Yahoo announced earnings for Q4 2006 today. It was a mixed bag. Lackluster traffic growth of 15% in an otherwise strong environment is a bad sign, and Yahoo also lowered 2007 expectations.
Disappointing things:
- Lowered guidance for 2007.
- Weak 15% Year-over-year growth in traffic in Q4.
- Rising TAC costs
- Lowest Free Cash flow in several years.
- Revenue per Unique User was 97 cents. Down 2% from Q4 2005.
Nice things:
- Forecast a vague RPS improvement "in double digits". RPS is "revenue per search".
- Ability to service large accounts is strong
- Yahoo managed expectations well, and was able to beat analyst estimates by 3 cents.
However, net profit was $269M vs $683M for Q4 2005. Sue Decker explained Panama will drag on earnings until second half 2007. Their outlook incorporates expectation of "double digit" growth gains in Revenue per search (RPS).
Financial services were strong during the quarter despite Semel's warning in October that there would be weakness in Financial Services and Autos. Basically Semel had lowered the bar, and jumped over it.
In her CFO mode, Sue Decker constantly refers to "O and O" properties, "O n O" revenue. That means Yahoo "owned and operated" sites. They see that business growing 20%, but once affiliate sites are included, that growth nets down to 14%. That's kinda disappointing, especially since Yahoo's traffic acquisition costs (TAC) is going up (while Google's TAC cost has been going down a lot).
Semel monologued a bit at the end of the conf call Q&A, asking himself:
Q: Why did your re-org the company?
- Audience side: Puts them close to best, most valued customers
- Ad & Publisher side: all energies dedicated to reach advertisers on and off network, and get engineering teams together focused on same goal.
- Lead transformation on how advertisers connect to their customers.
Search Marketing Tidbits Gleaned From Q4 Conf Call
ComScore Playing Catch-up
Traffic growth was disappointing, but comScore numbers make it look better. From the CNN earnings article:"And according to figures from Nielsen//NetRatings that were released Tuesday, Yahoo's search engine volume in December increased 30 percent from a year ago, a faster growth rate than Google, which posted a 22.6 percent increase."
Sue Decker said comScore's estimates were low a year ago, and have caught up this year. So comScores usage growth numbers look better than Yahoo's internals.
New Ranking Algorithm Coming
Yahoo announced that on Feb 5 there will be a new search ranking model in Panama. This probably means that clicks will get more expensive at that time, or at least be more fairly priced. (TRANSLATION: there are some cheap clicks out there right now, and they are mixing old / new system ads with lower efficiency).
Emphasis on Improving Network Quality
Components to quality improvement :- Address lower performing affiliates - read: Overture feed arbitrage sites
- Controls that manage geographic leads
- Great news for "higher quality publisher"
- Acquire higher quality network publishers: eg. Ebay, newspapers deals.
- Drive network quality higher
There was a clear focus on affiliates as a problem point on network quality. Obviously this includes all the ad arbitrage sites in the Yahoo Network which have an Overture ad feed. Sue Decker sounds like she's coming after those. We'll see how real that is...
Kedrosky points to a WSJ article detailing the painful road to Panama - and reporter Kevin Delaney basically pans Panama...
Later in the week, I'll post on my experiences with Panama. It's also a mixed bag.
UPDATE: Looking at Techmeme, the meme on the Yahoo announcement seems to be that the Panama rollout is happening faster that planned - and that's a good thing.
I find this interpretation quite odd, considering that Yahoo has been pointing to the Panama rollout since Q4 2005, even holding a special analyst day on May 17 2006 to talk about Panama to reporters. Beyond all this, Panama is 2 YEARS LATE!. So it's impressive if Yahoo can spin this rollout as happening earlier than expected.
I thought Sue Decker was pretty clear on this point when she:
- said they are LOWERING guidance for the rest of 2007
- said Panama wouldn't be a positive effect til LATE Q2
- vaguely waved her hands on an eventual 'double digit increase' on RPS that could mean anywhere from 10% to 99%.
At least Henry Blodget noticed the real news of the announcement: Turtle-like revenue growth... Sigh.
Labels: 2006, decker, q4, semel, yahoo
¶ 1/23/2007
