developing
compelling content; interruptions or delays in the provision of
Yahoo’s services; adverse results in litigation; risks related to
security incidents, including the unauthorized access to or theft
of user data, regulatory actions, litigation, investigations,
remediation costs, costs of increased security measures, damage to
our reputation and brand, loss of user and partner confidence in
the security of our products and services, and resulting fees,
costs and expenses; risks related to Yahoo’s ability to recruit and
retain key personnel; risks related to possible impairment of
goodwill or other assets; risks related to Yahoo’s ability to
protect its intellectual property and the value of its brands;
risks related to fluctuations in foreign currency exchange rates;
risks related to joint ventures and the integration of
acquisitions; risks related to Yahoo’s regulatory environment;
risks related to Yahoo's international operations; risks related to
the calculation of our key operational metrics; and general
economic conditions. All information set forth in this press
release and its attachments is as of April 18, 2017. 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, 2016, which is on file with the SEC
and available on the SEC's website at www.sec.gov. Additional information is also set
forth in those sections in Yahoo’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2017, which will be filed with the
SEC in the second quarter of 2017.
Yahoo!, the Yahoo family of marks, BrightRoll, Flurry, Polyvore,
Captain and the associated logos are trademarks and/or registered
trademarks of Yahoo! Inc. Tumblr is a registered trademark of
Tumblr, Inc. Other names are trademarks and/or registered
trademarks of their respective owners.
Important Additional Information and Where to Find
It.
Yahoo has filed with the SEC a preliminary proxy statement
regarding the proposed sale of Yahoo’s operating business to
Verizon. Yahoo will file with the SEC a definitive version of the
proxy statement, which will be sent or provided to Yahoo
stockholders when available. The information contained in the
preliminary proxy statement is not complete and may be
changed. BEFORE MAKING ANY VOTING DECISION, YAHOO’S
STOCKHOLDERS ARE STRONGLY ADVISED TO READ YAHOO’S PRELIMINARY PROXY
STATEMENT IN ITS ENTIRETY (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO) AND, WHEN IT BECOMES AVAILABLE, YAHOO’S DEFINITIVE PROXY
STATEMENT IN ITS ENTIRETY (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO) AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION
WITH THE PROPOSED TRANSACTION OR INCORPORATED BY REFERENCE THEREIN
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. Investors and stockholders may obtain a free copy
of Yahoo’s preliminary proxy statement and any amendments or
supplements to the preliminary proxy statement, Yahoo’s definitive
proxy statement (when available) and any amendments or supplements
to the definitive proxy statement (when available), and other
documents filed by Yahoo with the SEC (when available) in
connection with the proposed transaction for no charge at the SEC’s
website at www.sec.gov, on the Investor Relations page of Yahoo’s
website investor.yahoo.net or by writing to Investor Relations,
Yahoo! Inc., 701 First Avenue, Sunnyvale, CA 94089.
Yahoo and its directors and executive officers, as well as
Verizon and its directors and executive officers, may be deemed
participants in the solicitation of proxies from Yahoo’s investors
and stockholders in connection with the proposed transaction.
Information concerning the ownership of Yahoo securities by Yahoo’s
directors and executive officers is included in their SEC filings
on Forms 3, 4 and 5, and additional information is also available
in Yahoo’s annual report on Form 10-K for the year ended
December 31, 2016 and Yahoo’s proxy statement for its 2016
annual meeting of stockholders filed with the SEC on May 23,
2016. Information about Verizon’s directors and executive officers
is set forth in Verizon’s annual report on Form 10-K for the year
ended December 31, 2016 and Verizon’s proxy statement for its
2017 annual meeting of stockholders filed with the SEC on
March 20, 2017. Information regarding Yahoo’s directors,
executive officers, and other persons who may, under the rules of
the SEC, be considered participants in the solicitation of proxies
in connection with the proposed transaction, including their
respective interests by security holdings or otherwise, also is set
forth in the preliminary proxy statement described above and will
be set forth in the definitive proxy statement relating to the
proposed transaction when it is filed with the SEC. These documents
may be obtained free of charge from the sources indicated
above.
Yahoo! Inc. Unaudited Condensed Consolidated
Balance Sheets (in thousands)
December 31,
March 31,
2016
2017
ASSETS Current assets: Cash and cash
equivalents $ 1,119,469 $ 1,328,913
Short-term marketable securities 5,700,925
5,582,149 Accounts receivable, net 1,084,267
940,311 Prepaid expenses and other current assets
221,499 176,351 Total current assets
8,126,160 8,027,724 Long-term marketable
securities 1,089,707 1,110,166 Property and
equipment, net 1,209,937 1,177,723
Goodwill 415,809 430,463 Intangible assets,
net 161,644 142,424 Other long-term assets and
investments 206,059 279,267 Investments in
Alibaba Group 33,680,879 41,359,859
Investments in equity interests 3,192,884
2,841,100 Total assets $
48,083,079 $
55,368,726
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 171,520
$ 180,368 Other accrued expenses and current
liabilities 1,006,676 884,000 Deferred
revenue 109,228 103,543 Total current
liabilities 1,287,424 1,167,911
Convertible notes 1,299,945 1,317,112
Long-term deferred revenue 39,583 42,669
Other long-term liabilities 95,597 91,026
Deferred tax liabilities related to investment in Alibaba
Group 13,633,988 16,762,865 Deferred and other
long-term tax liabilities 642,466 519,950
Total liabilities 16,999,003 19,901,533
Total Yahoo! Inc. stockholders' equity 31,049,283
35,435,717 Noncontrolling interests 34,793
31,476 Total equity 31,084,076
35,467,193 Total liabilities and equity
$ 48,083,079 $ 55,368,726
Yahoo! Inc. Unaudited Condensed Consolidated Statements
of Operations (in thousands, except per share amounts)
Three Months Ended March 31,
2016 2017 Revenue (1)
$ 1,087,152 $
1,327,270
Operating expenses: Cost of revenue - traffic
acquisition costs (1) 227,763 493,502
Cost of revenue - other 282,587 256,774
Sales and marketing 236,033 209,366 Product
development 278,029 252,220 General and
administrative 155,451 156,837 Amortization of
intangibles 18,773 11,506 Gain on sale of
patents (1,500 ) - Restructuring
charges, net 57,230 5,812 Total
operating expenses 1,254,366 1,386,017
Loss from operations (167,214 )
(58,747 ) Other (expense) income, net
(47,416 ) 18,822 Loss before
income taxes and earnings in equity interests (214,630
) (39,925 ) Benefit for income
taxes 34,766 26,177 Earnings in equity
interests, net of tax 81,574 113,688
Net (loss) income (98,290 )
99,940 Less: Net income attributable to
noncontrolling interests (942 ) (506
) Net (loss) income attributable to Yahoo!
Inc. $ (99,232 ) $ 99,434
Net (loss) income attributable to Yahoo! Inc.
common stockholders per share - diluted $ (0.10
) $ 0.10 Shares used in per
share calculation - diluted 945,719
963,169 Stock-based compensation expense by
function: Cost of revenue - other $ 8,526
$ 8,415 Sales and marketing 32,887
31,409 Product development 47,988
48,366 General and administrative 19,006
20,586 Restructuring charges, net 7,374
-
Supplemental
Financial Data:
Revenue ex-TAC $ 859,389 $
833,768 Adjusted EBITDA $ 147,072
$ 188,297 Free cash flow(2)
$ 297,195 $ 154,245
(1) Commencing in the second quarter
of 2016, TAC payments related to the Microsoft Search Agreement,
which previously would have been recorded as a reduction to
revenue, began to be recorded as a cost of revenue due to a
required change in revenue presentation. See “Change in Revenue
Presentation” in the accompanying press release. (2)
During the three months ended March 31, 2016, the Company
received a cash tax refund of $190 million associated with the
Company’s claim to carry back its 2015 losses and tax attributes to
earlier taxable years. Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) Three Months Ended
March 31, 2016 2017 CASH FLOWS FROM
OPERATING ACTIVITIES: Net (loss) income $
(98,290 ) $ 99,940
Adjustments to reconcile net (loss)
income to net cash provided by operating activities:
Depreciation 107,377 95,703 Amortization of
intangible assets 32,288 19,396 Accretion of
convertible notes discount 16,290 17,167
Stock-based compensation expense 115,781
108,776 Non-cash restructuring charges 362
- Non-cash accretion on marketable debt securities
12,354 899 Foreign exchange gain (6,524
) (12,546 ) Gain on sale of assets and
other (190 ) (9 ) Gain on sale
of patents and land (1,500 ) - Loss
(gain) on Hortonworks warrants 39,150 (5,385
) Earnings in equity interests (81,574
) (113,688 ) Tax benefits from stock-based
awards 1,192 - Excess tax benefits from
stock-based awards(3) (7,526 ) -
Deferred income taxes (37,794 ) (44,296
) Changes in assets and liabilities, net of effects of
acquisitions: Accounts receivable 172,677
151,772 Prepaid expenses and other 232,783
24,281 Accounts payable 2,844 (5,099
) Accrued expenses and other liabilities
(142,308 ) (118,622 ) Deferred
revenue 8,376 (3,834 ) Net cash
provided by operating activities 365,768
214,455 CASH FLOWS FROM INVESTING
ACTIVITIES: Acquisition of property and equipment
(76,399 ) (61,147 ) Proceeds from
sales of property and equipment 300 937
Purchases of marketable securities (1,871,316
) (1,457,036 ) Proceeds from sales of
marketable securities 47,374 52,436 Proceeds
from maturities of marketable securities 1,369,836
1,503,562
Proceeds from sales of patents 1,500 -
Purchases of intangible assets (1,177 )
(52 ) Proceeds from the settlement of derivative
hedge contracts 36,028 8,223 Payments for
settlement of derivative hedge contracts (3,024 )
(1,078 ) Other investing activities, net
(58 ) 156 Net cash (used in)
provided by investing activities (496,936 )
46,001 CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from issuance of common stock
4,754 3,095 Excess tax benefits from stock-based
awards(3) 7,526 - Tax withholdings
related to net share settlements of restricted stock awards and
restricted stock units (42,139 ) (67,901
) Distributions to noncontrolling interests -
(3,823 ) Other financing activities, net
(3,637 ) (3,126 ) Net cash used in
financing activities (33,496 ) (71,755
) Effect of exchange rate changes on cash and cash
equivalents 12,357 20,743 Net change in
cash and cash equivalents (152,307 )
209,444 Cash and cash equivalents, beginning of
period 1,631,911 1,119,469
Cash and cash equivalents, end of period $
1,479,604 $
1,328,913
(3)
Commencing in the first quarter of
2017, the Company has prospectively adopted changes to the
statement of cash flows prescribed by Accounting Standards Update
(ASU) 2016-09, "Improvements to Employee Share-Based Payment
Accounting," which require the Company to classify excess tax
benefits along with other income tax cash flows as an operating
activity in the statement of cash flows. As a result, the Company
no longer presents excess tax benefits from stock-based awards as
an outflow in operating activities and as an inflow in financing
activities on the statement of cash flows.
Yahoo! Inc.
Note to Supplemental Financial Data and GAAP
to Non-GAAP Reconciliations
This press release includes adjusted revenue and cost of revenue
- TAC amounts that exclude the effect of the Change in Revenue
Presentation that occurred during the second quarter of 2016. We
believe providing this additional information to investors is
useful because it provides investors with comparable revenue and
cost of revenue - TAC measures for comparison to our historical
reported financial information. See “Change in Revenue
Presentation” in the accompanying press release.
This press release and its attachments also include the non-GAAP
financial measures of revenue excluding traffic acquisition costs
(“revenue ex-TAC”); gross mobile revenue; gross search revenue;
adjusted EBITDA; non-GAAP income from operations; non-GAAP net
earnings; non-GAAP net earnings per diluted share; and free cash
flow, which are reconciled to revenue (in the case of revenue
ex-TAC, gross mobile revenue, and gross search revenue); net (loss)
income attributable to Yahoo! Inc. (in the case of adjusted EBITDA
and non-GAAP net earnings); loss from operations; net (loss) income
attributable to Yahoo! Inc. common stockholders per share –
diluted; and net cash provided by operating activities, which we
believe are the most comparable GAAP measures. Yahoo! Inc.
(together with its consolidated subsidiaries, “Yahoo,” the
“Company,” or “we”) uses these non-GAAP financial measures for
internal managerial purposes and to facilitate period-to-period
comparisons. We describe limitations specific to each non-GAAP
financial measure below. Management generally compensates for
limitations in the use of non-GAAP financial measures by relying on
comparable GAAP financial measures and providing investors with a
reconciliation of the non-GAAP financial measure to the most
directly comparable GAAP financial measure or measures. Further,
management uses non-GAAP financial measures only in addition to and
in conjunction with results presented in accordance with GAAP. We
believe that these non-GAAP financial measures reflect additional
ways of viewing aspects of our operations that, when viewed with
our GAAP results, provide a more complete understanding of factors
and trends affecting our business. These non-GAAP measures should
be considered as a supplement to, and not as a substitute for, or
superior to, revenue, net (loss) income attributable to Yahoo!
Inc., loss from operations, net (loss) income attributable to
Yahoo! Inc. common stockholders per share – diluted, and net cash
provided by operating activities calculated in accordance with
GAAP.
Revenue ex-TAC is a non-GAAP financial measure defined as GAAP
revenue less TAC that has been recorded as a cost of revenue. TAC
consists of payments made to Affiliates, and payments made to
companies that direct consumer and business traffic to Yahoo
Properties. TAC is recorded either as a reduction to revenue or as
cost of revenue. We present revenue ex-TAC to provide investors a
metric used by the Company for evaluation and decision-making
purposes and to provide investors with comparable revenue numbers
when comparing to our historical reported financial information. A
limitation of revenue ex-TAC is that it is a measure we defined for
internal and investor purposes that may be unique to the Company,
and therefore it may not enhance the comparability of our results
to those of other companies in our industry who have similar
business arrangements but address the impact of TAC differently.
Management compensates for these limitations by also relying on the
comparable GAAP financial measures of revenue and cost of revenue –
TAC.
Each of gross mobile revenue and gross search revenue is a
non-GAAP financial measure. Gross mobile revenue is defined as GAAP
mobile revenue plus the related revenue share with third parties.
Gross search revenue is defined as GAAP search revenue plus the
related revenue share with third parties. We present these amounts
to provide investors with additional metrics used by the Company
for evaluation and decision-making purposes and as an indicator of
the size of our presence in the relevant business. To this end,
gross mobile revenue and gross search revenue report the total
receipts generated on Yahoo Properties and Affiliate sites by the
specified relevant Yahoo business (i.e., mobile or search), before
any TAC or other revenue share is paid to the Affiliates and before
any revenue share is allocated to Microsoft or other parties. A
limitation of these non-GAAP measures is that they include revenue
that is recognized by one or more third parties and not by Yahoo;
furthermore, they are measures we defined for internal and investor
purposes that may be unique to us, and therefore may not enhance
the comparability of our results to those of other companies in our
industry who have similar business arrangements but address the
impact of TAC and revenue sharing differently. Management
compensates for these limitations by also relying on the comparable
financial measure GAAP revenue.
Adjusted EBITDA is defined as net (loss) income attributable to
Yahoo! Inc. before taxes, depreciation, amortization of intangible
assets, stock-based compensation expense, other (expense) income,
net (which includes interest, among other items), earnings in
equity interests, net income attributable to noncontrolling
interests and other gains, losses, and expenses that we do not
believe are indicative of our ongoing results. We present adjusted
EBITDA because the exclusion of certain gains, losses, and expenses
facilitates comparisons of the operating performance of the Company
on a period to period basis. Adjusted EBITDA has limitations as an
analytical tool and should not be considered in isolation or as a
substitute for results reported under GAAP. These limitations
include: adjusted EBITDA does not reflect tax payments and such
payments reflect a reduction in cash available to us; adjusted
EBITDA does not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our
businesses; adjusted EBITDA does not include stock-based
compensation expense related to the Company’s workforce; adjusted
EBITDA also excludes other (expense) income, net (which includes
interest, among other items), earnings in equity interests, net
income attributable to noncontrolling interests and other gains,
losses, and expenses that we do not believe are indicative of our
ongoing results, and these items may represent a reduction or
increase in cash available to us; and adjusted EBITDA is a measure
that may be unique to the Company, and therefore it may not enhance
the comparability of our results to other companies in our
industry. Management compensates for these limitations by also
relying on the comparable GAAP financial measure of net (loss)
income attributable to Yahoo! Inc., which includes taxes,
depreciation, amortization, stock-based compensation expense, other
(expense) income, net (which includes interest, among other items),
earnings in equity interests, net income attributable to
noncontrolling interests and the other gains, losses and expenses
that are excluded from adjusted EBITDA.
Non-GAAP income from operations is defined as loss from
operations excluding certain gains, losses, and expenses that we do
not believe are indicative of our ongoing operating results and
further adjusted to exclude stock-based compensation
expense. Because of the variety of equity awards used by
companies, the varying methodologies for determining stock-based
compensation expense, and the subjective assumptions involved in
those determinations, we believe excluding stock-based compensation
expense enhances the ability of management and investors to
understand the impact of stock-based compensation expense on loss
from operations. We consider non-GAAP income from operations to be
a profitability measure which facilitates the forecasting of our
operating results for future periods and allows for the comparison
of our results to historical periods. A limitation of non-GAAP
income from operations is that it does not include all items that
impact our income from operations for the period. Management
compensates for this limitation by also relying on the comparable
GAAP financial measure of loss from operations which includes the
gains, losses, and expenses that are excluded from non-GAAP income
from operations.
Non-GAAP net earnings is defined as net (loss) income
attributable to Yahoo! Inc. (which we sometimes refer to as net
earnings) excluding certain gains, losses, expenses, and their
related tax effects that we do not believe are indicative of our
ongoing results and further adjusted to exclude stock-based
compensation expense and its related tax effects. Because of the
variety of equity awards used by companies, the varying
methodologies for determining stock-based compensation expense, and
the subjective assumptions involved in those determinations, we
believe excluding stock-based compensation expense enhances the
ability of management and investors to understand the impact of
stock-based compensation expense on net income and net income per
share. We consider non-GAAP net earnings and non-GAAP net earnings
per diluted share to be profitability measures which facilitate the
forecasting of our results for future periods and allow for the
comparison of our results to historical periods. A limitation of
non-GAAP net earnings and non-GAAP net earnings per diluted share
is that they do not include all items that impact our net income
and net income per diluted share for the period. Management
compensates for this limitation by also relying on the comparable
GAAP financial measures of net (loss) income attributable to Yahoo!
Inc. and net (loss) income attributable to Yahoo! Inc. common
stockholders per share - diluted, both of which include the gains,
losses, expenses and related tax effects that are excluded from
non-GAAP net earnings and non-GAAP net earnings per diluted
share.
Free cash flow is a non-GAAP financial measure defined as net
cash provided by operating activities (adjusted for periods prior
to the first quarter of 2017 to include excess tax benefits from
stock-based awards), less acquisition of property and equipment,
net (i.e., acquisition of property and equipment less proceeds
received from disposition of property and equipment) and dividends
received from equity investees. We consider free cash flow to be a
liquidity measure which provides useful information to management
and investors about the amount of cash generated by business
operations, after deducting our net payments for acquisitions and
dispositions of property and equipment, which cash can then be used
for strategic opportunities or other business purposes including,
among others, investing in the Company's business, making strategic
acquisitions, strengthening the balance sheet, and repurchasing
stock. A limitation of free cash flow is that it does not represent
the total increase or decrease in the cash balance for the period.
Management compensates for this limitation by also relying on the
net change in cash and cash equivalents as presented in the
Company’s unaudited condensed consolidated statements of cash flows
prepared in accordance with GAAP which incorporates all cash
movements during the period.
Yahoo! Inc. Supplemental Financial Data and GAAP
to Non-GAAP Reconciliations (in thousands)
Three Months Ended March 31, 2016 2017
Revenue for groups of similar services: Search
(1) $ 491,881 $ 744,738
Display 463,019 455,882 Other
132,252 126,650 Total revenue
$ 1,087,152 $ 1,327,270
Revenue excluding traffic acquisition costs recorded as
cost of revenue ("revenue ex-TAC") for groups of similar
services: GAAP search revenue (1) $
491,881 $ 744,738 TAC associated with
search revenue (1) (144,160 )
(435,442 ) Search revenue ex-TAC $
347,721 $ 309,296 GAAP
display revenue $ 463,019 $ 455,882
TAC associated with display revenue (83,067 )
(57,737 ) Display revenue ex-TAC $
379,952 $ 398,145 GAAP
other revenue $ 132,252 $ 126,650
TAC associated with GAAP other revenue (536 )
(323 ) Other revenue ex-TAC $
131,716 $ 126,327
Revenue ex-TAC: GAAP revenue (1) $
1,087,152 $ 1,327,270 TAC (1)
(227,763 ) (493,502 ) Revenue
ex-TAC $ 859,389 $ 833,768
Revenue ex-TAC by segment: Americas:
GAAP revenue (1) $ 861,539 $
1,083,458 TAC (1) (204,871 )
(432,684 ) Revenue ex-TAC $
656,668 $ 650,774
EMEA: GAAP revenue (1) $ 76,923
$ 107,782 TAC (1) (12,509
) (51,914 ) Revenue ex-TAC $
64,414 $ 55,868 Asia
Pacific: GAAP revenue (1) $ 148,690
$ 136,030 TAC (1) (10,383
) (8,904 ) Revenue ex-TAC $
138,307 $ 127,126
Total revenue ex-TAC $ 859,389 $
833,768 Direct costs by segment
(2): Americas $ 72,508 $
59,313 EMEA 20,609 12,702 Asia
Pacific 44,648 47,688 Global operating
costs (4) 585,036 543,125 Gain on sale
of patents (1,500 ) - Restructuring
charges, net 57,230 5,812 Depreciation and
amortization 139,665 115,099 Stock-based
compensation expense 108,407 108,776
Loss from operations $ (167,214
) $ (58,747 ) (1)
Commencing in the second quarter of 2016, TAC payments related
to the Microsoft Search Agreement, which previously would have been
recorded as a reduction to revenue, began to be recorded as cost of
revenue - TAC due to a required change in revenue presentation. See
“Change in Revenue Presentation” in the accompanying press
release. (2) Direct costs for each segment include
certain cost of revenue - other and costs associated with the local
sales teams. Prior to the second quarter of 2016, certain account
management costs associated with Yahoo Properties were managed
locally and included as direct costs for each segment. Prior period
amounts have been revised to conform to the current
presentation. (4) Global operating costs include
product development, marketing, real estate workplace, general and
administrative, account management costs and other corporate
expenses that are managed on a global basis and that are not
directly attributable to any particular segment. Beginning in the
second quarter of 2016, certain account management costs associated
with Yahoo Properties are managed globally and included as global
costs. Prior period amounts have been revised to conform to the
current presentation. Yahoo! Inc. Supplemental
Financial Data and GAAP to Non-GAAP Reconciliations (continued)
(in thousands) Three Months Ended
March 31, 2016 2017 Reconciliation of net
(loss) income attributable to Yahoo! Inc. to adjusted EBITDA:
Net (loss) income attributable to Yahoo! Inc. $
(99,232 ) $ 99,434 Advisory fees
8,984 6,077 Security incidents costs -
11,280 Depreciation and amortization 139,665
115,099 Stock-based compensation expense
108,407 108,776 Restructuring charges, net
57,230 5,812 Other expense (income), net
47,416 (18,822 ) Benefit for income
taxes (34,766 ) (26,177 )
Earnings in equity interests (81,574 )
(113,688 ) Net income attributable to
noncontrolling interests 942 506
Adjusted EBITDA $ 147,072 $
188,297 Reconciliation of net cash provided
by operating activities to free cash flow: Net cash provided
by operating activities $ 365,768 $
214,455 Acquisition of property and equipment, net
(76,099 ) (60,210 ) Excess tax
benefits from stock-based awards(5) 7,526
- Free cash flow(2) $
297,195 $ 154,245
Reconciliation of GAAP mobile revenue to gross mobile
revenue: GAAP mobile revenue (1) $
260,193 $
412,485
Revenue share with third parties (1) 151,578
34,092
Gross mobile revenue $ 411,771
$ 446,577 Reconciliation of GAAP
search revenue to gross search revenue: GAAP search
revenue (1) $ 491,881 $
744,738 Revenue share with third parties (1)
328,516 54,193 Gross search
revenue $ 820,397 $ 798,931
(1) Commencing in the second quarter
of 2016, TAC payments related to the Microsoft Search Agreement,
which previously would have been recorded as a reduction to
revenue, began to be recorded as cost of revenue - TAC due to a
required change in revenue presentation. See “Change in Revenue
Presentation” in the accompanying press release. (2)
During the three months ended March 31, 2016, the Company
received a cash tax refund of $190 million associated with the
Company’s claim to carry back its 2015 losses and tax attributes to
earlier taxable years. (5) As a result of the
prospective adoption of aspects of ASU 2016-09 relating to the
statement of cash flows, as described in note (3) above, there is
no adjustment for excess tax benefits from stock-based awards in
the calculation of free cash flow for the three months ended March
31, 2017. Yahoo! Inc. GAAP to Non-GAAP
Reconciliations (in thousands, except per share amounts)
Three Months Ended March 31,
2016 2017 GAAP loss from operations
$ (167,214 ) $ (58,747 )
(a) Restructuring charges, net 57,230
5,812 (b) Stock-based compensation
expense 108,407 108,776 (c)
Advisory fees 8,984 6,077 (d)
Security incidents costs - 11,280
Non-GAAP income from operations $ 7,407
$ 73,198 GAAP net
(loss) income attributable to Yahoo! Inc. $
(99,232 ) $ 99,434 (a)
Restructuring charges, net 57,230 5,812
(b) Stock-based compensation expense 108,407
108,776 (c) Advisory fees 8,984
6,077 (d) Security incidents costs
- 11,280 (e) Loss (gain) on
Hortonworks warrants 39,150 (5,385 )
(f) To adjust the provision for income taxes to
reflect an effective tax rate of 35% for both the three months
ended March 31, 2016 and 2017 (34,465 )
(56,500 ) Non-GAAP net earnings
$ 80,074 $ 169,494
GAAP net (loss) income attributable to Yahoo! Inc. common
stockholders per share - diluted $ (0.10 )
$ 0.10 Non-GAAP net earnings per
share - diluted $ 0.08 $
0.18 Shares used in non-GAAP per share
calculation - diluted 951,338 963,169
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170418006457/en/
Yahoo! Inc.Media Relations Contact:Sheila Tran,
408-349-4040media@yahoo-inc.comInvestor Relations
Contact:James Miln, 408-349-3382investorrelations@yahoo-inc.com
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