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Yahoo 3Q05 Earnings Call Highlights October 21, 2005

Posted by David Card in Media.
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Sorry for the late posting. We’ve been doing planning all week, which means hourly meetings. Anyhow, Yahoo’s revenues from marketing services (ads and search), minus fees paid to partners (ex-TAC) were up 6% sequentially and 40% year over year to $762 million. Fees (consumer and small business) were up 7% from Q2 and 42% year to year, to $170 million. Yahoo again slightly raised overall 2005 guidance. It continutes to outgrow the industry, if not Google. Some industry- rather than finance-related tidbits from the earnings call (Yahoo is giving fewer and fewer details these days):

Advertising
– Gross revenues up 6% sequentially and 46% year over year to $1.16 billion.
– Top 200 advertisers spent at an over 90% renewal rate, and spending among them grew faster than Yahoo’s overall marketing growth rate. Claims these big advertisers are spending on search as well as display, and using targeting, rich media, and network-wide packages. Said 50 of the top 200 were also in their top 200 in search.
– Said streaming video ads almost doubled, “much of it driven by CPGs”
– Called out targeting in particular, and noted that better targeting was allowing more efficiency for otherwise contextual-only campaigns (a practice we’ve seen elsewhere as well), and freeing up inventory. Said more than once that inventory shortage is not, and would not be a growth inhibitor.
– Overture and Yahoo sales forces now under same management.
– Search revenues from MSN are declining as the deal winds down. Yahoo estimates MSN ex-TAC revenues will be $70-75 million total in 05, $20-25 million in 1H06, then zero.
– Again this quarter, as in Q2, a questioner estimated that display ad sales grew 10% sequentially, i.e., higher than search. This time, however, mgmt challenged the questioner’s math. However, Yahoo also said it had double-digit growth in display dollars per page view, which it attributed both to more impressions and to higher CPM. Display is traditionally slow in Q3. Yeah, I’m lost, too.
– Key paid search initiatives: Publisher Network (i.e., keyword contextual) launched in beta in August will go wide beta in Q1; new, better matching capabilities (to raise coverage); and new optimization analysis tools for advertisers (to raise revenue per search and click-through)

Paid Content and Services

– 191 million active registered users, up 6% sequentially and 22% year over year
– 11.4 million paid relationships, up 13% sequentially from 10.1 million, and up 50% year to year. A second big sequential growth quarter in a row. (1.2 million added in Q2, 1.3 million in Q3), but no real signs the growth is from the new Music service. Fantasy football is huge in Q3, and broadband access bundles are going strong.
– Biggest categories: access bundles, fantasy sports, music, small business. It’s possible that this stated order implies Music is bigger than Personals, I suppose.
– Yahoo also gave some numbers that seem to say acquired business sales were $25 million, with Musicmatch the bulk of that. That seems high to me. (Market leader RealNetworks did $24 million in music last quarter.) Possibly Yahoo is counting all all music subs in there, but even then…
– Yahoo said it was pleased with the launch of Music Unlimited. I’ve heard some contradictory scuttlebutt, and not seen nearly the amount of advertising — outside of Yahoo’s own network — I expected. (Though sales & mktg spending was up $20 million sequentially compared with being flat between 2Q04 and 3Q04.) I’m a little worried our music subscription spending forecast for 2005 — $250 million total in the US — might be a shade high.
– Adding the Bell South bundling deal (to SBC & Verizon) will give Yahoo a broadband footprint it estimates equal to 92% of US.

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