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Highlights from Yahoo’s 3Q06 Earnings Call October 17, 2006

Posted by David Card in Media.
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As usual, I’ll summarize the industry-related important stuff, rather than all the financial mumbo jumbo. Slides from the call are here.

Previously, Yahoo had warned that Q3 would slow, and it did. Yahoo also lowered its guidance for Q4 again. There was an awful lot of talk about what Yahoo’s going to do to fix things, and not a whole lot of what they call “color” on the numbers. And the first stage of the re-engineered paid search platform — Project Panama — is now live in the US.

Ad revenues (search and display) ex-TAC (that means, minus the revenue-sharing that Yahoo pays out to its search partners) were down 2% sequentially, but up 20% year over year, to $912M. Fees paid by consumers, small businesses, and broadband partners were up 11% from Q2 and 23% from a year ago, to $210M. Yahoo said its first-half display ad revenue growth outpaced the overall online (Jupiter agrees) and that was the case in Q3 as well (probably), but that in the near-term, its growth would be in line with the industry average, but from a large base. Ouch.

Advertising and Search

– Ad revenues on Yahoo’s own site grew faster than on its partners, because display ads did better than search. Display grew over 20%, and Yahoo’s top 200 US advertisers grew between 30% and 35%. No color on categories.
– The malaise in auto and financial services Yahoo had noted earlier is company specific. But some of those company specific issues are spreading to other categories.
– The affiliate network grew in low double-digits, due to the long-gone MSN deal, and modestly higher pay-out rates.
– Page view growth is higher than UV growth, but both got dissed in Q&A for slowing a little. Yahoo execs countered that some Q2 growth was from the Yahoo-managed FIFA World Cup site.
– Revenue per page view is down — single digit growth in display but a decline in revenue per search query. Yahoo blamed the display ad slowdown on those company-specific industry issues but also on competition from “low-end” inventory (i.e., MySpace and ad networks).
– Yahoo claims it is maintaining search query market share; it just can’t monetize as well as Google. Revenue per search was down; and there won’t be any improvement in Q4.
– Panama’s front-end functionality for advertisers is live. Invitations are going out in a staged manner, and Yahoo’s not forcing anybody to upgrade if they want to hold off till after the holidays. In response to a question, yes, Panama allows a lower than 10 cent minimum click rate. The marketplace part of Panama is on target for 1Q07, and any actual US revenue benefits should start showing up in 2Q07.
– Yahoo acquired 20% of ad exchange Right Media, and it will put its own non-premium ad inventory into the exchange in order to improve its yields. (Hey, I thought that was what behavioral targeting was for…) It also acquired rich media hoster AdInterax.
– Highly targetable inventory from eBay should be fully deployed in the first half of 2007; Telemundo inventory is also coming online. Yahoo thinks the eBay ads will appeal to its big Retail customers, but won’t benefit other categories.

Paid Content and Services

– Growth in fees was actually higher than 23%, because there was a one-time event last year.
– 15.5 million paid relationships, up 8% (over 1M) sequentially, and 36% year to year. No commentary, but it’s Fantasy Football season.
– Yahoo expects to hit its target of over 16 million paid relationships by year-end, with $3-4/month in revenues.

Big Themes

Yahoo’s strategery is to focus on three things:
– Fixing search monetization (that’s Panama)
– Recapture and open the gap in display ads (eBay, the investments, keep on making the homepage the “most coveted” inventory on the Web)
– Take advantage of new opportunities in social media, video, and mobile.

Social Media. Says Yahoo: We’re already big. If you add up Flickr (20M UV), Yahoo Answers (60M), del.icio.us, and Yahoo Video you get 100 million UV. Within that is about 30M 15-to-24 year-olds. Take that, MySpace and YouTube. Yeah, they will. And where’s the ad targeting, which is a real Yahoo advantage?

Video. 40 million monthly video users. Infrastructure that supports high quality (not a very huge deal, but could be good for the heavy users) and JumpCut editing tools. Ditto. “Over a dozen” partnerships with real video producer companies. Yes, but Yahoo’s so well positioned to do more. Do ’em. And same targeting question applies.

Mobile. Audience acquistion today; monetization TK. Focusing on both getting Yahoo services to existing Yahoo users on their phones, and on tapping emerging markets where users’ first, and possibly only, Internet comes to the phone. Handset partnerships and tech (Windows Mobile and Symbian already, Java in 07) so that next year Yahoo will be available on the majority of phones worldwide. That’s kind of cool. What, no carriers called out by name?

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