Yahoo! Posts Q1 Earnings Miss, Focuses on Verizon Merger 

Yahoo! Posts Q1 Earnings Miss, Focuses on Verizon Merger 

Yahoo! Posts Q1 Earnings Miss, Focuses on Verizon Merger 

The FINANCIAL -- Yahoo! Inc. on April 18 reported results for the quarter ended March 31, 2017.

"Our Q1 performance reflects solid financial and operational execution in the new year, with more than $1.3 billion in GAAP revenue delivered. These results are the product of our teams' tremendous focus and dedication to our users and advertisers," said Marissa Mayer, CEO of Yahoo. "As we enter our final quarter as an independent company, we are committed to finishing strong and planning for the best possible integration with Verizon. With the transaction anticipated to complete in June, I've never been more proud of the improvements we've made to the business and the value we've delivered to our shareholders."

As previously announced, beginning in the second quarter of 2016, GAAP revenue and cost of revenue - TAC are impacted by a required change in revenue presentation related to the Eleventh Amendment to the Microsoft Search Agreement ("Change in Revenue Presentation," as discussed below). For the first quarter of 2017, the Change in Revenue Presentation contributed $304 million to each of GAAP revenue and cost of revenue - TAC. Excluding the impact of this change, GAAP revenue would have been $1,023 million, a 6 percent decrease from the first quarter of 2016, and cost of revenue - TAC would have been $190 million, a 17 percent decrease from the first quarter of 2016, according to Yahoo!.

Business Updates

Doubled the number of users enrolled in Yahoo Account Key in Q1 2017, allowing users to more easily sign in to their Yahoo account using their mobile phone.

Updated Yahoo Answers Now with new engagement features like social sharing, question of the day, and notification controls.

Launched Captain, a mobile bot assistant to help users manage lists and reminders, and coordinate family or group activities.

Introduced new features on Yahoo Mail including Caller ID to integrate contact information from emails, and improved email search to surface most relevant "Top Results".

Launched a newly designed Yahoo Homepage featuring News, Sports, and Finance alignment to make content more easily discoverable and personalized for users.

Livestreamed coverage of the Presidential Inauguration on Yahoo News, the NBA Trade Deadline on Yahoo Sports' The Vertical, and Yahoo's inaugural All Markets Summit on Yahoo Finance.

Yahoo Sports launched Tourney Pick'em game with brand partnerships from Lexus and Pizza Hut, Yahoo Fantasy Baseball with rich data and featured MLB "Game of the Day" video content, and Yahoo Daily Fantasy in the UK.

Transaction Update

Yahoo continues to work with Verizon on integration planning for the sale of its operating business. The Company anticipates the closing to occur in June 2017.

Mavens revenue represented 38 percent of traffic-driven revenue in the first quarter of 2016, and increased to 42 percent in the first quarter of 2017. Excluding the impact of the Change in Revenue Presentation, Mavens revenue would have been $391 million, and represented 40 percent of traffic-driven revenue, in the first quarter of 2017.

GAAP mobile revenue for the first quarter of 2016 and 2017 was $260 million and $412 million, respectively.

Mobile revenue represented 25 percent of traffic-driven revenue in the first quarter of 2016, and increased to 32 percent in the first quarter of 2017. Excluding the impact of the Change in Revenue Presentation, mobile revenue would have been $274 million, and represented 28 percent of traffic-driven revenue, in the first quarter of 2017.

Gross mobile revenue for the first quarter of 2016 and 2017 was $412 million and $447 million, respectively. The Change in Revenue Presentation does not impact gross mobile revenue.

Search Revenue:

GAAP search revenue was $745 million for the first quarter of 2017 compared to $492 million for the first quarter of 2016. Excluding the impact of the Change in Revenue Presentation, which contributed $304 million to search revenue in the first quarter of 2017, search revenue decreased by 10 percent compared to the first quarter of 2016.

Gross search revenue was $799 million for the first quarter of 2017, a decrease of 3 percent compared to the first quarter of 2016. The Change in Revenue Presentation does not impact gross search revenue.

Cost of revenue - TAC associated with search revenue was $435 million for the first quarter of 2017. Excluding the impact of the Change in Revenue Presentation, which contributed $304 million to cost of revenue - TAC in the first quarter of 2017, cost of revenue - TAC associated with search revenue decreased by 9 percent compared to the first quarter of 2016.

The number of Paid Clicks decreased 12 percent compared to the first quarter of 2016.

Price-per-Click increased 10 percent compared to the first quarter of 2016.

Display Revenue:

GAAP display revenue was $456 million for the first quarter of 2017, a 2 percent decrease compared to the first quarter of 2016.

Cost of revenue - TAC associated with display revenue was $58 million for the first quarter of 2017, a 30 percent decrease compared to the first quarter of 2016.

The number of Ads Sold increased 2 percent compared to the first quarter of 2016.

Price-per-Ad remained the same as the first quarter of 2016.

Cash, Cash Equivalents, and Marketable Securities:

Cash, cash equivalents, and marketable securities were $8,021 million as of March 31, 2017 compared to $7,910 million as of December 31, 2016, an increase of $111 million.

"We feel incredibly proud that we executed so well against our 2016 plan and kicked off 2017 on a positive note by achieving our internal operating goals," said Ken Goldman, CFO of Yahoo. "Not only did we meet our internal GAAP revenue goal of $1.3 billion, but we also continued managing our capital and cash operating expenditures closely, ending the quarter with over $8 billion in cash, cash equivalents, and marketable securities, representing an increase of nearly $900 million year over year. As we prepare to close the sale of this iconic company to Verizon, I'm very pleased with what we have accomplished with regard to the achievement of our operating and financial plans."

Change in Revenue Presentation

As previously announced, pursuant to the Eleventh Amendment to the Microsoft Search Agreement, the Company completed the transition of its exclusive sales responsibilities to Microsoft for Microsoft's paid search services to premium advertisers in the United States, Canada, and Europe on April 1, 2016 and in its remaining markets (other than Taiwan and Hong Kong) on June 1, 2016. Following the transition in each respective market, Yahoo is considered the principal in the sale of traffic to Microsoft and other customers because Yahoo is the primary obligor in its arrangements with Microsoft and has discretion in how search queries from Affiliate sites will be fulfilled and monetized. As a result, beginning in the second quarter of 2016, amounts paid to Affiliates under the Microsoft Search Agreement in the transitioned markets are recorded as cost of revenue - TAC rather than as a reduction to GAAP revenue, resulting in GAAP revenue from the Microsoft Search Agreement being reported on a gross rather than net basis. Taiwan and Hong Kong are not being transitioned, and TAC in those markets continues to be reported as a reduction to revenue.