Yahoo Earnings: Revenue Decline Continues As Deal For Core Business Closes In June

Yahoo! (NASDAQ:YHOO) reported its first-quarter earnings on April 18^th. ^[1] This is Yahoo’s last earnings report as an independent company, as the company is finalizing its plans to integrate with Verizon. With the transaction anticipated to complete in June, the company reported that its core advertising revenues (including Traffic Acquisition Cost or TAC) improved by 22% year over year to $1.32 billion. However, the figure includes $304 million in GAAP revenue and cost of revenue that is mandated by an amendment to the Microsoft Search agreement. Had the change not been implemented, Yahoo’s GAAP revenue would have been $1.02 billion, 6% lower than the first quarter of 2016.

Nevertheless, Yahoo continued to report improvement in performance in its Maven revenue (i.e., derived from Mobile, Video, Native and Social media) during the quarter. While GAAP Maven revenue (including TAC) grew by 35% to $529 million, non-Maven revenue grew by 15% to $742 million. (These figures include the change in revenue contribution amounting to $304 million) Additionally, mobile revenue grew by 58% to $412 million, while PC ads revenue improved by 11% to $859 million.

See our complete analysis of Yahoo! here

Mobile Ads Continue To Boost Revenues

In Q1, Yahoo’s mobile revenue was $412 million, up from $260 million in Q1 2016, an increase of 58% year over year, and it now contributes at least 32% of Yahoo’s traffic-driven revenue. ^[2] The company continues to implement its strategy to deliver content (live video streams, etc) through its apps such as Yahoo View on Android to smartphones. This strategy bodes well for the coming quarters, and should translate into growth in mobile user base for the company. The growth in its unique visitor count is important for Yahoo, as a bigger user base will consume more content across Yahoo’s websites. This, in turn, will translate into higher page views and searches across all Yahoo platforms, and thus improve revenue across both display and search ads divisions.

Display Ad Revenue Grows

In Q1, the display ad revenues (including traffic acquisition cost) declined by 2% year over year to $456 million. While the number of display ads sold across Yahoo properties grew by 2%, the price per ad was flat. Additionally, Trefis believes that Yahoo’s video ads revenues will improve in the future due to streaming of live events. This is expected to boost display revenues by increasing the number of ads sold. This would offset the decline in revenues from desktop display ads to some extent.

Improvement In Ad Volume And Contract With Google In Focus

During the quarter, Yahoo’s search revenues (including TAC) grew by 90% to $745 million after considering the change in revenue presentation contribution of $304 million. Excluding the change, Yahoo’s revenues declined by 10%. For the quarter, despite a 10% improvement in price per click, its number of paid clicks (ad volume) declined by 12%. Despite numerous agreements such as an agreement with Mozilla and Google, Yahoo’s search ads has failed to gain a firm foothold in the search ad industry.

While we are in the process of updating our model, the company is working on the sale of its core business to Verizon for $4.5 billion. This deal is expected to close in June 2017.

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1. Yahoo Reports First Quarter 2017 Results 8-K, April 18 2017, www.sec.gov [↩]
2. 8-K Q1 2017 [↩]