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Yahoo 1Q08 Earnings Call Highlights April 22, 2008

Posted by David Card in Media.
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Yahoo showed results slightly above consensus, maintained 08 guidance on revenues, and slightly raised them for cash flow. Since everybody blogs earnings calls real-time, I’ll focus on the key highlights and most important “color” comments.

– Advertising revenues for Yahoo’s own sites were up 18% to $966M. They were down 7% from Q4.

– Advertising revenues from its network partners were down 7% to $607M. They were up 9% from Q4. Yahoo blames this on higher rev share fees and pruning out its lousy affiliates.

– Fees revenues were up a whopping 21% to $245M. (down 1% from Q4) No color. This includes portal fees from broadband ISPs from deals that are currently being re-negotiated away from fees toward ad rev-share agreements. For instance, AT&T paid $350M to unwind its contract, but that will be recognized over the 4 year term of the deal.

Total US revenue ex-TAC (minus revenue sharing) was up 17%, but that’s probably buoyed by that fee growth. Int’l was up 7%. Owned & Operated ex-TAC growth was 15%; search O&O was 16% and display O&O was 15%. It feels like Yahoo’s US display ad growth was about 15%. That means that, so far, we’re not seeing the US economy pummel online display advertising revenue. Jupiter projects US display ad growth for 08 to hit 15%.

Ad categories Auto, Pharma, Telco, and CPG remain strong, with double-digit growth. Financial, Travel, Retail remain sluggish. Some of those sectors even showed decline. Of the strong categories, Telco & Tech were strong in display only; Pharma & Auto were strong in both display and search.

Remnant inventory CPMs nearly doubled. Yahoo is running its “non-guaranteed” ad inventory through Right Media’s exchange, and it’s working. Premium inventory prices were up modestly.

Average TAC rates globally remain 78%, and are seeing continued upward pressure from a very competitive environment.

Yahoo removed the 10-cent minimum required bids on select US keywords during the quarter (an auction approach should raise prices overall), but that had no impact on search yield yet. O&O search yield was up 10%, which is down from the 20% rate of the prior quarters, but that’s because of tough comparisons as Panama first rolled out. Not much on the Google test, other than it leaves options open.

Search volume growth was over 10% in the US but less — and under its goal — internationally. Yahoo claimed it saw the most improvements in relevancy in five years.

Yahoo’s revenue per search was up 15% globally. Yahoo figures that, when it started Panama, it had a 90% RPS gap compared with Google. It estimates it has closed that gap by 30 points, but there’s still a 60 to 70% gap to close.

Everybody reiterated the core strategies. They’re all on the same page at least. The objective is to be:

– Web “starting point” for the most users (starting points mean doubling down on home page, search, mail and a few key verticals like Finance, Sports, News; opening them up to third parties; and adding social connections to content but not becoming a social network)
– the must-buy ad inventory for the most advertisers
– a platform for the most developers

Yahoo’s strategy for revenue growth depends on increasing:
– Search volume & yield
– Display volume & yield

Of these, the two yields offer the most promise, says Yahoo, with display volume growth the second most. Yahoo intends to grow display revenues 25% in both 2009 and 2010. That’s way higher than Jupiter’s US growth forecasts of 12% and 11%. Yahoo says it does indeed intend to gain share, but probably thinks our forecast is a shade conservative.

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