Yahoo (YHOO): Disappointing Q4, 1,000 Layoffs, New Low
Summary: Yahoo slightly missed revenue expectations and, as some feared, provided 2008 guidance below current estimates. Not a big miss on revenue ex TAC, but revenue certainly wasn't "strong."* Company says "core businesses" doing well, but the acceleration in these businesses visible last quarter has disappeared.
Jerry asking everyone to be patient for yet another year as company cuts bad affiliates, renegotiates broadband deals (not voluntarily), cuts non-core businesses, etc. Hard to be patient given that each quarter the problems seem worse and the recovery seems to farther away. Company laying off 1,000 people in February.
Only good news (and this is making lemons into lemonade): Everything has its price, and, excluding Yahoo's off-balance sheet assets, the company is now valued at only $8 a share, or about $12 billion. This is less than 2X revenue.
*Accountability: Last night we reported a well-connected source as saying that Yahoo's numbers would be "strong." The source may have been referring to the core businesses Yahoo believes are "strong," but having now seen the numbers, this isn't the adjective we would use. We will continue to report everything we learn that we think you might want to know, but we will be even more careful with those adjectives.
New: Yahoo: Pass the Prozac and Jack Daniels, Please
Key Points
SAI Spreadsheet: Yahoo Financial Analysis
CONFERENCE CALL NOTES
Jerry upbeat, but results certainly don't seem to support:
"Core businesses growing faster in second half than first half"
--Yes, but appeared to decelerate in Q4
"Healthy search and display on owned/operated sites."
--Yes, but display decelerated in Q4
"Slightly exceeded our own expectations"
--Expectations surprisingly low.
"Strategic workforce alignment by mid-Feb" --a.k.a, layoffs (no number)
--Reducing bureaucracy
--Also increasing investment (smart, presuming bureaucracy actually cut)
Re-upped AT&T deal--search and starting point
New terms (Sue to detail later)
EXCLUDING AT&T and sale of Overture Japan, will try to grow "mid to high teens" next year
If all goes well, "Double digit cash flow growth by 2009"
--Double digit cash flow growth? Again, talk about low bar. Two years ago, this co was growing cash flow 30%+.
Sue:
LOVE Sue Decker--always inspires confidence.
Goal to grow traffic by 15% to key pages each year.
500 million+ now
Front page: 2 billion visits US per month
Still hope to gain query share in search
[We will settle for stop losing share, but aren't hopeful]
Mail:
--Worldwide leader for decade
--Lots of cool things in pipeline--the smart inbox.
--Continue to see strong momentum
(Third-party numbers don't support this)
Panama:
Financial gains continued
--20% improvement in US revenue per search
--30% search revenue growth (US
--international accelerating, too.
THIS IS VERY GOOD. BUT WHY CAN'T WE SEE IN NUMBERS?
Display:
+20% owned/operated
organic growth flat with Q3
Remnant pricing has tripled in last year
"Watching economic developments very closely"
Restructuring bad deals
--cutting bad search affiliates
--renegotiated TAC rates from 72% to 80%
Renewed cable deals
--ATT/Rogers
--Revenue sharing deals that are NPV positive over full term but drop in first year
Blake:
FCF benefited from $52 million payment from Rogers
$1.285 billion for year ex Rogers
Repurchased $1.8 billion of stock in year
Off balance sheet assets: Yahoo Japan, Alibaba, Gmarket: $14 billion, $10 share
Do not include estimates of Alibaba's other businesses.
Of 14% growth, acquisitions+FOREX each contributed 2 points
ORGANIC GROWTH = 10%
O/O search up 30% (good)
O/O display (same as Q3)
Revenue ex TAC from affiliates continues to decline
Will continue in 2008...rising TAC rates, network quality initiatives.
Fees:
$242, +14%
growth consistent: broadband, small business products, royalties, etc.
19 million relationships, up 17%
International +5% ex FOREX
O/O high teens
OCF: $527 million, 38% margin
Hit by legal settlements, $15 million
Tax rate: 33.4%, vs. 39% full year
OUTLOOK:
Some one time factors:
--Sold Overture Japan in Q3...now get a service fee
--GAAP revenue will increase 110mm vs 130mm compared to run-rate pre sale
--Revenue ex TAC will decrease only modestly
--Deal gets better as it goes...
Renewed deals
--Ad sharing is now the prevailing model
--Renewal terms: GAAP revenue to decline modestly, exTAC down 150-200 vs run-rate
--Will get $400-$500 million payment from AT&T (amortized)
--Will hit revenue and OCF
Layoffs
--1,000 people in February
--cash charge $20-$25 million
Excluding renegotiated deals and Yahoo Japan...revenue up high teens.
Q+A:
See Also:
Yahoo Layoffs: Estimating the Financial Impact
SAI Spreadsheet: Yahoo Layoffs: Estimating Financial Impact
Yahoo Going Forward With "Drastic" Layoffs--Source
Yahoo Mass Layoff Confirmed, Exact Number TBD
Jerry asking everyone to be patient for yet another year as company cuts bad affiliates, renegotiates broadband deals (not voluntarily), cuts non-core businesses, etc. Hard to be patient given that each quarter the problems seem worse and the recovery seems to farther away. Company laying off 1,000 people in February.
Only good news (and this is making lemons into lemonade): Everything has its price, and, excluding Yahoo's off-balance sheet assets, the company is now valued at only $8 a share, or about $12 billion. This is less than 2X revenue.
*Accountability: Last night we reported a well-connected source as saying that Yahoo's numbers would be "strong." The source may have been referring to the core businesses Yahoo believes are "strong," but having now seen the numbers, this isn't the adjective we would use. We will continue to report everything we learn that we think you might want to know, but we will be even more careful with those adjectives.
New: Yahoo: Pass the Prozac and Jack Daniels, Please
Key Points
- Gross revenue light due to cutting affiliates, especially international affiliates
- Net Revenue (more important) slightly light--$1.4 billion (+14%) vs. $1.41 billion (+16%) consensus.
- EPS of $0.15 exceeds whisper of $0.14, ($0.20 non-GAAP, in line).
- 2008 Net Revenue Guidance of $5.35 to $5.95 billion, versus consensus of $5.9 billion.
- 1,000 layoffs. This is the number our analysis suggested was appropriate. Higher than the "hundreds" some newspapers reported, lower than the 1,500-2,500 one of our sources was expecting.
- Rogers and AT&T deals renegotiated: lower revenue in early years ($150-$200 million in 2008) but, according to the company, "higher NPV considering full term of deal."
- US revenue per search and search revenue continue to accelerate: Search revenue +30%, RPS +20%, query growth +10%.
SAI Spreadsheet: Yahoo Financial Analysis
CONFERENCE CALL NOTES
Jerry upbeat, but results certainly don't seem to support:
"Core businesses growing faster in second half than first half"
--Yes, but appeared to decelerate in Q4
"Healthy search and display on owned/operated sites."
--Yes, but display decelerated in Q4
"Slightly exceeded our own expectations"
--Expectations surprisingly low.
"Strategic workforce alignment by mid-Feb" --a.k.a, layoffs (no number)
--Reducing bureaucracy
--Also increasing investment (smart, presuming bureaucracy actually cut)
Re-upped AT&T deal--search and starting point
New terms (Sue to detail later)
EXCLUDING AT&T and sale of Overture Japan, will try to grow "mid to high teens" next year
If all goes well, "Double digit cash flow growth by 2009"
--Double digit cash flow growth? Again, talk about low bar. Two years ago, this co was growing cash flow 30%+.
Sue:
LOVE Sue Decker--always inspires confidence.
Goal to grow traffic by 15% to key pages each year.
500 million+ now
Front page: 2 billion visits US per month
Still hope to gain query share in search
[We will settle for stop losing share, but aren't hopeful]
Mail:
--Worldwide leader for decade
--Lots of cool things in pipeline--the smart inbox.
--Continue to see strong momentum
(Third-party numbers don't support this)
Panama:
Financial gains continued
--20% improvement in US revenue per search
--30% search revenue growth (US
--international accelerating, too.
THIS IS VERY GOOD. BUT WHY CAN'T WE SEE IN NUMBERS?
Display:
+20% owned/operated
organic growth flat with Q3
Remnant pricing has tripled in last year
"Watching economic developments very closely"
Restructuring bad deals
--cutting bad search affiliates
--renegotiated TAC rates from 72% to 80%
Renewed cable deals
--ATT/Rogers
--Revenue sharing deals that are NPV positive over full term but drop in first year
Blake:
FCF benefited from $52 million payment from Rogers
$1.285 billion for year ex Rogers
Repurchased $1.8 billion of stock in year
Off balance sheet assets: Yahoo Japan, Alibaba, Gmarket: $14 billion, $10 share
Do not include estimates of Alibaba's other businesses.
Of 14% growth, acquisitions+FOREX each contributed 2 points
ORGANIC GROWTH = 10%
O/O search up 30% (good)
O/O display (same as Q3)
Revenue ex TAC from affiliates continues to decline
Will continue in 2008...rising TAC rates, network quality initiatives.
Fees:
$242, +14%
growth consistent: broadband, small business products, royalties, etc.
19 million relationships, up 17%
International +5% ex FOREX
O/O high teens
OCF: $527 million, 38% margin
Hit by legal settlements, $15 million
Tax rate: 33.4%, vs. 39% full year
OUTLOOK:
Some one time factors:
--Sold Overture Japan in Q3...now get a service fee
--GAAP revenue will increase 110mm vs 130mm compared to run-rate pre sale
--Revenue ex TAC will decrease only modestly
--Deal gets better as it goes...
Renewed deals
--Ad sharing is now the prevailing model
--Renewal terms: GAAP revenue to decline modestly, exTAC down 150-200 vs run-rate
--Will get $400-$500 million payment from AT&T (amortized)
--Will hit revenue and OCF
Layoffs
--1,000 people in February
--cash charge $20-$25 million
Excluding renegotiated deals and Yahoo Japan...revenue up high teens.
Q+A:
See Also:
Yahoo Layoffs: Estimating the Financial Impact
SAI Spreadsheet: Yahoo Layoffs: Estimating Financial Impact
Yahoo Going Forward With "Drastic" Layoffs--Source
Yahoo Mass Layoff Confirmed, Exact Number TBD
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None of their stockholders can be happy. I own a lot of stock --- mainly in tech, oil services, financials, gold, commercial reits, etc. Yahoo frightens me as an investor.
Last year, after Terry left, their focus was Panama and display advertising. We won't hear about search anymore and display will get hurt during an advertising pull back. I don't think Yahoo's going out of business anytime soon but I do think they need to be taken private.
What are your answers to the questions above? They are certainly trying to answer the "What do we stand for" one--"Start Page," etc. But not clear what they're great at these days.
The answer to all these questions are obvious. On top of these problems, they suffer from massive brain-drain.
I'm convinced that Yahoo is in deep trouble. They may need to go private --- kind of like DoubleClick did a few years back. Yahoo cannot be a public company anymore.
So, one could say that I'm being generous with my valuation. However, Yahoo Japan doesn't need to be given a haircut since one can simply short the stock in Japan to lock in value. I think the ratio is .0147 of 4689:JP for every share of YHOO. It's not as easy to short Alibaba, as it's hard to borrow the Hong Kong stock.
As for not deducting contingent cap gains taxes, I think there are solutions and structures that can defer or avoid the need to pay such taxes. But even if one took out 40% of value to pay taxes, the multiple is really a "traditional media" multiple for a company in the new media space, which is still likely to grow 15% per year for a few more years, at least.
Bottom line - Cheap but likely to stay in the penalty box until people decide to overlook this "valley" to 2009 or some M&A rescue.
Sorry about the "strong" earnings note. One hazard of routinely relaying unconfirmed information is that some of it's going to prove inaccurate. But I hate to be wrong, and I wouldn't have mentioned it if I hadn't considered it meaningful.
Not that it's any consolation, but as a long-term Yahoo shareholder, I'm also feeling the pain. Here's hoping that it has finally bottomed...
At least you probably don't run adblockers... :)
Also, is Henry violating the terms of his SEC agreement by posting financial analysis and rumors on this site? I have no idea.
Some of us have day jobs and can't listen to an audio stream while working.
@oh boy and @thanks henry
Speculation is just that, and this site has always been upfront about it. This is a blog, not Yahoo's press release page. The authors expect its users smart enough to know that, apparently.
Some of us just read this blog for fun, not use it to plan our finacial saftey net.
Bottom line - Business value is not right at the current stock price, but it may not matter for a while since this is a "transformative year". With patience, though, $18.50 per share is probably a great entry price and we always have a chance to get M&A rumors taking us higher at any time.
LOL, that translates to "spam Google, so we get a slice of their pie". And they're not very good at that either, ROFL
1) bogus sources (layoffs, strong earns), reported without fact-checking, then repeated on other sites.
2) "liveblogging" something freely available (here) streamed from yahoo's own investor relations site (without posting the link yourself to give the impression you are doing little more than transcripting the call).
3) several moronic blogs all liveblogging (transcripting) the same freely-available stream in 2. All running advertising, and valuing the same users (who probably read all the blogs) multiple times.
4) Of course, if everyone actually tried to use the link in 2, servers would overload.
Nice gimmic. At least I'm running adblockers. But I'm probably being counted as a "user" for your CPM model, so you're welcome.
http://sufiy.blogspot.com/2008/01/yahoo-yhoo-is-toasted-from-here.html