Owned and Operated Display Advertising Grows 19% Year Over Year
Company Continues Strong Operating Income and Margin Expansion
SUNNYVALE, California, July 20, 2010 – Yahoo! Inc. (NASDAQ: YHOO) today reported results for the quarter ended June 30, 2010.
Revenue was $1,601 million for the second quarter of 2010, a two percent increase from the second quarter of 2009. Income from operations for the second quarter of 2010 was $175 million, compared to $76 million in the second quarter of 2009. Excluding restructuring charges of $65 million in the second quarter of 2009 and $10 million in the second quarter of 2010, income from operations grew 32 percent in the second quarter.
Net income per diluted share for the second quarter of 2010 was $0.15, compared to $0.10 in the second quarter of 2009.
“We’re pleased that we continued to deliver strong operating income and margin expansion,” said Yahoo! Chief Executive Officer Carol Bartz. “Our search fundamentals are improving and we posted another quarter of healthy display advertising growth.”
Financials at a Glance
Quarterly GAAP Results (in millions, except percentages and per share amounts)
Q2 2009 Q2 2010 Percent Change
Revenue $1,573 $1,601 2%
Income from operations $76 $175 132%
Net income attributable to Yahoo! Inc. $141 $213 51%
Net income attributable to Yahoo! Inc. common stockholders per share - diluted
$0.10 $0.15 53%
Business Highlights
• Display advertising on Owned and Operated sites continued to perform well, growing 19 percent in the quarter compared to the second quarter of 2009.
• Operating margin expanded from 4.8 percent in the second quarter of 2009 to 11.0 percent in the second quarter of 2010. Excluding restructuring charges of $65 million in the second quarter of 2009 and $10 million in the second quarter of 2010, operating margin expanded from 8.9 percent to 11.6 percent.
• Yahoo! deepened its integration with Facebook through Yahoo! Pulse – now users can link their Yahoo! and Facebook accounts and view and share updates with friends across both networks.
• Yahoo! launched new Mail and Messenger apps for the Android platform, as well as HTML-5-based Mail and News sites for the iPhone.
• Samsung and Yahoo! extended their strategic global partnership to distribute Yahoo!'s industry-leading services on millions of Samsung mobile devices - including those running Samsung bada and Android platforms.
• Yahoo! acquired Associated Content Inc., extending Yahoo's ability to provide high quality, personally relevant content for the benefit of its users and advertisers.
• Nokia and Yahoo! announced a worldwide strategic alliance, extending the reach of Yahoo!’s industry-leading online services.
• Yahoo! announced that it will bring hit games from social gaming company Zynga to the Yahoo! network.
• Yahoo! acquired Koprol, Indonesia’s popular location-based social network.
• Yahoo! expanded its partnership with Sony to increase the number of countries where Yahoo! TV Widgets are available, enabling Yahoo! to connect millions of additional consumers on their TVs.
• Yahoo! hosted its third annual Hadoop Summit with more than 1,000 developers. Hadoop is an open source technology pioneered by Yahoo! for big data sets and cloud computing, helping companies get value from their data and better manage their businesses.
• Brad Smith, president and CEO of Intuit, and Patti Hart, CEO of International Game Technology (IGT), joined Yahoo!’s Board of Directors.
• Blake Irving joined as Chief Product Officer, bringing to Yahoo! large scale Internet expertise and will lead Yahoo!’s products organization, which is responsible for the vision, strategy, design and development of Yahoo!’s global consumer and advertiser product portfolio.
Search Alliance Costs and Reimbursements
Yahoo!’s results for the three months ended June 30, 2010 reflect $86 million in search operating cost reimbursements from Microsoft under our Search and Advertising Services and Sales Agreement (“Search Agreement”). This amount is equivalent to the search operating costs incurred by Yahoo! related to the Search Agreement in the second quarter. Search operating cost reimbursements are expected to continue until Yahoo! has fully transitioned to Microsoft’s search platform. Yahoo! views search operating cost reimbursements as an indicator of the long-term cost savings associated with full implementation of the Search Agreement. Our business outlook for total expenses reflects these savings as well as planned reinvestments.
Yahoo!’s results for the three months ended June 30, 2010 also reflect transition cost reimbursements from Microsoft under the Search Agreement, which were equivalent to the transition costs of $18 million incurred by Yahoo! related to the Search Agreement in the second quarter. Therefore, the net impact of the transition costs and reimbursements were neutral to total operating expenses in the second quarter, as expected. In the future, quarterly transition cost reimbursements are expected to continue to be roughly equivalent to quarterly transition costs.
Second Quarter 2010 Revenue Results
 Marketing services revenue increased four percent and fees revenue decreased 16 percent, compared to the second quarter of 2009.
 Marketing services revenue increased one percent and fees revenue decreased seven percent, compared to the first quarter of 2010.
 Marketing services revenue from Owned and Operated sites of $881 million increased three percent compared to $858 million for the same period of 2009. This was primarily driven by a 19 percent increase in display advertising revenue, partially offset by an eight percent decline in search advertising revenue.
 Marketing services revenue from Affiliate sites were $557 million, a seven percent increase compared to $520 million for the same period of 2009.
Second Quarter 2010 Cash Flow and Cash Balance
 Cash flow from operating activities was $347 million, a two percent increase compared to $342 million for the same period of 2009.
 Free cash flow was $127 million, a 52 percent decrease compared to $266 million for the same period of 2009.
 Cash, cash equivalents, and investments in marketable debt securities were $3,799 million at June 30, 2010 compared to $4,518 million at December 31, 2009, a decline of $719 million. During the second quarter of 2010, Yahoo! repurchased 32 million shares for $496 million.
Business Outlook
Revenue for the third quarter of 2010 is expected to be in the range of $1,570 million to $1,650 million. Income from operations for the third quarter of 2010 is expected to be in the range of $160 million to $200 million. Total expenses (cost of revenue plus total operating expenses) for the third quarter of 2010 is expected to be in the range of $1,410 million to $1,450 million. Total expenses less traffic acquisition costs (“TAC”) for the third quarter of 2010 is expected to be in the range of $945 million to $965 million. Total expenses less TAC, depreciation and amortization (“D&A”), and stock-based compensation expense (“SBC”) for the third quarter of 2010 is expected to be in the range of $735 million to $745 million.
Conference Call
Yahoo! will host a conference call to discuss second quarter 2010 results at 5 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: 38398529.