Yahoo Q3 2008 Earnings: It Ain't Pretty
Yahoo had its third quarter earnings call yesterday and the news wasn’t pretty. I’m not really sure how much the economy can really be blamed for how dismal the news was. Search advertising should be one of the last sectors within advertising as a whole to be affected by the economy.
Here’s something else to consider: While companies are looking to streamline their operations in order to save costs, they often look to technology. Companies like Google who are investing in cloud computing or other technologies that create efficiencies are making the most of this unique opportunity and coming out ahead. They beat the street with their Q3 earnings. Apple had a good earnings call yesterday with their sales of laptops and iPhones.
So when you read the quote by Jerry Yang blaming the economy, don’t be surprised if your eyes roll.
We already know that Yahoo is cutting 10% of its workforce. But many have been saying for a long time that the workforce was already bloated. I feel for the Yahoo’s because it is maddening to work at a place where layoffs are imminent. Productivity goes down and everyone speculates whose job is safe and who needs a box for their things.
The press release with all the data points for the earnings is below. All the major news organizations are focused squarely on the 64% decline in net income.
Yahoo! Reports Third Quarter 2008 Financial Results
Revenues – $1,786 Million
Operating Income – $70 Million
Operating Income Before Depreciation, Amortization, and Stock-Based
Compensation Expense – $410 Million
SUNNYVALE, Calif. – October 21, 2008 – Yahoo! Inc. (Nasdaq: YHOO) today reported results for the third quarter ended September 30, 2008.
“As economic conditions and on-line advertising softened in the third quarter, we remained highly focused on our 2008 strategy to invest in initiatives that enhance not only our long term competitiveness, but also our ability to deliver for users and advertisers in this more difficult climate. We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity,” said Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. “The steps we are taking this quarter should deliver not only near-term benefits to operating cash flow, but should also substantially enhance the nimbleness and flexibility with which we compete over the long term. We enter this slowing market with competitive advantages as the destination of choice for consumers and a leader in providing online advertisers with the broadest set of advertising management tools and products in the industry. We plan to continue building on those strengths.”
Third Quarter 2008 Financial Results
“Despite a tougher revenue climate, we were able to stay focused on our strategic objectives, launching several major product initiatives that have been underway for many months,” said Sue Decker, president, Yahoo!, Inc. “These include the beta release of our new home page, which will leverage one code base globally; our new universal profile management tool at profiles.yahoo.com which is the first step toward rewiring the social graph on Yahoo!; and the launch of APT from Yahoo!TM, a transformative digital advertising platform. We delivered on our product roadmap with high quality and lower expenses than originally anticipated. Now we are conducting a deep review of our cost structure to identify more opportunities to enhance efficiency and build a stronger and more profitable Yahoo!.”
Third Quarter 2008 Segment Financial Results
“An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range. While we are disappointed with our results, we’re pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year. These efforts helped our adjusted operating cash flow come in above the midpoint of our outlook range for the quarter, despite significant investments in our strategic objectives,” said Blake Jorgensen, chief financial officer, Yahoo! Inc. “We have the balance sheet strength, liquidity, and free cash flow we need to continue to make progress on our core strategies as we address this slowdown.”
Cash Flow Information
In addition to free cash flow of $215 million for the third quarter of 2008, Yahoo! generated $14 million from the issuance of common stock as a result of the exercise of employee stock options. This was offset by $29 million used for acquisitions and $16 million used to acquire intellectual property rights. Cash, cash equivalents, and investments in marketable debt securities were $3,299 million at September 30, 2008 as compared to $3,219 million at June 30, 2008, an increase of $80 million.
Cost Reduction Initiatives
During the third quarter, Yahoo! began implementing a series of cost reduction initiatives that contributed to the Company’s adjusted operating cash flow exceeding the midpoint of its outlook for the quarter. The Company’s goal is to reduce its current annualized cost run rate of approximately $3.9 billion by more than $400 million before the end of 2008. The Company anticipates that both headcount and non-headcountrelated costs will be reduced by these actions. Because the majority of expenses are headcount-related, Yahoo! expects to reduce its global workforce by at least 10 percent during the fourth quarter of 2008.
Yahoo! also plans to implement additional cost-cutting measures aimed at achieving additional structural efficiencies over the next year. The Company anticipates these will result in substantial additional cost savings. The goal of these measures is to position Yahoo! for long-term, sustainable growth.
Non-GAAP Financial Measures
Explanations of the Company’s non-GAAP financial measures and the related reconciliations to the GAAP financial measures the Company considers most comparable are included in the accompanying “Note to Unaudited Condensed Consolidated Statements of Income,” “Reconciliations to Unaudited Condensed Consolidated Statements of Income,” and “Reconciliation of GAAP Net Income and GAAP Net Income Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share.”
Quarterly Conference Call
Yahoo! will host a conference call to discuss third quarter results at 5:00 p.m. Eastern Time today. A live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://yhoo.client.shareholder.com/results.cfm. In addition, an archive of the webcast can be accessed through the same link. An audio replay of the call will be available for one week following the conference call by calling (888) 286-8010 or (617) 801-6888, reservation number: 99117465.