Yup, those Yahoo Panama expectations were too high

Yup, those Yahoo Panama expectations were too high

Summary: Yahoo reported its first quarter results and as expected those lofty Panama expectations didn't hold up. The company reported net income of 10 cents a share on revenue of $1.

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Yahoo reported its first quarter results and as expected those lofty Panama expectations didn't hold up.

The company reported net income of 10 cents a share on revenue of $1.18 billion. The revenue figure excludes traffic acquisition costs. On that same basis, Wall Street was expecting revenue of $1.21 billion and earnings of 11 cents a share, according to Thomson Financial.

Yahoo projected second quarter revenue of $1.2 billion to $1.3 billion. Wall Street was expecting revenue of $1.28 billion. For the year, Yahoo is projecting revenue of $4.95 billion to $5.45 billion. Analysts were expecting revenue of $5.32 billion.

Among notable figures:

  • Yahoo ended the first quarter with 477 million unique users and 238 million active registered users. Page views came in at 4.64 billion.
  • There were 16,500 fee paying customers, up 24 percent from a year ago.
  • Headcount was 11,700 at the end of the first quarter, up 16 percent from a year ago.
  • Revenue per average unique user per month was 88 cents. That's down from 95 cents a year ago and 97 cents in the fourth quarter.
  • Operating income in the U.S. was $92.8 million, down from $137 million a year ago. International operating income was $76.2 million, up from $64.3 million a year ago.

On the earnings conference call Yahoo CEO Terry Semel reiterated previous statements, notably that the new Panama ad system will begin contributing financial results in the second quarter. Semel said he "couldn't be more pleased" with Panama's progress.

Panama also launched in international markets yesterday starting in Japan to a "select group of advertisers.

Aside from Panama, Semel noted that Yahoo expanded a partnership with eBay to enhance checkout processes with PayPal.

A few observations from the call:

  1. The call didn't go well. Semel didn't sound polished--he usually doesn't. But CFO Sue Decker seemed off her game as well. You won't get that perception via a transcript--it's a vibe you pick up via audio. Apparently, I'm not alone--Owen Thomas at Business 2.0 panned the call also.
  2. Decker garnered most of the questions. Semel was asked a DoubleClick question, but was largely ignored by analysts. Since Decker is now the MVE (most valuable executive) that's not too surprising.
  3. Decker was asked why page views were growing faster than revenue. Decker didn't have a great answer. Seems like Yahoo has inventory--perhaps those social feature Semel was yapping about earlier--that can't be monetized readily.
  4. I wonder if Yahoo is getting some pressure from large shareholders. Decker made a point to talk about Yahoo's balance sheet levers including stakes in Yahoo Japan and Alibaba. Why is this a big deal? Everyone knows Yahoo's balance sheet is fine and cash isn't an issue--unless a big shareholder wants better returns. I have to noodle that point over, but it bugs me. Another alternative: Is Yahoo pondering selling some Yahoo Japan so it can make a big acquisition. It may not be a good idea to skip international growth to buy something like Facebook

Topic: Operating Systems

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  • Narrative at work.

    Whatever the actual situation at Yahoo, the obvious narrative is that it's flabby and trailing Google, which does all things well. And Mr. Semel is - reputedly - so much on his way out that he's left the questions requiring fatuous answers.

    The way narrative can color understanding is shown in considering the points made about increasing value in Asia.

    Here's Point 4 above:

    I wonder if Yahoo is getting some pressure from large shareholders. Decker made a point to talk about Yahoo's balance sheet levers including stakes in Yahoo Japan and Alibaba. Why is this a big deal? Everyone knows Yahoo's balance sheet is fine and cash isn't an issue?unless a big shareholder wants better returns. I have to noodle that point over, but it bugs me. Another alternative: Is Yahoo pondering selling some Yahoo Japan so it can make a big acquisition. It may not be a good idea to skip international growth to buy something like Facebook.

    From the linked response to the call:

    Here's something disturbing: Decker is talking about Yahoo's "substantial balance sheet resources" beyond its cash - almost $8 billion from its stakes in China's Alibaba, Yahoo Japan, and Gmarket in Korea. But Yahoo can't sell those without essentially exiting some of the biggest markets in Asia. Is she seriously suggesting that Yahoo would do that to raise cash? And if so, why? What is she worried about?


    Another guess: if Yahoo is sold, the asking price would be surprising. Contingency planning for an offer would lead to a review of assets.

    Or maybe it's a way to prevent going past an important point this way:

    "Everyone knows Yahoo's balance sheet is fine and cash isn't an issue ..."

    ... and inserting a positive note about the company.


    There is a subtext here. Maybe the issue for Yahoo isn't actual problems, but how to prevent a damaging narrative from turning into conventional wisdom.
    Anton Philidor