Yahoo In Transition: Q2 Display Continues To Decline Due To Non-Guaranteed, Pricing

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q2yahooYahoo today reported a 1% decline in ex-TAC revenue year-over-year of $1,071 million in the second quarter. See the release. And get the earnings slides (PDF).

For earnings number lovers, Yahoo came in at Wall Street's projected numbers: "GAAP net earnings per diluted share was $0.30 in the second quarter of 2013, compared to $0.18 in the second quarter of 2012. Non-GAAP net earnings per diluted share was $0.35 in the second quarter of 2013, compared to $0.30 in the second quarter of 2012."

On the Display front -- data from the release:

  • GAAP display revenue was $472 million for the second quarter of 2013, a 12-percent decrease compared to $535 million for the second quarter of 2012.
  • Display revenue ex-TAC was $423 million for the second quarter of 2013, an 11-percent decrease compared to $473 million for the second quarter of 2012.
  • The number of ads sold (excluding Korea) decreased approximately 2 percent compared to the second quarter of 2012.
  • Price per ad (excluding Korea) decreased approximately 12 percent compared to the second quarter of 2012.

Yahoo decided to take a page out of ESPN SportsCenter with its earnings call today as the company opted not to go the route of holding the teleconference in someone's office as most companies do.  Check it out:

yahoo-espn

In addition, the entire call was a video broadcast with only mild bandwidth hiccups.

As the call began, Mayer reviewed her first year -- in typical product parlance, she called it the "first sprint" -- and pointed to the importance of creating a culture and shoring up Yahoo with a base  of motivated employees. The next "sprint," she said, was building a product -- in the year ahead and, undoubtedly, beyond.

On the good-news side, page views appear to be growing. On the other hand, it doesn't seem to be helping display revenue, which dropped 11% and was challenged by the move to "non-guaranteed. "  Pricing in non-guaranteed slid, too, according to Yahoo CFO Ken Goldman.

Yahoo still has a whopping $4.8 billion to spend. That's a lot of acquisition cash. And proceeds from sale of a stake in Chinese portal Alibaba will mean good things for shareholders (a continued stock buy-back).

Goldman admitted that though his company has lots of confidence in growing the business, revenue isn't going to show it anytime soon, as EBITDA, he says, will take a hit from the Tumblr acquisition.

Mayer then took back the call and said search, mobile and display/video can drive the company going forward. She said her company would be working on the user interface to improve search capabilities.

She said the 360 million mobile users will be Yahoo's next area of business as it drives toward its mobile future.

Turning to display and video, Mayer said  the company needs to do a better job addressing the programmatic-buying marketplace and it would be a "clear area of investment." The same will hold true regarding video, where inventory is sold out months in advance, she said.

Finally, she said CEO David Karp and Mayer will be working on creating new, effective native advertising solutions.

Wall Street Asks Questions

RBC's Mark Mahaney asked about Yahoo's video commitment: Would Yahoo acquire content? (i.e. similar to those brief moves Yahoo made toward Dailymotion and Hulu). Mayer deferred and pointed to the importance of creating a great platform as well as enabling user-generated content. Whether this is a smokescreen by Mayer on Yahoo's real content plans, only time will tell.

Barclay's Anthony Clement noted Yahoo is projecting an "accelerating Q4." Was this due to expected traction with and monetization of Tumblr? Mayer said Tumblr would not provide meaningful revenue this year. Unfortunately, the video cut out a bit here and it was unclear what the other drivers were. (Check the transcript, which I'll link to at the bottom of this post when it's ready.)

Next question, "programmatic as an issue" -- Was the aging technology of RMX too blame? Mayer said Right Media is still innovating and either "No. 1 or No. 2" in terms of size. By and large, she was vague on the exact strategy for programmatic. From here, it does not seem like a near-term priority... figuring out the mobile future and the product is.

Microsoft's search guarantee, which promises minimum levels of revenue to Yahoo by Microsoft for search ad tech, was next up for review. Nothing much here new. The verticalization of the Yahoo salesforce continues, too.

Mayer admitted almost all the recent acquisitions are "tuck-in" and she promised more of these in the future as they look to add product people, presumably. Another smokescreen? Tumblr was "strategic," of course.

Citi's Mark May asked if engagement advertising in the form of Facebook news-feed ads and video advertising elsewhere are impacting Yahoo's display business. Mayer said they're working hard on creating similar engagement ads.

Yousef Squali, fresh from his IAB presentation yesterday, asked about programmatic moving from remnant to premium. How would Yahoo address this -- Perhaps Yahoo would lose pricing leverage in the premium-direct layer? And did Yahoo need to augment their ad-tech stack? Mayer didn't take the bait and said Yahoo recognized the important trend of programmatic and that leverage on the programmatic direct side was still possible. She also said Yahoo has its own DSP -- so no need to buy anything in that area. It's nice to hear somebody at Yahoo finally admit that Right Media Exchange is really a big demand-side platform! Of course, you could say it's a private exchange, too, for Yahoo owned-and-operated inventory similar to Facebook Exchange.

Content creation was a consistent theme in remaining questions -- Wall Street wanted to know where the new content was going to come from, how it was going to be distributed, who the partners could be. Yahoo is more focused on product than slotting in content right now -- except for user-gen content led by Tumblr, as Mayer reiterated often.

Earnings call transcript from Seeking Alpha here.

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