Q2 2014 Yahoo Earnings Slides

8/12/2019 Q2 2014 Yahoo Earnings Slides

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Yahoo Confidential & Proprietary2

This presentation contains forward-looking statements concerning the expected financial performance of Yahoo! Inc. and its

consolidated subsidiaries (we, Yahoo or the Company) and Yahoos strategic and operational plans. Risks and uncertainties

may cause actual results to differ materially from the results predicted, and reported results should not be considered as an

indication of future performance. The potential risks and uncertainties include, among others, acceptance by users of new products

and services (including, without limitation, products and services for mobile devices and alternative platforms); Yahoo's ability to

compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with theSearch and Advertising Services and Sales Agreement (the Search Agreement) between Yahoo and Microsoft Corporation

(Microsoft); risks related to acquiring or developing compelling content; risks related to joint ventures and the integration of

acquisitions; risks relating to possible impairment of goodwill or other assets; risks related to fluctuations in foreign currency

exchange rates; risks related to Yahoos regulatory environment; Yahoos ability to protect its intellectual property and the value of

its brands; adverse results in litigation; security breaches; interruptions or delays in the provision of Yahoos services; risks related

to Yahoo's international operations; risks related to the calculation of our key operational metrics; dependence on third parties for

technology, services, content, and distribution; and general economic conditions. All information in this presentation is as of July 15,

2014. Yahoo does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances;however, Yahoo may update its business outlook, or any portion thereof, at any time in its discretion. More information about

potential risk factors that could affect Yahoos business and financial results is included in Yahoos filings with the Securities and

Exchange Commission (SEC) including its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, which is

available on the SECs web site at www.sec.gov.

Throughout this presentation, we have rounded numbers as appropriate. In this presentation, year-over-year (y/y or YOY) refers to

the change from the corresponding period in the prior fiscal year to the specified period in the specified year; and quarter-over-

quarter (or QOQ) refers to the change from the immediately preceding fiscal quarter to the specified quarter.

We periodically review, refine, and update our methodologies for monitoring, gathering, and counting number of paid clicks and ads

sold, and for calculating price-per-click and price-per-ad. Based on this process, from time to time we may update such

methodologies.

Yahoo and the Yahoo logos are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or

registered trademarks of their respective owners.


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Key Takeaways from Q214

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Revenue ex-TAC of $1,040 million decreased 3% in the quarter on aYOY basis.

Display revenue ex-TAC of $394 million decreased 7% in the quarter ona YOY basis.

Search revenue ex-TAC of $428 million increased 6% in the quarter ona YOY basis.

We repurchased ~21 million shares of stock at an average price of

$34.94 for $719 million in the second quarter.


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Financials and Key Metrics at a Glance ($ in millions, except share amounts)

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Q213 Q214 YOY

GAAP revenue $1,135 $1,084 (4%)

Revenue ex-TAC $1,071 $1,040 (3%)

Adjusted EBITDA $369 $340 (8%)

Income from operationsIncome from operations margin ex-TAC

$13713%

$384%

(72%)(900bps)

Non-GAAP operating incomeNon-GAAP operating income margin ex-TAC

$20919%

$19419%

(7%)0bps

Earnings in equity interests $225 $256 14%

Net earningsNet margin ex-TAC

$33131%

$27026%

(19%)(500bps)

EPS attributable to Yahoo! Inc. diluted $0.30 $0.26 (15%)

Non-GAAP EPS diluted $0.35 $0.37 5%

Shares used in per share calculation diluted 1,095 1,015 (7%)

Acquisition of property and equipment, net $82 $107 31%

Free cash flow $131 $186 41%

Cash and marketable securities $4,791 $4,311 (10%)

Number of employees (at end of quarter) 11,700 12,300 5%


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GAAP Revenue Trends ($ in millions)

$1,140 $1,135 $1,139

$1,266

$1,133

$1,084

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

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Revenue ex-TAC Trends ($ in millions)

$1,074 $1,071 $1,081

$1,200

$1,087

$1,040

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

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Americas$791(74%)

EMEA$86(8%)

APAC$193(18%)

Q213 = $1,071

Q214 = $1,040

SourceGeography

Americas

$775(75%)

EMEA$88(8%)

APAC$177(17%)

Display$423(39%)

Search$403(38%)

Other$245(23%)

Display$394(38%)

Search

$428(41%)

Other$219(21%)

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Revenue ex-TAC by Geography & Source ($ in millions)


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Revenue ex-TAC by Source ($ in millions)

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Q113 Q213 Q313 Q413 Q114 Q214

Search revenue ex-TACYOY Growth

$409

6%

$403

5%

$426

3%

$461

8%

$444

9%

$428

6%

Display revenue ex-TACYOY Growth

$402

(11%)

$423

(11%)

$421

(7%)

$491

(6%)

$409

2%

$394

(7%)

Other revenue ex-TACYOY Growth

$264

10%

$245

10%

$233

4%

$248

(9%)

$234

(11%)

$219

(10%)

Total revenue ex-TACYOY Growth

$1,074

0%

$1,071

(1%)

$1,081

(1%)

$1,200

(2%)

$1,087

1%

$1,040

(3%)


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Geographic Segment Data($ in millions)

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Q213 Q214 YOY

Amer icas

Revenue ex-TAC $791 $775 (2%)

Direct costs(1) $186 $181 (3%)

Contribution $605 $594 (2%)

Americas contribution margin(2) 76% 77% 100bps

EMEA (Europe, Middle East, and Africa)

Revenue ex-TAC $86 $88 2%

Direct costs(1) $42 $39 (7%)

Contribution $44 $49 11%

EMEA contribution margin(2) 51% 56% 500bps

Asia Paci fic (APAC)

Revenue ex-TAC $193 $177 (8%)

Direct costs(1) $49 $45 (8%)

Contribution $144 $132 (8%)

Asia Pacific contribution margin(2) 74% 75% 100bps

(1) Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment.

(2) Contribution margin is calculated as contribution divided by revenue ex-TAC for each segment.


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$689 $702$750 $722

$780$700

$162 $160$158

$148

$158

$147

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

Depreciation and Amortization

$847(2)$851 $862

Non-GAAP Total Operating Expenses($ in millions)

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$908$870 (1)

$938

2013 2014

(1) Q413 includes a benefit of $70 million from a patent sale, the proceeds of which offset certain operating expenses. Excluding the impact of such patent sale, Non-GAAP total

operating expenses, as adjusted, would have been $940 million in Q413.(2) Q214 includes a benefit of $62 million from patent sales, the proceeds of which offset certain operating expenses. Excluding the impact of such patent sales, Non-GAAP total

operating expenses, as adjusted, would have been $909 million in Q214.


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Adjusted EBITDA($ in millions)

$386$369

$331

$478

$306

$340

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

36% 34% 31% 40% 28% 33%Adjusted EBITDAmargin ex-TAC

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2013 2014


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$224$209

$173

$330

$149

$194

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

21% 19% 16% 28% 14% 19%Non-GAAPoperating incomemargin ex-TAC

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Non-GAAP Operating Income ($ in millions)

2013 2014


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Earnings in Equity Interests* ($ in millions)

$218 $225 $233 $222

$301

$256

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

Earnings in Equity Interests

Yahoo Japan(~36% Ownership)

January March

2013 2014 YOY

Revenue $1,121 $1,055 (6%)

Gross profit $934 $861 (8%)

Income from operations $551 $478 (13%)

Net Income $348 $314 (10%)

Net income attributable to YahooJapan

$346 $311 (10%)

*The Company currently owns approximately 24% of Alibaba Group and approximately 36% of Yahoo Japan. The Company records its share of their results, any related amortizat ion expense, and in the case of AlibabaGroup any related tax impact, one quarter in arrears within earnings in equity interests in the condensed consolidated statements of income.Note: The financial information presented in the tables above is derived from the financial statements of Alibaba Group (prepared under U.S. GAAP) and Yahoo Japan (prepared under Japanese GAAP). The Company

adjusted the Yahoo Japan financial information to address differences between Japanese GAAP and U.S. GAAP that materially impact the presented amounts. Earnings from our equity interest in Yahoo Japan were

recorded using an average exchange rate of 92.05 USD/JPY and 102.81 USD/JPY for the periods January-March 2013 and January-March 2014, respectively.(1) Certain prior period amounts have been reclassified to conform to the current period presentation with no effect on previously reported net income or stockholders' equity.18

Alibaba Group(~24% Ownership)

January - March

2013 2014 YOY

Revenue $1,382 $1,966 42%

Gross profit(1) $1,019 $1,399 37%

Income from operations(1) $709 $891 26%

Net Income $680 $926 36%

Net income attributable toordinary shareholders of AlibabaGroup

$669 $906 36%


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Key Balance Sheet Metrics ($ in millions)

Q113 Q213 Q313 Q413 Q114 Q214

Assets

Cash and marketable securities $5,395 $4,791 $3,215 $4,997 $4,571 $4,311

Accounts receivable, net $944 $942 $844 $980 $880 $824

Alibaba Group preference shares $831

Property and equipment, net $1,613 $1,580 $1,536 $1,489 $1,479 $1,470

Total assets $16,491 $16,226 $14,906 $16,805 $16,593 $16,457

Liabilities and Equity

Current deferred revenue $308 $295 $294 $294 $291 $288

Total current liabilities $1,139 $1,178 $1,193 $1,340 $1,195 $1,194

Total equity $14,186 $13,859 $12,546 $13,131 $12,963 $12,731

Total liabilities and equity $16,491 $16,226 $14,906 $16,805 $16,593 $16,457

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Key Cash Flow Highlights ($ in millions)

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Q113 Q213 Q313 Q413 Q114 Q214

Net cash provided by operating activities $219 $331 $288 $358 $139 $357

Acquisition of property and equipment, net ($70) ($82) ($78) ($109) ($85) ($107)

Dividends received from equity investees ($12) ($123) ($84)

Excess tax benefits from stock-based awards $13 $6 $29 $17 $60 $20

Free cash flow $150 $131 $239 $266 $114 $186

Acquisitions, net of cash acquired $10 $1,014 $163 $60 $22

Repurchases of common stock $775 $653 $1,685 $231 $450 $719


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Business Outlook ($ in millions)

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Note: The above business outlook is based on information and expectations as of July 15, 2014. Yahoo does not intend, and undertakes no duty, to update this business outlook to reflectsubsequent events or circumstances; however, Yahoo may update this business outlook or any portion thereof at any time at its discretion.

Q314 Current Outlook

GAAP revenue $1,060 - $1,100

Revenue ex-TAC $1,020 - $1,060

Adjusted EBITDA $220 - $260

Non-GAAP operating income $70 - $110


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Appendix


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Table 1 Revenue ex-TAC by SegmentReconciliations of GAAP Revenue to Revenue ex-TAC

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$ in mil lions Q113 Q213 Q313 Q413 Q114 Q214

Amer icas

GAAP revenue $842 $829 $851 $960 $867 $806

TAC (38) (37) (36) (48) (34) (30)

Revenue ex-TAC $805 $791 $815 $912 $833 $775

EMEA

GAAP revenue $95 $97 $89 $104 $92 $98

TAC (12) (11) (10) (10) (9) (10)

Revenue ex-TAC $83 $86 $79 $94 $82 $88

Asia Paci fic

GAAP revenue $203 $209 $199 $202 $174 $181

TAC (17) (16) (12) (8) (3) (3)

Revenue ex-TAC $186 $193 $187 $195 $172 $177

Worldwide

GAAP revenue $1,140 $1,135 $1,139 $1,266 $1,133 $1,084

TAC (66) (64) (58) (66) (46) (44)

Revenue ex-TAC $1,074 $1,071 $1,081 $1,200 $1,087 $1,040


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Table 2 Revenue DetailsReconciliations of GAAP Revenue to Revenue ex-TAC by Source

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Search

GAAP search revenue $425 $418 $435 $464 $445 $428

YOY growth (10%) (9%) (8%) (4%) 5% 2%

Search TAC (16) (15) (9) (2) (1) (1)

Search revenue ex-TAC $409 $403 $426 $461 $444 $428

Display

GAAP display revenue $455 $472 $470 $553 $453 $436

YOY growth (11%) (12%) (7%) (6%) 0% (8%)

Display TAC (53) (49) (49) (62) (44) (42)

Disp lay revenue ex-TAC $402 $423 $421 $491 $409 $394

Other

GAAP other revenue $261 $245 $234 $249 $235 $220

YOY growth 9% 11% 5% (9%) (10%) (10%)

Other TAC 3 (1) (1) (1) (1) (1)

Other revenue ex-TAC $264 $245 $233 $248 $234 $219

Total

GAAP revenue $1,140 $1,135 $1,139 $1,266 $1,133 $1,084

YOY growth (7%) (7%) (5%) (6%) (1%) (4%)

TAC (66) (64) (58) (66) (46) (44)Revenue ex-TAC $1,074 $1,071 $1,081 $1,200 $1,087 $1,040


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Table 3 Revenue and Direct Costs by Segment

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$ in mill ions Q213 Q214

Revenue by segment:

Americas $829 $806

EMEA 97 98

Asia Pacific 209 181

Total revenue $1,135 $1,084

TAC (64) (44)

Total revenue ex-TAC $1,071 $1,040

Direct costs by segment:

Americas $186 $181

EMEA 42 39

Asia Pacific 49 45

Global operating costs(1) 424 436

Restructuring charges, net 4 53

Depreciation and amortization 160 147

Stock-based compensation expense 68 102

Income from operations $137 $38

(1) Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a globalbasis and that are not directly attributable to any particular segment.


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Table 4 Total Operating ExpensesReconciliations of GAAP Total Operating Expenses to Total OperatingExpenses less TAC, and to Non-GAAP Total Operating Expenses

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GAAP to tal operat ing expenses $954 $998 $1,046 $1,092 $1,103 $1,046

Less: Traffic acquisition costs (66) (64) (58) (66) (46) (44)

Total operat ing expenses less TAC $888 $934 $988 $1,026 $1,057 $1,002

Less: Restructuring (reversals) charges, net (7) 4 (1) 8 9 53

Less: Stock-based compensation expense 45 102 81 85 109 102

Less: Goodwill impairment charge 64

Non-GAAP to tal operat ing expenses $851 $828 $908 $870(1) $938 $847(2)

(1) Q413 includes a benefit of $70 million from a patent sale, the proceeds of which offset certain operating expenses. Excluding the impact of such patent

sale, Non-GAAP total operating expenses, as adjusted, would have been $940 million in Q413.(2) Q214 includes a benefit of $62 million from patent sales, the proceeds of which offset certain operating expenses. Excluding the impact of such patent

sales, Non-GAAP total operating expenses, as adjusted, would have been $909 million in Q214.


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(1) GAAP net margin is calculated as GAAP net earnings divided by GAAP revenue.

Table 5 Adjusted EBITDAReconciliation of GAAP Net Earnings to Adjusted EBITDA

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GAAP net earnings $390 $331 $297 $348 $312 $270

(a) Depreciation and amortization 162 160 158 148 158 147

(b) Stock-based compensation expense 45 68 81 85 109 102

(c) Restructuring (reversals) charges, net (7) 4 (1) 8 9 53

(d) Other income (expense), net (17) (24) (5) 3 13 14

(e) Provision for income taxes 30 50 32 41 4 8

(f) Earnings in equity interests (218) (225) (233) (222) (301) (256)

(g) Net income attributable to noncontrolling interests 1 4 2 3 2 3

(h) Goodwill impairment charge - - - 64 - -

Adjusted EBITDA $386 $369 $331 $478 $306 $340

Adjusted EBITDA margin ex-TAC 36% 34% 31% 40% 28% 33%

GAAP net margin(1) 34% 29% 26% 28% 28% 25%


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Table 6 Non-GAAP Operating IncomeReconciliation of GAAP Income from Operations to Non-GAAP Operating Income


GAAP income from operat ions $186 $137 $93 $174 $30 $38

(a) Restructuring (reversals) charges, net (7) 4 (1) 8 9 53

(b) Stock-based compensation expense 45 68 81 85 109 102

(c) Goodwill impairment charge 64

Non-GAAP operating inc ome $224 $209 $173 $330 $149 $194

GAAP operating income margin 16% 12% 8% 14% 3% 4%

Non-GAAP operating income margin(1) 20% 18% 15% 26% 13% 18%

Non-GAAP operating income margin ex-TAC 21% 19% 16% 28% 14% 19%

(1) Non-GAAP operating income margin is calculated as Non-GAAP operating income divided by GAAP revenue.

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Table 7 Free Cash FlowReconciliation of GAAP Net Cash Provided by Operating Activities to FreeCash Flow


GAAP net cash prov ided by operating activi ties $219 $331 $288 $358 $139 $357

Excess tax benefits from stock-based awards 13 6 29 17 60 20

Acquisition of property and equipment, net (70) (82) (78) (109) (85) (107)

Dividends received from equity investees (12) (123) (84)

Free cash flow $150 $131 $239 $266 $114 $186

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Table 11 Additional Reconciliations

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Non-GAAP Tax Rate On a GAAP basis in Q214, provision for income taxes was $8

million and tax rate was 33%. Excluding the effect of stock-based compensation (whichdecreased provision for income taxes by $24 million on a GAAP basis), and netrestructuring charges (which decreased provision for income taxes by $19 million on aGAAP basis), provision for income taxes, as adjusted, would have been $51 million andtax rate, as adjusted, would have been 28% on a non-GAAP basis.

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Q2 2014 Yahoo Earnings Slides

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