Yahoo (NASDAQ:YHOO) has published its third quarter 2014 report, with a positive outlook after outperforming estimates. But given that many of these gains are brought about by recent one-off transactions, it will be up to CEO Marissa Mayer and management to determine how Yahoo’s strategy moving forward will leverage these gains.
Yahoo’s earnings per share in its Q3 2014 report was at $0.52, exceeding analyst expectations of $0.33, with revenue likewise exceeding expectations at $1.09 billion vs. a $1.03 billion estimate.
“We had a good, solid third quarter. We delivered $1.094 billion in revenue ex-TAC [traffic acquisition costs, or commissions paid to web publishers] and $1.148 billion in GAAP revenue,” says CEO Marissa Mayer in a statement. “This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue. We achieved this revenue growth through strong growth in our new areas of investment – mobile, social, native and video – despite industry headwinds in some of our large, legacy businesses.”
Revenue from search grew 4% year-on-year to $450 million this quarter, while display ad revenue is down 5% to $396 million. However, what’s interesting is that Yahoo decided to unbundle its revenue from mobile, which it has reported at $200 million for Q3 2014, which amounts to 17% of its revenue this quarter. The company expects to exceed $1.2 billion in mobile revenue throughout the year. “We have invested deeply in mobile and we are seeing those investments pay off,” says Mayer. “Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo.”
One-off gains
Yahoo earned a significant amount of cash from the Alibaba (NYSE:BABA) IPO, after selling $6.3 billion (net of tax) worth of stock from its stake in the Chinese e-commerce giant. The company’s EPS figure would be markedly lower if it excluded this sale.
This quarter, Yahoo also booked a repurchase of 8 million shares of common stock at $282 million. The company also entered into an accelerated share repurchase from a financial institution, buying back 23.5 million shares.
Its current cash, cash equivalent and marketable securities holdings are now at $12 billion. Analysts contend that Yahoo’s future would largely depend on the strategies that Mayer and management will undertake, in view of its cash position. It can be noted that after Mayer’s appointment as CEO, the company had acquired $1.8 billion worth in several technology startups, but these acquisitions were mainly made in order to bolster the firm’s engineering talent.
With its cash holdings, Yahoo is in a better position to acquire companies that will strengthen the company’s revenue-generating activities. “We are moving from a company that makes Web pages and monetizes them through banners to a company that makes mobile apps and monetizes them through native ads,” Mayer said in Yahoo’s earnings conference call.
For instance, Yahoo is reportedly in talks with cross-platform digital advertising service BrightRoll for a potential acquisition. In addition, activist investor Starboard Value have proposed mergers with major Internet and media companies like AOL, in order to further bolster Yahoo’s position in the industry.
The current calendar year has been a mixed one for Yahoo, so far, demonstrating flat growth in key areas in Q1 and missing earnings and sales expectations in Q2. With a turnaround in its Q3 earnings report, Yahoo will be a company to watch in terms of what it will do to maintain momentum.
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