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Category: PaidSearchPro

PaidSearchPro

  • Major Search Engine Stops Using Links For Ranking (For Commercial Queries)

    Yandex, the top search engine in Russia, has reportedly announced that it no longer counts links as a ranking factor when delivering search results for commercial queries.

    This is an interesting move in an industry that has relied heavily upon linking since Google’s rise to search power.

    WebCertain CEO and international search specialist Andy Atkins-Krüger reports that the company disclosed the news at the Internet Business Conference in Moscow. He also spoke with Alexander Sadovsky, the head of Yandex’s Web Search department:

    Speaking to Alexander this morning he explained that this change applies only to commercial queries representing some 10% of the queries Yandex sees. “There is a lot of noise around the links signal particularly for commercial queries and especially in Russia. We see a lot of paid links and even automated paid links where there is no human actually involved. The problem with these links is they’re frequently off-topic and are effectively cheating users.”

    …

    Alexander added that they’d observed a significant reduction in the value of the signal derived from links, “Three years ago the influence of links was still significant, two years ago we noticed a significant reduction and last year it became clear that links for commercial queries had dropped out of the top ten most important factors. This change is a natural continuation of that trend.”

    The search engine is reportedly taking over 800 ranking factors into consideration, and a major one is how users engage with a site.

    Commercial queries are getting interesting in search in general. Look at some of the stuff Google has been doing lately.

    For one, the company is toying around with branded banner ads on some commercial searches, breaking a promise it made years ago, as many have pointed out.

    Obviously Google has changed its shopping experience significantly with paid listings now the only product results available.

    We’ve also recently seen Google make suggestions for branded search results on generic queries, which some find a bit troubling.

    According to Atkins-Krüger, Yandex’s changes will go into effect next year, starting in Moscow.

    Image: Yandex

  • PayPal Makes It Easier To Pay With Prepaid Gift Cards

    PayPal Makes It Easier To Pay With Prepaid Gift Cards

    PayPal announced that it now supports prepaid gift cards in that consumers can use them anywhere that accepts PayPal.

    This is just in time for the holidays, when many people will be getting these cards as gifts. As PayPal explains, these gifts often come with a burden attached to them.

    “A lot of e-commerce sites can’t or won’t accept it right off the shelf—even if other credit or debit cards of the same card brands are allowed,” says PayPal’s Ed Lee in a blog post. “Many consumers are forced to call the card issuer or go to a special website to register a billing address before trying to pay with the prepaid gift card. It might sound simple, but in PayPal’s recent usability study, it was found that only 1 person out of every 4 was able to register their billing address and complete an online purchase successfully. Thankfully, PayPal has offered a way to resolve the issue. Now, no more of this hassle is required if you use prepaid gift cards through PayPal Checkout.”

    “After our customers voiced this particular pain point again and again, we knew we had to fix it once and for all,” he adds. “After months of research and investigations, we discovered a patent-pending and innovative way to allow the usage of prepaid gift cards so that you can seamlessly apply them to the purchase of products and services anywhere PayPal is accepted – just in time for the holidays!”

    This goes for cards from Visa, American Express, MasterCard, and Discover.

    About a year ago, PayPal began offering its own prepaid cards, but only to those who have credit/debit cards or bank accounts connected to PayPal.

    Image: PayPal

  • Demand Media Revenue Down Thanks To Loss Of Search Referrals

    Demand Media just announced its results for the third quarter. Revenue was down 2% year over year. Content and media revenue specifically was down 7%. Registrar revenue was up 11%, and mobile revenue doubled year over year.

    The company perhaps known as the poster child for the Google Panda update, has once again felt the negative effects of a loss in search referrals.

    “This quarter, our media business was negatively impacted by declines in search referral traffic and advertising demand. Despite these challenges, I am excited about the long-term prospects for both our media and domain name services businesses,” said Interim President and CEO Shawn Colo. “We have a unique set of compelling assets, which will enable us to take advantage of significant growth opportunities in both the media and domain services markets.”

    This is the company’s first earnings report without Richard Rosenblatt, who recently stepped down as CEO. The company reportedly also laid off fifteen people.

    Here’s the release in its entirety:

    SANTA MONICA, Calif.–(BUSINESS WIRE)–Nov. 7, 2013– Demand Media, Inc. (NYSE: DMD), a leading digital media and domain name services company, today reported financial results for the third quarter ended September 30, 2013.

    “This quarter, our media business was negatively impacted by declines in search referral traffic and advertising demand. Despite these challenges, I am excited about the long-term prospects for both our media and domain name services businesses,” said Shawn Colo, Interim President and CEO of Demand Media. “We have a unique set of compelling assets, which will enable us to take advantage of significant growth opportunities in both the media and domain services markets.”

    Financial Summary
    (In millions, except per share amounts)
    Three months ended September 30,
    2013 2012 Change
    Total revenue $ 96.3 $ 98.1 (2)%
    Content & Media revenue ex-TAC(1) $ 54.7 $ 58.8 (7)%
    Registrar revenue $ 37.7 $ 34.0 11%
    Total revenue ex-TAC(1) $ 92.4 $ 92.8 —%
    Income from operations $ (9.7 ) $ 4.5 NA
    Adjusted EBITDA(1) $ 18.1 $ 27.6 (34)%
    Net income $ (10.4 ) $ 3.2 NA
    Adjusted net income(1) $ 3.3 $ 9.8 (66)%
    EPS – diluted $ (0.12 ) $ 0.04 NA
    Adjusted EPS(1) $ 0.04 $ 0.11 (64)%
    Cash flow from operations $ 18.8 $ 24.6 (24)%
    Free cash flow(1) $ 10.0 $ 16.6 (40)%
    (1) These non-GAAP financial measures are described below and reconciled to their comparable GAAP measures in the accompanying tables.

    Q3 2013 Financial Summary:

    • Total revenue ex-TAC was flat year-over-year, with 11% year-over-year growth in Registrar revenue offset by a 7% decline in Content & Media revenue ex-TAC. Excluding the acquisitions of Society6 and Name.com, total revenue ex-TAC decreased 10%.
      • Registrar revenue grew 11% year-over-year, due primarily to growth from Name.com, which was acquired at the end of Q4 2012. Excluding the acquisition of Name.com, registrar revenue increased 2%.
      • Owned & Operated revenue growth of 6% was driven primarily by revenue of$5.6 million from Society6, which was acquired at the end of Q2 2013, and higher revenue from the sale of undeveloped websites, offsetting advertising revenue declines that were due primarily to a reduction in search engine referral traffic. Excluding the acquisition of Society6, Owned & Operated revenue decreased 7%.
      • Network revenue ex-TAC declined 50% due primarily to $3.1 million less revenue from the Company’s YouTube Channels as well as an unfavorable$1.6 million revenue adjustment from an advertising partner related to activity on certain network websites prior to Q3.
    • Adjusted EBITDA decreased 34% year-over-year, reflecting the negative impact from search engine referral traffic on high-margin revenues and the unfavorable revenue adjustment noted above.

    “While Q3 was a challenging quarter, we continued to make progress across our commerce and new gTLD initiatives,” said Demand Media’s CFO Mel Tang. “Our ability to generate free cash flow coupled with our strong balance sheet provides us with a solid foundation from which to invest in strategic growth opportunities.”

    Business Highlights:

    Content & Media:

    • September 2013 comScore Rankings:
      • On a consolidated basis, Demand Media ranked as the #18 US web property and Demand Media’s properties reached more than 96 million unique users worldwide.
      • eHow.com ranked as the #23 website in the US and reached 58 million unique users worldwide.
      • Livestrong.com/eHow Health ranked as the #3 Health property in the US, with more than 21 million unique users worldwide.
      • Cracked.com ranked as the #6 Humor property in the US, with more than 8 million unique users worldwide.
    • In Q3 2013, mobile revenue doubled year-over-year and represented 13% of Owned & Operated revenue as compared to 7% last year.
    • During Q3 2013, Society6’s artist community grew over 100% and image uploads grew over 50%. Society6 also expanded its product line-up in Q3.
    • eHow Now’s customers more than doubled quarter-over-quarter, with the majority of revenue driven by monthly subscriptions. eHow Now’s real-time expert chat service is now live across seven categories – Pets, Legal, Auto, Tech, Health, Personal Finance and Home Improvement.

    Domain Name Services:

    • The Company announced that Taryn Naidu will become Chief Executive Officer andDave Panos will become Chairman of the Board of Rightside Group, Ltd., the Company’s domain name services business, upon completion of the separation. In addition, the Company filled several key executive positions for this business during Q3.
    • Recently, Demand Media’s domain name services business marked two significant milestones, officially receiving registry agreements from ICANN for several of its new gTLDs, including .DANCE, .IMMOBILIEN and .NINJA, and signing registrar agreements with ICANN to distribute new gTLDs through its eNom and Name.com registrar channels.

    Financial:

    • In August 2013, Demand Media entered into a new $225 million credit facility comprised of a $125 million revolving credit facility and $100 million in term loan availability. The new facility, which matures in August 2018, provides Demand Media with significant additional flexibility and liquidity to pursue its strategic objectives, including the separation of its domain name services business.

    Operating Metrics:

    Three months ended September 30,
    2013 2012 % 
    Change
    Content & Media Metrics:
    Owned & operated
    Page views(1) (in millions) 4,074 3,363 21%
    RPM(2) $11.78 $13.49 (13)%
    Network of customer websites
    Page views(1)(in millions) 3,124 4,965 (37)%
    RPM(2) $3.39 $3.78 (10)%
    RPM ex-TAC(3) $2.15 $2.70 (20)%
    Registrar Metrics:
    End of Period # of Domains(4) (in millions) 14.6 13.7 7%
    Average Revenue per Domain(5) $10.49 $9.99 5%
    (1) Page views represent the total number of web pages viewed across (a) our owned and operated websites and/or (b) our network of customer websites, to the extent that the viewed customer web pages host the Company’s monetization, social media and/or content services.
    (2) RPM is defined as Content & Media revenue per one thousand page views.
    (3) RPM ex-TAC is defined as Content & Media revenue ex-TAC per one thousand page views.
    (4) A domain is defined as an individual domain name registered by a third-party customer on our platform for which we have begun to recognize revenue.
    (5) Average revenue per domain is calculated by dividing Registrar revenue for a period by the average number of domains registered in that period. Average revenue per domain for partial year periods is annualized.

    Q3 2013 Operating Metrics:

    • Owned & Operated page views increased 21% year-over-year to 4.1 billion, driven primarily by mobile page view growth on our core Owned & Operated sites, which more than offset significant declines in search engine referral traffic. Owned & Operated RPMs decreased 13% year-over-year, reflecting the mix shift to lower yielding mobile page views as well as lower direct display advertising, offset partially by increased revenue from the sale of undeveloped websites and revenue from Society6.
    • Network page views decreased 37% year-over-year to 3.1 billion, as the Company made the strategic decision to refocus its direct sales efforts on its Owned & Operated properties. Network RPM ex-TAC decreased 20% year-over-year, reflecting lower revenue from the Company’s YouTube Channels and the previously mentioned unfavorable revenue adjustment.
    • End of period domains increased 7% year-over-year to 14.6 million, driven by the acquisition of Name.com, with average revenue per domain up 5% year-over-year, due to higher domain pricing and higher average revenue per domain on Name.com.

    Business Outlook

    The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other risk factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

    The Company’s fourth quarter and fiscal year guidance assumes that the recent substantial declines in search engine referrals to some of the Company’s websites will not reverse.

    The Company’s guidance is as follows:

    Fourth Quarter 2013

    • Revenue in the range of $98.0 – $101.0 million
    • Revenue ex-TAC in the range of $93.0 – $96.0 million
    • Adjusted EBITDA in the range of $16.0 – $19.0 million
    • Adjusted EPS in the range of $0.03 – $0.04 per share
    • Weighted average diluted shares 90.5 – 91.5 million

    Full Year 2013

    • Revenue in the range of $396.0 – $399.0 million
    • Revenue ex-TAC in the range of $378.0 – $381.0 million
    • Adjusted EBITDA in the range of $86.0 – $89.0 million
    • Adjusted EPS in the range of $0.26 – $0.28 per share
    • Weighted average diluted shares 88.5-89.5 million

    The Company’s guidance excludes estimated expenses in 2013 of $8 to $10 millionrelated to the Company’s gTLD initiative and $6 to $8 million associated with separatingDemand Media into two distinct publicly traded companies.

    Conference Call and Webcast Information

    Demand Media will host a corresponding conference call and live webcast at 5:00 p.m. Eastern time today. To access the conference call, dial 877.430.7751 and reference conference ID 93075105. To participate on the live call, analysts should dial-in at least 10 minutes prior to the commencement of the call. A live webcast also will be available on the Investor Relations section of the Company’s corporate website athttp://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call.

    About Non-GAAP Financial Measures

    To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use certain non-GAAP financial measures described below. The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliation of Non-GAAP Measures to Unaudited Consolidated Statements of Operations” included at the end of this release.

    The non-GAAP financial measures presented in this release are the primary measures used by the Company’s management and board of directors to understand and evaluate its financial performance and operating trends, including period to period comparisons, to prepare and approve its annual budget and to develop short and long term operational plans. Additionally, Adjusted EBITDA is the primary measure used by the compensation committee of the Company’s board of directors to establish the funding targets for and fund its annual bonus pool for the Company’s employees and executives. We believe our presented non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) management frequently uses them in its discussions with investors, commercial bankers, securities analysts and other users of its financial statements.

    Revenue ex-TAC is defined by the Company as GAAP revenue less traffic acquisition costs (TAC). TAC comprises the portion of Content & Media GAAP revenue shared with the Company’s network customers. Management believes that Revenue ex-TAC is a meaningful measure of operating performance because it is frequently used for internal managerial purposes and helps facilitate a more complete period-to-period understanding of factors and trends affecting the Company’s underlying revenue performance of its Content & Media service offering.

    Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is defined by the Company as net income (loss) before income tax expense, interest and other income (expense), depreciation, amortization, stock-based compensation, as well as the financial impact of acquisition and realignment costs, the formation expenses directly related to its gTLD initiative, net gains or losses on sales and withdrawals of interest in gTLD applications, and any gains or losses on certain asset sales or dispositions. Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, (3) employee severance payments attributable to acquisition or corporate realignment activities and (4) expenditures related to the separation ofDemand Media into two distinct publicly traded companies. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

    Management believes that these non-GAAP financial measures reflect the Company’s business in a manner that allows for meaningful period-to-period comparisons and analysis of trends. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period to period comparisons of the Company’s underlying recurring revenue and operating costs, which is focused more closely on the current costs necessary to utilize previously acquired long-lived assets. In addition, management believes that it can be useful to exclude certain non-cash charges because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions. For example, due to the long-lived nature of a majority of its media content, the revenue generated by the Company’s media content assets in a given period bears little relationship to the amount of its investment in media content in that same period. Accordingly, management believes that content acquisition costs represent a discretionary long-term capital investment decision undertaken at a point in time. This investment decision is clearly distinguishable from other ongoing business activities, and its discretionary nature and long-term impact differentiate it from specific period transactions, decisions regarding day-to-day operations, and activities that would have an immediate impact on operating or financial performance if materially changed, deferred or terminated.

    Adjusted Earnings Per Share is defined by the Company as Adjusted Net Income divided by the weighted average number of shares outstanding. Adjusted Net Income is defined by the Company as net income (loss) before the effect of stock-based compensation, amortization of intangible assets acquired via business combinations, accelerated amortization of intangible assets removed from service, acquisition and realignment costs, the formation expenses directly related to its gTLD initiative, net gains or losses on sales and withdrawals of interest in gTLD applications, and any gains or losses on certain asset sales or dispositions, and is calculated using the application of a normalized effective tax rate. Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, (3) employee severance payments attributable to acquisition or corporate realignment activities, and (4) expenditures related to the separation of Demand Media into two distinct publicly traded companies. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

    Management believes that Adjusted Net Income and Adjusted Earnings Per Share provide investors with additional useful information to measure the Company’s underlying financial performance, particularly from period to period, because these measures are exclusive of certain non-cash expenses not directly related to the operation of its ongoing business (such as amortization of intangible assets acquired via business combinations, as well as certain other non-cash expenses such as purchase accounting adjustments and stock-based compensation) and include a normalized effective tax rate based on the Company’s statutory tax rate.

    Discretionary Free Cash Flow is defined by the Company as net cash provided by operating activities excluding cash outflows from acquisition and realignment activities, the formation expenses directly related to its gTLD initiative, and expenditures related to the separation of Demand Media into two distinct publicly traded companies, less capital expenditures to acquire property and equipment. Free Cash Flow is defined by the Company as Discretionary Free Cash Flow less investments in intangible assets and is not impacted by net gTLD application payments, which were $18.2 million for the nine months ended September 30, 2012, or net gains on sales and withdrawals of interest in gTLD applications, which were $2.9 million for the nine months ended September 30, 2013. Management believes that Discretionary Free Cash Flow and Free Cash Flow provide investors with additional useful information to measure operating liquidity because they reflect the Company’s underlying cash flows from recurring operating activities after investing in capital assets and intangible assets. These measures are used by management, and may also be useful for investors, to assess the Company’s ability to generate cash flow for a variety of strategic opportunities, including reinvestment in the business, pursuing new business opportunities, potential acquisitions, payment of dividends and share repurchases.

    The use of these non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense, or cash flows that affect the Company’s operations. An additional limitation of these non-GAAP financial measures is that they do not have standardized meanings, and therefore other companies may use the same or similarly named measures but exclude different items or use different computations. Management compensates for these limitations by reconciling these non-GAAP financial measures to their most comparable GAAP financial measures within its financial press releases. Non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from the non-GAAP financial information used by other companies, including peer companies, and therefore comparability may be limited. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure. The accompanying tables have more details on the GAAP financial measures and the related reconciliations.

    About Demand Media

    Demand Media, Inc. (NYSE: DMD) is a leading digital media and domain name services company that informs and entertains one of the internet’s largest audiences, helps advertisers find innovative ways to engage with their customers and enables publishers, individuals and businesses to expand their online presence. Headquartered in Santa Monica, CA, Demand Media has offices in North America, South America and Europe. For more information about Demand Media, please visit www.demandmedia.com.

    Cautionary Information Regarding Forward-Looking Statements

    This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements involve risks and uncertainties regarding the Company’s future financial performance, and are based on current expectations, estimates and projections about our industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Statements containing words such as guidance, may, believe, anticipate, expect, intend, plan, project, projections, business outlook, and estimate or similar expressions constitute forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. Potential risks and uncertainties include, among others: our ability to complete a separation of our business into two separate public companies as previously announced and unanticipated developments that may delay or negatively impact such a transaction; the possibility that we may decide not to proceed with the separation of our business as previously announced if we determine that alternative opportunities are more favorable to our stockholders; the possibility that we decide to separate our business in a manner different from that previously disclosed; the impact and possible disruption to our operations from pursuing the previously announced separation transaction; our ability to retain key personnel; the high costs we will likely incur in connection with such a separation transaction, which we would not be able to recoup if such a transaction is not consummated; the expectation that the previously announced separation transaction will be tax-free; revenue and growth expectations for the two independent companies following the separation of our business; the ability of each business to operate as an independent entity upon completion of such a transaction; changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google as well as possible future changes, and the impact such changes may have on page view growth and driving search related traffic to our owned & operated websites and the websites of our network customers; our ability to effectively monitor the quality of search traffic to our network of undeveloped websites; changes in our content creation and distribution platform, including the possible repurposing of content to alternate distribution channels, reduced investments in intangible assets or the sale or removal of content; continued deterioration in the market capitalization of the Company, which may result in an impairment of certain intangible assets on the Company’s balance sheet; our ability to effectively integrate, manage, operate and grow a crowd-sourced e-commerce website such as Society6; our ability to manage risks associated with the sale of goods over the internet; our ability to successfully launch, produce and monetize new content formats; the inherent challenges of estimating the overall impact on page views and search driven traffic to our owned & operated websites based on the data available to us as internet search engines continue to make adjustments to their search algorithms; our ability to compete with new or existing competitors; our ability to maintain or increase our advertising revenue; our ability to continue to drive and grow traffic to our owned & operated websites and the websites of our network customers; our ability to effectively monetize our portfolio of content; our dependence on material agreements with a specific business partner for a significant portion of our revenue; future internal rates of return on content investment and our decision to invest in different types of content in the future, including premium video and other formats of text content; our ability to attract and retain freelance creative professionals and artists; changes in our level of investment in media content intangibles; the effects of changes or shifts in internet marketing expenditures, including from text to video content as well as from desktop to mobile content; the effects of shifting consumption of media content from desktop to mobile; the effects of seasonality on traffic to our owned & operated websites and the websites of our network customers; the impact of seasonality on our e-commerce business; intense competition, which could lead to pricing pressure among other effects; our ability to expand our customer base and meet production requirements; our ability to develop additional adjacent lines of business to complement our growth strategies; our ability to continue to add partners to our registrar platform on competitive terms; our ability to successfully pursue and implement our gTLD initiative; changes in stock-based compensation; changes in amortization or depreciation expense due to a variety of factors; potential write downs, reserves against or impairment of assets including receivables, goodwill, intangibles (including media content) or other assets; changes in tax laws, our business or other factors that would impact anticipated tax benefits or expenses; our ability to successfully identify, consummate and integrate acquisitions; our ability to retain key customers and key personnel; risks associated with litigation; the impact of governmental regulation; and the effects of discontinuing or discontinued business operations. From time to time, we may consider acquisitions or divestitures that, if consummated, could be material. Any forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture were consummated, actual results could differ materially from any forward-looking statements. More information about potential risk factors that could affect our operating and financial results are contained in our annual report on Form 10-K for the fiscal year ending December 31, 2012 filed with the Securities and Exchange Commission (http://www.sec.gov) on March 5, 2013, and as such risk factors may be updated in our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, including, without limitation, information under the captions Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

    Furthermore, as discussed above, the Company does not intend to revise or update the information set forth in this press release, except as required by law, and may not provide this type of information in the future.

    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Statements of Operations
    (In thousands, except per share amounts)
    Three months ended
    September 30,    		 Nine months ended
    September 30,
    2013 2012 2013 2012
    Revenue $ 96,251 $ 98,147 $ 297,937 $ 277,436
    Operating expenses:
    Service costs (exclusive of amortization of intangible assets shown separately below) (1) (2) 52,884 46,524 149,636 132,153
    Sales and marketing (1) (2) 10,532 11,625 36,858 33,678
    Product development (1) (2) 11,365 10,278 33,267 30,989
    General and administrative (1) (2) 20,603 15,705 54,600 46,854
    Amortization of intangible assets 10,614 9,501 30,724 31,216
    Total operating expenses 105,998 93,633 305,085 274,890
    Income (loss) from operations (9,747 ) 4,514 (7,148 ) 2,546
    Interest income 3 9 16 34
    Interest expense (656 ) (155 ) (974 ) (465 )
    Other income (expense), net 74 (13 ) (49 ) (77 )
    Gain on other assets, net 1,337 — 2,566 —
    Income (loss) before income taxes (8,989 ) 4,355 (5,589 ) 2,038
    Income tax expense (1,451 ) (1,180 ) (3,064 ) (611 )
    Net income (loss) $ (10,440 ) $ 3,175 $ (8,653 ) $ 1,427
    Net income (loss) per share – basic $ (0.12 ) $ 0.04 $ (0.10 ) $ 0.02
    Net income (loss) per share – diluted $ (0.12 ) $ 0.04 $ (0.10 ) $ 0.02
    Weighted average number of shares – basic 89,771 85,182 87,917 84,020
    Weighted average number of shares – diluted 89,771 88,751 87,917 86,895
    (1) Stock-based compensation expense included in the line items above:
    Service costs $ 741 $ 672 $ 2,078 $ 2,141
    Sales and marketing 1,148 1,400 4,477 4,521
    Product development 1,667 1,396 4,102 5,169
    General and administrative 3,930 4,578 10,972 12,155
    Total stock-based compensation expense $ 7,486 $ 8,046 $ 21,629 $ 23,986
    (2) Depreciation included in the line items above:
    Service costs $ 3,413 $ 3,587 $ 10,861 $ 10,789
    Sales and marketing 89 105 295 345
    Product development 201 234 662 787
    General and administrative 1,403 906 3,517 2,703
    Total depreciation $ 5,106 $ 4,832 $ 15,335 $ 14,624
    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Balance Sheets
    (In thousands)
    September 30,
    2013    		 December 31,
    2012
    Assets
    Current assets
    Cash and cash equivalents $ 106,529 $ 102,933
    Accounts receivable, net 36,399 45,517
    Prepaid expenses and other current assets 7,732 6,041
    Deferred registration costs 65,095 57,718
    Total current assets 215,755 212,209
    Deferred registration costs, less current portion 12,357 11,320
    Property and equipment, net 44,493 35,467
    Intangible assets, net 96,095 91,746
    Goodwill 347,382 266,349
    Other assets 21,994 20,906
    Total assets $ 738,076 $ 637,997
    Liabilities and Stockholders’ Equity
    Current liabilities
    Accounts payable $ 13,955 $ 10,471
    Accrued expenses and other current liabilities 39,122 40,489
    Deferred tax liabilities 22,147 18,892
    Current portion of long-term debt 7,500 —
    Deferred revenue 83,516 75,142
    Total current liabilities 166,240 144,994
    Deferred revenue, less current portion 16,750 15,965
    Other liabilities 12,368 4,847
    Long-term debt 42,500 —
    Commitments and contingencies
    Stockholders’ equity
    Common stock 11 11
    Additional paid-in capital 604,270 562,692
    Accumulated other comprehensive income (loss) (48 ) 15
    Treasury stock at cost (30,767 ) (25,932 )
    Accumulated deficit (73,248 ) (64,595 )
    Total stockholders’ equity 500,218 472,191
    Total liabilities and stockholders’ equity $ 738,076 $ 637,997
    Demand Media, Inc. and Subsidiaries
    Unaudited Condensed Consolidated Statements of Cash Flows
    (In thousands)
    Three months ended
    September 30,    		 Nine months ended
    September 30,
    2013 2012 2013 2012
    Cash flows from operating activities:
    Net income (loss) $ (10,440 ) $ 3,175 $ (8,653 ) $ 1,427
    Adjustments to reconcile net income (loss) to net cash provided by operating activities
    Depreciation and amortization 15,720 14,333 46,059 45,839
    Deferred income taxes 1,380 980 2,799 1,086
    Stock-based compensation 7,486 8,046 21,629 23,986
    Gain on other assets, net (1,337 ) — (2,566 ) —
    Other 40 (14 ) (450 ) (502 )
    Change in operating assets and liabilities, net of effect of acquisitions 5,965 (1,925 ) 7,610 (6,890 )
    Net cash provided by operating activities 18,814 24,595 66,428 64,946
    Cash flows from investing activities
    Purchases of property and equipment (7,957 ) (4,982 ) (22,760 ) (12,425 )
    Purchases of intangible assets (3,235 ) (3,468 ) (13,263 ) (8,590 )
    Proceeds from gTLD application withdrawals, net 1,492 — 2,876 —
    Payments for gTLD applications, net (405 ) — (405 ) (18,202 )
    Cash paid for acquisitions, net of cash acquired — (1,011 ) (73,229 ) (1,280 )
    Other (40 ) — 471 (855 )
    Net cash used in investing activities (10,145 ) (9,461 ) (106,310 ) (41,352 )
    Cash flows from financing activities:
    Long-term debt borrowings 50,000 — 70,000 —
    Long-term debt repayments (20,000 ) — (20,000 ) —
    Debt issuance costs (1,936 ) — (1,936 ) —
    Proceeds from exercises of stock options and contributions to ESPP 1,144 5,160 4,493 11,016
    Repurchases of common stock — — (4,835 ) (3,956 )
    Payments of withholding tax on net exercise of stock-based awards (1,042 ) (1,383 ) (3,741 ) (3,345 )
    Other (175 ) (185 ) (440 ) (410 )
    Net cash provided by in financing activities 27,991 3,592 43,541 3,305
    Effect of foreign currency on cash and cash equivalents (7 ) 3 (63 ) (18 )
    Change in cash and cash equivalents 36,653 18,729 3,596 26,881
    Cash and cash equivalents, beginning of period 69,876 94,187 102,933 86,035
    Cash and cash equivalents, end of period $ 106,529 $ 112,916 $ 106,529 $ 112,916
    Demand Media, Inc. and Subsidiaries
    Reconciliations of Non-GAAP Measures to Unaudited Consolidated Statements of Operations
    (In thousands, except per share amounts)
    Three months ended
    September 30,    		 Nine months ended
    September 30,
    2013 2012 2013 2012
    Revenue ex-TAC:
    Content & Media revenue $ 58,585 $ 64,136 $ 188,375 $ 177,766
    Less: traffic acquisition costs (TAC) (3,864 ) (5,350 ) (13,345 ) (13,109 )
    Content & Media revenue ex-TAC 54,721 58,786 175,030 164,657
    Registrar revenue 37,666 34,011 109,562 99,670
    Total revenue ex-TAC $ 92,387 $ 92,797 $ 284,592 $ 264,327
    Adjusted EBITDA:
    Net income (loss) $ (10,440 ) $ 3,175 $ (8,653 ) $ 1,427
    Income tax expense 1,451 1,180 3,064 611
    Interest and other expense, net 579 159 1,007 508
    Gain on gTLD application withdrawals, net(1) (1,337 ) — (2,566 ) —
    Depreciation and amortization 15,720 14,333 46,059 45,840
    Stock-based compensation 7,486 8,046 21,629 23,986
    Acquisition and realignment costs(2) 2,781 20 4,233 133
    gTLD expense(3) 1,883 707 5,553 1,589
    Adjusted EBITDA $ 18,123 $ 27,620 $ 70,326 $ 74,094
    Discretionary and Total Free Cash Flow:
    Net cash provided by operating activities $ 18,814 $ 24,595 $ 66,428 $ 64,946
    Purchases of property and equipment (7,957 ) (4,982 ) (22,760 ) (12,425 )
    Acquisition and realignment cash flows(2) 825 — 1,726 —
    gTLD expense cash flows(3) 1,550 488 3,913 1,224
    Discretionary Free Cash Flow 13,232 20,101 49,307 53,745
    Purchases of intangible assets (3,235 ) (3,468 ) (13,263 ) (8,590 )
    Free Cash Flow $ 9,997 $ 16,633 $ 36,044 $ 45,155
    Adjusted Net Income:
    GAAP net income (loss) $ (10,440 ) $ 3,175 $ (8,653 ) $ 1,427
    (a) Stock-based compensation 7,486 8,046 21,629 23,986
    (b) Amortization of intangible assets – M&A 3,475 2,666 9,290 8,332
    (c) Content intangible assets removed from service — — 66 1,818
    (d) Acquisition and realignment costs(2) 2,781 20 4,233 133
    (e) gTLD expense(3) 1,883 707 5,553 1,589
    (f) Gain on gTLD application withdrawals, net(1) (1,337 ) — (2,566 ) —
    (g) Income tax effect of items (a) – (f) & application of 38% statutory tax rate to pre-tax income (563 ) (4,822 ) (9,330 ) (13,789 )
    Adjusted Net Income $ 3,285 $ 9,792 $ 20,222 $ 23,496
    Non-GAAP Adjusted Net Income per share – diluted $ 0.04 $ 0.11 $ 0.23 $ 0.27
    Shares used to calculate non-GAAP Adjusted Net Income per share – diluted 90,538 88,751 88,952 86,895
    (1) Net gains on sales and withdrawals of interest in gTLD applications included in gain on other assets, net.
    (2) Acquisition and realignment costs include such items, when applicable, as (a) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (b) legal, accounting and other professional fees directly attributable to acquisition activity, (c) employee severance payments attributable to acquisition or corporate realignment activities, and (d) expenditures related to the separation of Demand Media into two distinct publicly traded companies. Management does not consider these costs to be indicative of the Company’s core operating results.
    (3) Comprises formation expenses directly related to the Company’s gTLD initiative that did not generate associated revenue in 2013 or in 2012.
    Demand Media, Inc. and Subsidiaries
    Unaudited GAAP Revenue, by Revenue Source
    (In thousands)
    Three months ended
    September 30,    		 Nine months ended
    September 30,
    2013 2012 2013 2012
    Content & Media:
    Owned & operated websites $ 48,007 $ 45,377 $ 149,419 $ 129,715
    Network of customer websites 10,578 18,759 38,956 48,051
    Total Revenue – Content & Media 58,585 64,136 188,375 177,766
    Registrar 37,666 34,011 109,562 99,670
    Total Revenue $ 96,251 $ 98,147 $ 297,937 $ 277,436
    Three months ended
    September 30,    		 Nine months ended
    September 30,
    2013 2012 2013 2012
    Content & Media:
    Owned & operated websites 50 % 46 % 50 % 47 %
    Network of customer websites 11 % 19 % 13 % 17 %
    Total Revenue – Content & Media 61 % 65 % 63 % 64 %
    Registrar 39 % 35 % 37 % 36 %
    Total Revenue 100 % 100 % 100 % 100 %

     

    Source: Demand Media, Inc.

  • McDonald’s: Not Paid Enough? Get Food Stamps.

    McDonald’s: Not Paid Enough? Get Food Stamps.

    McDonald’s loves to see you smile–just not their employees. When full-time employee Nancy Salgado called McResources, McDonald’s employee help line, and said she need a raise to help cover the cost of groceries and her heating bill, she was told to she could apply for food stamps and other public assistance. The mom of two has been working for McDonald’s for 10 years and is still making $8.25 an hour, just a dollar over minimum wage, which puts her below the poverty line.

    Check out parts of the conversation below:

    “You would most likely be eligible for SNAP benefits,” the operator says after Salgado says she needs help with groceries. “You know it’s a federal program, the federal money comes down the states, and the states administer it.” In addition to telling Salgado that she could get on food stamps, when Salgado inquired about medical care, the operator told she could apply for Medicaid, another federal program.

    Salgado, who got in trouble last month when she told the company’s president that she couldn’t afford shoes, wasn’t satisfied with this answer. “Do you think this is fair, that I have to be making $8.25 [per hour] when I’ve worked for McDonald’s for years?” Salgado shouted at the McResources operator. “The thing is that I need a raise. But you’re not helping your employees. How is this possible?”

    In fairness, it doesn’t appear that Salgado was directing her angst over her paltry pay to the right person, since McResources isn’t HR–the program is available to simply to help employees get help making ends meet when their paychecks aren’t enough (the existence of the program says a lot about McDonald’s pay). “We can be a good program,” the operator said. “We can do a lot of the leg work that takes a lot of the stresses off of you making a million phone calls trying to find services.”

    When McDonald’s was asked to respond to the situation, they released the following statement: “This video is not an accurate portrayal of the resource line as this is very obviously an edited video. The fact is that the McResource line is intended to be a free, confidential service to help employees and their families get answers to a variety of questions or provide resources on a variety of topics including housing, child care, transportation, grief, elder care, education and more.”

    Do you think McDonald’s should be advising employees to sign up for food stamps? Respond below.

    [Image via YouTube]

  • Wikipedia Shuts Down Hundreds Of Accounts For Paid Edits

    Sue Gardner, the outgoing executive director of the Wikimedia Foundation, announced today that over 250 Wikipedia accounts have been blocked or banned as editors investigate accusations of people being paid to edit and manage pages.

    “The Wikimedia Foundation takes this issue seriously and has been following it closely,” writes Gardner. “With a half a billion readers, Wikipedia is an important informational resource for people all over the world. Our readers know Wikipedia’s not perfect, but they also know that it has their best interests at heart, and is never trying to sell them a product or propagandize them in any way. Our goal is to provide neutral, reliable information for our readers, and anything that threatens that is a serious problem. We are actively examining this situation and exploring our options.”

    Gardner said that she and the editors who are investigating have expressed “shock and dismay.”

    Not many would be “shocked” that people are trying to game the system. Wikipedia is one of the biggest and most visible sites on the Internet, and is the primary gateway to information about companies for many people. It’s also tightly integrated into Google’s Knowledge Graph and Apple’s Siri. It should be no surprise that people would try their best to make themselves look better.

    But what is more shocking is that there could be some in the Wikipedia universe with a great deal of power over content that are part of this.

    Gardner references an article from the Daily Dot from earlier this month about a Wikipedia editor uncovering what the publication called ” the largest sockpuppet network in Wikipedia history”. This was kicked off when the editor noticed something fishy about citations on the page for a company called CyberSafe and the appeals that came in during the deletion process, which seemed to be coming from the same person through different accounts.

    The article discusses a service called WikPR, which promises to manage its clients’ Wikipedia presences. WikiPR says on its Services page:

    “Trying to get on Wikipedia for the first time? Or has Wikipedia created a page that you want edited? We can help. Our staff of 45 Wikipedia editors and admins helps you build a page that stands up to the scrutiny of Wikipedia’s community rules and guidelines. We respect the community and its rules against promoting and advertising. Don’t leave your Wikipedia page up to chance. Don’t get caught in a PR debacle by editing your own page. Ensure your Wikipedia page is 100% accurate with our Page Creation & Editing service.”

    “Let’s face it: You can’t monitor every edit made to your Wikipedia page. That’s why we created Page Management service. We’ve built technology to manage your page 24 hours a day, 365 days a year. Plus, you’ll have a dedicated Wikipedia project manager that understands your brand as well as you do. That means you need not worry about anyone tarnishing your image – be it personal, political, or corporate.”

    WikiPR also tells prospective clients, “Let the largest Wikipedia research firm help you claim your top spot in Google search results.”

    As The Daily Dot’s Simon Owens wrote, “Perhaps the most shocking claim on the Wiki-PR is that the firm employs admins. Wikipedia’s privileged few, admins possess special rights and powers they use to keep other editors in line. They can restrict editing access to a page (often when a page is being vandalized or is extremely controversial), ban users, and delete pages. Wikipedia admins (who, like almost other Wikipedia user, are volunteers) are often thought of as the site’s sacred guardians, committed to neutrality and fairness, able to wade into the most controversial and divisive entries and deliver impartial judgement.”

    “If Wiki-PR’s claims are true, that means there may be ‘sleeper agents’ among Wikipedia’s most powerful users, a revelation that would likely send chills down the spine of any devoted Wikipedian,” Owens added.

    Apparently this is indeed the case in Gardner’s case.

    “Editing-for-pay has been a divisive topic inside Wikipedia for many years, particularly when the edits to articles are promotional in nature,” she writes. “Unlike a university professor editing Wikipedia articles in their area of expertise, paid editing for promotional purposes, or paid advocacy editing as we call it, is extremely problematic. We consider it a ‘black hat’ practice. Paid advocacy editing violates the core principles that have made Wikipedia so valuable for so many people.”

    “What is clear to everyone is that all material on Wikipedia needs to adhere to Wikipedia’s editorial policies, including those on neutrality and verifiability,” Gardner adds. “It is also clear that companies that engage in unethical practices on Wikipedia risk seriously damaging their own reputations. In general, companies engaging in self-promotional activities on Wikipedia have come under heavy criticism from the press and the general public, with their actions widely viewed as inconsistent with Wikipedia’s educational mission.”

    She says the foundation is continuing the investigation, assessing its options, and will have more to say about the situation in the coming weeks.

    Earlier this year, Gardner announced that she would depart the Wikimedia Foundation. At the time, she said she was “uncomfortable” with where the Internet is heading. I’m guessing these events have done little to change her mind about that.

    Image: Sue Gardner (Victoria Will for the Wikimedia Foundation)

  • Yahoo Responds To ‘T-Shirt-Gate,’ Decides To Actually Reward Security Researchers

    Yahoo Responds To ‘T-Shirt-Gate,’ Decides To Actually Reward Security Researchers

    Earlier this week, Yahoo was making some headlines for giving security researchers credit for its online corporate store as reward for finding security vulnerabilities in Yahoo products.

    Researchers at High-Tech Bridge put out a press release calling attention to this, when they were “awarded” $12.50 in store credit per vulnerability, amounting to enough to get a Yahoo-branded t-shirt or a few pairs of socks featuring Yahoo’s old, outdated logo.

    Apparently the attention did some good, as Yahoo is now offering anywhere from $150 to $15,000 for rewards. This was announced in a blog post by Yahoo’s Ramses Martinez, titled, “So I’m the guy who sent the t-shirt out as a thank you.”

    He says that when he took over the team that works with the security community on issues and vulnerabilities, they didn’t have a formal process, so he wanted to give people t-shirts just to say “thank you,” thinking this would be more courteous than just an email.

    “I even bought the shirts with my own money,” he writes. “It wasn’t about the money, just a personal gesture on my behalf. At some point, a few people mentioned they already had a t-shirt from me, so I started buying a gift certificate so they could get another gift of their choice. The other thing people wanted was a letter they could show their boss or client. I write these letters myself.”

    He goes on to say that Yahoo was actually putting a new program into place, which would reward researchers for finding vulnerabilities, and that they were just “putting the finishing touches on the revised program, and then…’t-shirt-gate’ hit.”

    You can see his general outline of the program in the post, but essentially, the company will pay out cash rewards in the range mentioned above with the amount being determined by a “clear system based on a set of defined elements that capture the severity of the issue.”

    This should put an end to “t-shirt-gate” (I still prefer the socks angle).

    Internet security vet Graham Cluley, who earlier slammed the t-shirt practice, got a statement from High-Tech Bridge in response to Yahoo’s announcement:

    We were not doing our research for money, as we clearly said to Yahoo. However, we are glad that Yahoo is introducing new Bug Bounty Program that will facilitate their relations with security researchers and help them improving their corporate security.

    The only unclear point I have right now is comment from their CSO who says that he paid researchers from his own pockets. Such action definitely deserves respect, but does he get his salary by Yahoo vouchers as well?

    Either way, Yahoo’s new program should sit a lot better with security researchers, and perhaps win the company a little more respect in the field. As Cluely notes, however, there is still that matter of the recycled email addresses.

    Image: Yahoo Company Store

  • Keyword Planner Alternatives For Keyword Research: Who Will Rise To The Challenge?

    With the rise of ‘Not Provided’ and the recent death of the beloved Google Keyword Tool, it’s clear that the biggest player in search is trying to reduce SEOs’ obsession over keywords. These changes also reflect Google’s increase in monetization of their keyword data. Why else would they allow you to compare organic versus paid traffic on bid keywords in Adwords while leaving Analytics users in the dark?

    If you aren’t as cynical as I am, it’s easy to see that the new tool was actually designed for the PPC specialists. My biggest pet peeve is the removal of the “closely related filter.” This is clearly the biggest blow for SEOs. The tool is definitely still usable for keyword research, especially on the ultra local level, but it clearly isn’t really intended for that task.

    Keyword Planner

    This doesn’t mean that keyword research is dead; it just forces SEOs to begin using more alternatives to Google’s tools.

    Free Keyword Tool Alternatives

    To this date, there are only two completely free keyword planner alternatives. While, they are not optimal for SEOs, these free tools can help you decide on new niches to target or plan your next link building campaign effectively.

    Bing Keyword Tool

    Keyword Research

    The biggest disadvantage with using the Bing Keyword Tool is that the data is not from Google. The volume is usually hovering between 10% and 25% of Google’s planner for most keywords. However, unlike the Keyword Planner, you have a “strict” filter that acts like the old “closely related” filter which is great for increasing your keyword target spread.

    The tool is still in Beta and I look forward to seeing how Bing capitalizes on SEOs’ complaints about the Planner. You’ll also need to claim a website in Bing Webmaster Tools in order to use the tool.

    Google Trends & Webmaster Tools

    The only advantage of both these tools is that the data is straight from Google itself. The numbers are definitely questionable and only a very limited amount of data is available.

    Webmaster Tools limits itself to keywords on which your sites are already getting impressions. The data helps you strategize but won’t give you any data on words you might be interested in ranking on.

    Google Trends

    On the other hand, Google Trends can also be useful for planning content for referral traffic, but the data does not give you any idea of the actual traffic your article might get if it ranked first on the keyword.

    Freemium Keyword Tool Alternatives

    The problem with a lot of keyword research tools is that they are advertised as free tools, but there are usually some limitations to free access. You most likely will still need to sign up with an account, and even spend some money to get the best keyword data from them. The free versions aren’t always useful as stand-alone software. This is especially true when trying to find new keywords. This can obviously be solved by using a suggestion tool like Ubersuggest.

    Wordtracker

    Don’t be fooled by the Wordtracker home page. Their free keyword tool can be found on this subdomain. The tool will give you access to US, UK and Global search volume for the keywords you put in, but not much else. This is where Ubersuggest will come into play. To actually get suggestions and get country level keyword search data, you will actually have to sign up and pay a small fee.

    Wordtracker

    SEMRush

    SEMRush is one of my favorite tools because it’s extremely versatile. The reason why I like the tool so much for Keyword Research is that it also gives a lot of PPC info, which is great for figuring out the most profitable keywords. However, it suffers from most of the problems the other freemium tools in that its broad range suggestions of new keywords is not very robust.

    Paid Keyword Tool Alternatives

    If you’re looking to invest in a paid tool, be careful! There are a lot of tools that will get you to pay and not really be much help at all because they either require proxies, multiple Adwords accounts, or merely just change the user interface and give you the same data you could get for cheaper elsewhere.

    Advanced Web Ranking

    If you’re already using Advanced Web Ranking and just hate the UX of the new Keyword Planner, their tool does great and will let you compare Google results to SEMRush, Wordtracker and more. In addition, you’ll also get to see where your site currently ranks during the keyword research which is a great!

    All things considered, there are a lot of options out there, but if you want Google’s data, it might be best to just stick to the planner and use a paid tool like Advanced Web Ranking to provide a better user interface. Looking towards the future, I can see a lot more and better free tools being developed by big SEO software companies and I can’t wait to see what they come up with.

  • Should The Government Regulate Paid Content?

    Online advertising has changed. It used to be that Web sites would have a few banner ads or side bar ads to bring in revenue. Then consumers started to use adblockers and other methods to ignore these ads. That’s when sites turned to native advertising, and it’s caught the FTC’s attention.

    The Federal Trade Commission announced on Monday that it would be hosting a “native ad” workshop later this year. The Commission says that the workshop will serve to continue its quest of helping consumers “identify advertisements as advertising wherever they appear.”

    Should the FTC regulate native advertising on the Web? Do sites already do a good enough job of labeling sponsored content? Let us know in the comments.

    So, what’s the big deal with native advertising? Well, as you may know, another name for native advertising is sponsored content. These are the ads that parade around as regular content. A good example would be BuzzFeed as a lot of its famous lists are sponsored content.

    Here’s what the FTC has to say on the matter:

    Increasingly, advertisements that more closely resemble the content in which they are embedded are replacing banner advertisements – graphical images that typically are rectangular in shape – on publishers’ websites and mobile applications.

    The big question now then is whether or not this is a problem. That’s actually what the FTC wants to figure out in its workshop. The Commission wants to educate consumers on the difference between regular content and native ads, but it wants to first figure out the best way to do so. That’s why the Commission is hosting a workshop that “will bring together publishing and advertising industry representatives, consumer advocates, academics, and government regulators to explore changes in how paid messages are presented to consumers and consumers’ recognition and understanding of these messages.”

    Now advertisers who are increasingly relying on native advertising and sponsored content shouldn’t be getting scared just yet. The workshop is merely an opportunity for the FTC to collaborate with advertisers and publishers to inform its own decisions on the matter. That’s why it’s inviting everybody to take part in said workshop so it can best address the needs of both advertisers, publishers and consumers in any potential future regulation.

    In fact, the FTC published a list of topics that it will be examining at the workshop so that advertisers can prepare themselves for the kinds of questions the Commission will be asking:

  • What is the origin and purpose of the wall between regular content and advertising, and what challenges do publishers face in maintaining that wall in digital media, including in the mobile environment?
  • In what ways are paid messages integrated into, or presented as, regular content and in what contexts does this integration occur? How does it differ when paid messages are displayed within mobile apps and on smart phones and other mobile devices?
  • What business models support and facilitate the monetization and display of native or integrated advertisements? What entities control how these advertisements are presented to consumers?
  • How can ads effectively be differentiated from regular content, such as through the use of labels and visual cues? How can methods used to differentiate content as advertising be retained when paid messages are aggregated (for example, in search results) or re-transmitted through social media?
  • What does research show about how consumers notice and understand paid messages that are integrated into, or presented as, news, entertainment, or regular content? What does research show about whether the ways that consumers seek out, receive, and view content online influences their capacity to notice and understand these messages as paid content?

    • Do you think the FTC will welcome a healthy debate on the issue of native advertising? Or does the Commission’s questions worry you that it will unfairly target advertisers? Let us know in the comments.

    Of course, it should be noted that the FTC isn’t the only entity that’s concerned about native advertising. For years now, Google has penalized sites that use paid links, and it just recently started setting its sights on sponsored content that’s not been fully disclosed.

    Back in May, Matt Cutts said that Google would be “looking at some efforts to be a bit stronger on our enforcement” of native advertising. He later clarified this by saying that native advertising falls within its longstanding rules regarding paid content:

    “We’ve seen a little bit of problems where there’s been advertorial or native advertising content or paid content, that hasn’t really been disclosed adequately, so that people realize that what they’re looking at was paid. So that’s a problem. We’ve had longstanding guidance since at least 2005 I think that says, ‘Look, if you pay for links, those links should not pass PageRank,’ and the reason is that Google, for a very long time, in fact, everywhere on the web, people have mostly treated links as editorial votes.”

    Cutts also provided a real world example of how native advertising that’s not been fully disclosed can impact consumers:

    “So we’ve seen, for example, in the United Kingdom, a few sites that have been taking money, and writing articles that were paid, and including keyword-rich anchor text in those articles that flowed PageRank, and then not telling anybody that those were paid articles. And that’s the sort of thing where if a regular user happened to be reading your website, and didn’t know that it was paid, they’d really be pretty frustrated and pretty angry when they found out that it was paid.”

    The FTC may not be regulating native advertising just yet, but Google is clearly on the warpath. The Commission’s desire to better identify and possibly regulate sponsored content will probably net Google a pretty influential role in the FTC’s workshop and future decision making down the road.

    That being said, it’s not sounding like the FTC wants to outright ban sponsored content. Doing so would be an absolutely asinine response to something that hasn’t even presented itself as a wide spread problem just yet. Most sites that utilize sponsored content mark it as such already. Instead, it will probably just expand upon its current report on native advertising – Dotcom Disclosures.

    Even then, publishers and advertisers wanting to stay on the good side of Google are probably already following any potential new regulations that may come out of this.

    Do you think Google’s rules on native advertising should influence the FTC’s decision making? Let us know in the comments.

    [Image: Wikimedia Commons]

  • Researcher Fired: “I’m Not Trying to Trick America”

    Elizabeth O’Bagy, the U.S. researcher whose writings about the upside of moderate opposition forces in Syria were cited by Secretary of State John Kerry has been fired from a non-partisan think tank for misrepresenting her academic record, the group said on Wednesday. She had been a senior analyst at the Institute for the Study of War. Her recent opinion piece in the Wall Street Journal titled “On the Front Lines of Syria’s Civil War” claimed that moderate opposition forces continued to lead the fight against the Syrian government and was cited by both Kerry and Senator John McCain in congressional hearings last week as they argued for U.S. intervention in Syria.

    The piece itself has also garnered controversy. The 26-year-old O’Bagy was listed as a “senior analyst” at ISW, but did not reveal in the article that she had a connection to a Syrian rebel advocacy group. Elizabeth O’Bagy was an unpaid intern when she started at the institute, and because she was a fluent Arabic speaker was pulled into work on Syria.

    The ISW’s president, Kim Kagan, told Reuters the move was not a repudiation of O’Bagy’s work, which she described as excellent.But on Wednesday, the institute said on its website that it had “learned and confirmed that, contrary to her representations, Ms. Elizabeth O’Bagy does not in fact have a Ph.D. degree from Georgetown University. ISW has accordingly terminated Ms. O’Bagy’s employment, effective immediately.”
    “I stand by her assessments and her work,” Kagan said. “This is a terrible tragedy.”

    A senior State Department official, who was asked to comment, said that Kerry had presumed that media outlets had accurately represented O’Bagy’s credentials when he referred to her work. “Clearly, the larger point that Kerry was making stands: that the U.S. has spent a great deal of time and effort working with the moderate Syrian opposition to provide it with assistance and to help it strengthen it and increasingly coalesce,” the official said.

    Last May, O’Bagy and others at the Syrian Emergency Task Force organized a short trip for McCain to go into Syria to meet with General Salim Idriss, who was commander of the Free Syrian Army.The Wall Street Journal article initially only listed O’Bagy’s affiliation at the Institute for the Study of War. It later restated on its website that she was also affiliated with the Syrian Emergency Task Force.

    In her defense, the fired researcher wrote on Twitter: “I have never tried to hide that I’ve worked closely with opposition & rebel commanders. That’s what allows me to travel more safely in Syria.” She added, “I’m not trying to trick America here. I’m just trying to show a different side to the conflict that few people have the chance to see.”

    Image via twitter

  • Almost Half of U.S. Births are Paid For by Medicaid

    According to a new report out from George Washington University, 45% of births in the U.S. in 2010 were paid for by Medicaid, up slightly from 43% in 2008. That amounts to 1.8 million of the estimated 4 million births in the U.S. in 2010. The report has been published in this month’s issue of the journal Women’s Health Issues.

    The study‘s authors say the estimate will help other researchers as they observe the coming change in health care. Many provisions of the Patient Protection and Affordable Care Act, colloquially known as Obamacare, are scheduled to take effect at the beginning of 2014. In concert with the legislation, some states will be expanding their medicaid coverage, particularly to low-income women. These expansions could also lead to an expansion of maternity care.

    “As states expand coverage, low-income women of childbearing age will be able to obtain more continuous coverage before and between pregnancies,” said Anne Markus, lead author of the study and a professor of health policy at George Washington University. “Now, for the first time, researchers will have a comprehensive baseline that will help them determine how increased access to services might change pregnancies and ultimately birth outcomes.”

    Markus and her colleagues collected data on births paid for by Medicaid between 2008 and 2010. In addition to the overall Medicaid birth numbers, the study found that percentages varied wildly for different states. States in the northeast and northwest portions of the U.S. had the lowest percentages of births paid for by Medicaid (Massachusetts had only 30%), while southern states such as Mississippi, Arkansas, and Louisiana (which had a whopping 70%) have higher percentages.

    With the new study, researchers hope is to provide enough data that health officials can use to determine how Medicaid policy effects maternal and child health.

    “About half a million babies are born prematurely in the United States every year,” said Dr. Jennifer Howse, president of the March of Dimes, which participated in the research. “Some of these preterm births could be prevented with the appropriate care provided at the right time. Babies born premature are at risk for lifelong health problems and often require care in a hospital’s neonatal intensive care unit. This study gives us a critical baseline to help chart the progress of health reform as it affects maternal and child health.”

  • Are You Getting More Out Of Paid Search Than From SEO?

    As you’ve probably found out, getting your content seen in Google’s organic listings is not as easy as it used to be. It’s no wonder that businesses are getting more out of paid listings than they are organic search traffic.

    is this the case for your business or do you get more out of organic SEO? Let us know in the comments.

    Google has launched a new Paid & Organic report in AdWords aimed at helping businesses get more out of their paid and organic search campaigns by offering new comparison options.

    “Previously, most search reports showed paid and organic performance separately, without any insights on user behavior when they overlap,” says AdWords product manager Dan Friedman. “The new paid & organic report is the first to let you see and compare your performance for a query when you have either an ad, an organic listing, or both appearing on the search results page.”

    Google suggests using the report to discover potential keywords to add to your AdWords accounts by looking for queries where you only appear in organic search with no associated ads, as well as for optimizing your presence on high value queries and measuring changes to bids, budgets, or keywords and their impact across paid, organic and combined traffic.

    Paid & Organic Report

    Image: Google

    Digital marketing firm IMPAQT was part of the beta testing, and says, “The paid & organic report has been incredibly useful in understanding the interaction between paid and organic search, and the overall synergy when they are working together. For one of our client’s key branded queries, we saw an 18% increase in CTR when paid and organic work together, as opposed to only having the organic listing.”

    It’s worth noting that Google itself shared this quote.

    To take advantage of the Paid & Organic report, you have to link your AdWords account to Webmaster Tools, and you have to be a verified owner or be granted access by one.

    MarketLive has put out a report finding that its merchants saw “significant changes” in the mix of paid/organic traffic. Paid search visits made up about a third of total search engine visits (up from 26% the previous year), while revenue from paid search grew to 44% of total search engine visit revenue (up from 40% in 2012). Interestingly, search visit growth altogether slowed in the first six months of the year, but paid was up 30% while organic was down 3%.

    Paid/Organic Search Traffic

    Image: Marketlive

    Here’s a side-by-side comparison of conversions, order size, new visits, bounce rate and pages per visit. As you can see, paid performs better across the board, except for new visits, which makes sense if you consider brand familiarity.

    Marketlive: Paid vs. Organic

    Image: Marketlive

    The report delves into performance across verticals, device comparisons and more, if you want to check it out (registration required).

    This is only one study, of course, but the signs are pointing to businesses getting more out of paid search than out of organic search. While Google’s new report feature could help both, it certainly seems geared toward using what you learn from your organic performance to put toward your paid campaigns. And again, Google certainly isn’t making things any easier for those trying to be found in organic results.

    For one thing, Google results simply have a lot more types of results than they used to, and on many pages, that means less traditional organic results. For another thing, people are afraid to link out, and to have links pointing toward them, which surely can’t be a great thing for traditional SEO, considering that Google’s algorithm (while including over 200 signals) has historically placed a great deal of its confidence in legitimate linking.

    Between webmaster paranoia, Google’s somewhat mixed messaging and ongoing “advice,” and its ever-changing algorithms, many businesses are finding out the hard way that relying too heavily on organic search is just detrimental. Paid search is less risky. It’s also how Google makes the bulk of its money.

    The AdWords department lost some trust points this week, however, when an account manager’s accidental voice mail recording gained some attention. Basically, he expressed his distaste that the client had upgraded to Google’s Enhanced Campaigns without consulting him, that he would now have to pitch call extensions and site links. He also noted that he didn’t care about bridge pages or parked domains.

    As Ginny Marvin at Search Engine Land writes, the implications of that are that AdWords account reps are paid to upsell new products/services that may or may not be in clients’ best interests, an account rep was willing to ignore a breach of Google’s own policies, and that AdWords account managers are “sales people first and foremost.”

    Google indicated that this person was not an actual Google employee, but a contractor, and that they had already removed them from the AdWords team, but as Marvin points out, it’s unclear whether this is potentially a bigger issue or if this one person’s attitude is just a rare case. Either way, it hasn’t been great for advertiser perception.

    But what are you gonna do?

    Obviously, when it comes to paid and organic search, the idea is to get them to work together. It’s not necessarily an “either or” situation, but there is always a question of how to balance your resources.

    Do you get better performance from paid search or organic SEO? Let us know in the comments.

  • FTC Updates Search Engine Ad Disclosure Guidelines

    The U.S. Federal Trade Commission has updated is guidance to the search engine industry regarding the need to distinguish between advertisements and search results.

    Search industry veteran Danny Sullivan wrote a letter to the FTC just over a year ago calling upon the commission to scrutinize Google, Yahoo, Bing, Ask, Nextag, Twenga and TripAdvisor, with regards to the disclosure of paid listings. It’s unclear whether today’s update comes as a result of Sullivan’s letter, but it seems pretty likely.

    The FTC has sent letters to search engine companies noting that in recent years, paid search results have “become less distinguishable as advertising”. The commission said in an announcement:

    The letters are the latest example of the FTC’s work to update its guidance for digital advertisers, which also includes recent updates to the Dot Com Disclosures and Endorsements and Testimonials Guides. The letters also respond to requests from industry and consumer organizations to update the 2002 guidance.

    According to both the FTC staff’s original search engine guidance and the updated guidance, failing to clearly and prominently distinguish advertising from natural search results could be a deceptive practice. The updated guidance emphasizes the need for visual cues, labels, or other techniques to effectively distinguish advertisements, in order to avoid misleading consumers, and it makes recommendations for ensuring that disclosures commonly used to identify advertising are noticeable and understandable to consumers.

    The letters note that the principles of the original guidance still apply, even as search and the business of search continue to evolve. The letters observe that social media, mobile apps, voice assistants on mobile devices, and specialized search results that are integrated into general search results offer consumers new ways of getting information. The guidance advises that regardless of the precise form that search takes now or in the future, paid search results and other forms of advertising should be clearly distinguishable from natural search results.

    The guidance has been directed at AOL, Ask, Bing, Blekko, DuckDuckGo, Google, Yahoo and seventeen other specialty search engines.

    You can see the actual letter here (pdf).

    [via Danny Sullivan]

  • Atari Games Buried in a Landfill? Old Legend Prompts New Search

    Legend has it that there’s a massive grave of Atari games, most notably millions of copies of the epic commercial failure E.T. the Extra-Terrestrial, buried in a New Mexico landfill. If you’re an Atari nerd or video game historian, you probably know the story.

    Back in 1983, reports emerged that between 10 and 20 semi truckloads full of Atari games and systems were dumped into a landfill in Alamogordo, New Mexico. Atari claimed that the dump was due to the changeover of Atari 2600 to Atari 5200 games. As additional reports emerged, the story became even murkier. Eventually, it came to be believed that Atari had dumped around 3.5 million copies of the E.T game, a huge failure, in the landfill and buried it in concrete.

    The story has taken on the status of urban legend. Are there really millions of copies of terrible Atari games buried in the New Mexico desert? There even a Wikipedia entry on the “Atari Video Game Burial” that chronicles both the fact and myth. Among gamers, it’s a highly-contested question. Is it total BS?

    We may soon have an answer – or at least more information to go on.

    A New Mexico City Commission has approved a search of the landfill grounds by Canadian marketing agency Fuel Industries. They’ll be looking for any discarded Atari wares buried under mounds of dirt and concrete – and they have been given six months to look.

    In 1983, as Atari was sinking into hard times, they paid to license the name of one of the previous year’s most popular films – and they fell even deeper in the hole. Out of that failure rose this legend. This odd story, one of the strangest and most mythical for video game lovers, may finally get a new chapter.

  • Google Warns: You Better Adequately Disclose Paid Content

    Google has been enforcing its policies on paid links for years, but the search engine is really cracking down on advertorials and native advertising these days. Google’s Matt Cutts has been talking about the subject a lot lately, so if your site offers any advertorial content, you better make sure you’re doing it the right way, under Google’s guidance, or you just might find yourself slapped with a harsh penalty independent of any black and white animal-named algorithms.

    Native advertising is rising in popularity on the web. Do you think Google can enforce its guidelines on this well? Share your thoughts in the comments.

    Earlier this month, Cutts put out a video talking about a bunch of big SEO-related changes Google is working on, and that webmasters could expect to see over the coming months. The video discussed the most recent Penguin update, which we’ve already seen take effect. One of the other things Cutts mentioned was the use of advertorials and native advertising. He said Google would be “looking at some efforts to be a little bit stronger on our enforcement” on that stuff.

    Now, Cutts has a new video talking for five minutes specifically about Google’s policies on advertorials and native advertising. Yes, they’re taking this seriously, so you should too, if you’re at all concerned about your Google rankings.

    “Well, it’s advertising, but it’s often the sort of advertising that looks a little closer to editorial, but it basically means that someone gave you some money, rather than you writing about this naturally because you thought it was interesting or because you wanted to,” says Cutts. “So why do I care about this? Why are we making a video about this at all? Well, the reason is, certainly within the webspam team, we’ve seen a little bit of problems where there’s been advertorial or native advertising content or paid content, that hasn’t really been disclosed adequately, so that people realize that what they’re looking at was paid. So that’s a problem. We’ve had longstanding guidance since at least 2005 I think that says, ‘Look, if you pay for links, those links should not pass PageRank,’ and the reason is that Google, for a very long time, in fact, everywhere on the web, people have mostly treated links as editorial votes.”

    The video links to a Webmaster Central blog post from 2007, written by Cutts and Maile Ohye.

    “Such links can hurt relevance by causing inaccuracies (false popularity and links that are not fundamentally based on merit, relevance, or authority and inequities (unfair advantage in our organic search results to websites with the biggest pocketbooks.”

    “In order to stay within Google’s quality guidelines, paid links should be disclosed through a rel=’nofollow’ or other techniques such as doing a redirect through a page which is robots.txt’ed out,” they wrote.

    “Other techniques” in that sentence linked to Google’s page about Link Schemes.

    “Well, there’s two-fold things that you should think about,” says Cutts in the video. “The first is on the search engine side of things, and search engine wise, you should make sure that if links are paid – that is if money changed hands in order for a link to be placed on a website – that it should not flow PageRank. In essence, it shouldn’t affect search engines’ rankings. That’s no different than the guidance we’ve had for years, and years, and years.”

    The video, again, suggests using rel=”nofollow”.

    “Likewise, if you are doing disclosure, you need to make sure that it’s clear to people,” he adds. “A good rule of thumb is that there should be clear and conspicuous disclosure. It shouldn’t be the case that people have to dig around, buried in small print or have to click and look around a long time to find out, ‘Oh, this content that I’m reading was actually paid.’”

    The video suggests using text like “Advertisement” or “Sponsored” to make advertorial content clear to users. In other words, it’s not enough to just slap a rel=”nofollow” on the links. You need to make sure it’s clear to users who aren’t necessarily (and most likely aren’t) looking for that.

    “So why are we talking about this now?” Cutts continues. “This isn’t a change in our search engine policy. Certainly not in the webspam team. Well, the reason is that we’ve seen some people who have not been doing it correctly. So we’ve seen, for example, in the United Kingdom, a few sites that have been taking money, and writing articles that were paid, and including keyword-rich anchor text in those articles that flowed PageRank, and then not telling anybody that those were paid articles. And that’s the sort of thing where if a regular user happened to be reading your website, and didn’t know that it was paid, they’d really be pretty frustrated and pretty angry when they found out that it was paid.”

    Back in February Google slapped a major UK flower site, Interflora, for the issue at hand. While Google itself didn’t specifically call out the company by name, right after reports about it came out, Cutts put out a “reminder” about selling links on the Webmaster Central blog.

    “Please be wary if someone approaches you and wants to pay you for links or ‘advertorial’ pages on your site that pass PageRank,” he wrote. “Selling links (or entire advertorial pages with embedded links) that pass PageRank violates our quality guidelines, and Google does take action on such violations. The consequences for a linkselling site start with losing trust in Google’s search results, as well as reduction of the site’s visible PageRank in the Google Toolbar. The consequences can also include lower rankings for that site in Google’s search results.”

    “So, we’ve taken action on this sort of thing for years and years, and we’re going to keep taking strong action,” says Cutts in the video. “We do think it’s important to be able to figure out whether something is paid or not on the web, and it’s not just the webspam team. It’s not just search quality and web search results. The Google News team recently published on their blog, and said that if you don’t provide adequate disclosure of paid content – whether it be native advertising, advertorials – whenever there’s money changing hand, if users don’t realize that sufficiently because there’s not adequate disclosure, the Google News team mentioned that they might not only remove the paid content, but we’re willing to go up to and including removing the publication from Google News.”

    We covered what the Google News team had to say about it here.

    “Credibility and trust are longstanding journalistic values, and ones which we all regard as crucial attributes of a great news site,” wrote Google Sr. Director of News and Social Products, Richard Gingras. “It’s difficult to be trusted when one is being paid by the subject of an article, or selling or monetizing links within an article. Google News is not a marketing service, and we consider articles that employ these types of promotional tactics to be in violation of our quality guidelines.”

    “Please remember that like Google search, Google News takes action against sites that violate our quality guidelines,” he added. “Engagement in deceptive or promotional tactics such as those described above may result in the removal of articles, or even the entire publication, from Google News.”

    Interestingly, despite Google’s long-standing policy, native advertising spend is on the rise. It’s expected to reach $4.57 billion in 2017, compared to $1.63 billion last year and a projected $2.36 billion this year.

    Cutts did say in the earlier video, “There’s nothing wrong inherently with advertorials or native advertising, but they should not flow PageRank, and there should be clear and conspicuous disclosure, so that users realize that something is paid – not organic or editorial.”

    In case you’re still not convinced that Google is cracking down on this stuff, a couple weeks ago, Cutts tweeted that Google had just took action on thousands of linksellers.

    Be warned.

    Do you think native advertising is a good direction for online ads to be trending in? Why or why not? Share your thoughts in the comments.

  • Yahoo Ad Revenue Disappoints, But Paid Search Clicks Are Up

    Yahoo reported its Q1 earnings on Tuesday, with GAAP revenue at $1,140 million for the quarter. Revenue ex-TAC was $1,074 million.

    The company posted GAAP income from operations at $186 million and Non-GAAP income from operations at $224 million.

    In the search department, GAAP revenue was $425 million for the quarter, down 10% from the same quarter last year, when it was $470 million. Search revenue ex-TAC was $409 million for the quarter, up 6% from $384 million for the first quarter of 2012.Paid Clicks (excluding Korea) increased by about 16% compared to the first quarter of 2012. Price-per-Click (excluding Korea) decreased by 7% for that time period.

    CEO Marissa Mayer said, “I’m pleased with Yahoo!’s performance in the first quarter. We saw continued stability in our business, strengthened our team, and started the year with fast execution against our products and partnerships. We are moving quickly to roll out beautifully designed, more intuitive experiences for our users. I’m confident that the improvements we’re making to our products will set up the Company for long-term growth.”

    As Yahoo News is reporting (okay, it’s just the AP), Yahoo’s earnings gain is being overshadowed by its ad slump. GAAP dsplay revenue dropped 11% year-over-year.

    Here’s the release in its entirety:

    SUNNYVALE, Calif.–(BUSINESS WIRE)–Yahoo! Inc. (NASDAQ: YHOO) today reported results for the first quarter ended March 31, 2013.

    “Supplemental Financial Data and GAAP to Non-GAAP Reconciliations”

    Q1 2013
    GAAP revenue $1,140 million
    Revenue ex-TAC $1,074 million
    GAAP income from operations $186 million
    Non-GAAP income from operations* $224 million
    GAAP net earnings per diluted share $0.35
    Non-GAAP net earnings per diluted share* $0.38

    *Excludes stock-based compensation expense of $45 million.

    “I’m pleased with Yahoo!’s performance in the first quarter. We saw continued stability in our business, strengthened our team, and started the year with fast execution against our products and partnerships,” said Yahoo! CEO Marissa Mayer. “We are moving quickly to roll out beautifully designed, more intuitive experiences for our users. I’m confident that the improvements we’re making to our products will set up the Company for long-term growth.”

    GAAP revenue was $1,140 million for the first quarter of 2013, a 7 percent decrease from the first quarter of 2012. Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,074 million for the first quarter of 2013, flat compared to the first quarter of 2012.

    Adjusted EBITDA for the first quarter of 2013 was $386 million, flat compared to the same period of 2012.

    Commencing this quarter, Yahoo! is excluding stock-based compensation expense from its reported non-GAAP income from operations, non-GAAP net earnings and non-GAAP net earnings per diluted share. The relevant prior period amounts have been revised to exclude stock-based compensation expense to conform to the current presentation.

    GAAP income from operations increased 10 percent to $186 million in the first quarter of 2013, compared to $169 million in the first quarter of 2012. Non-GAAP income from operations was $224 million in the first quarter of 2013, compared to $231 million in the first quarter of 2012. Non-GAAP income from operations for the quarter would have been $179 million including stock-based compensation expense of $45 million.

    GAAP net earnings for the first quarter of 2013 was $390 million, a 36 percent increase from the same period of 2012. Non-GAAP net earnings for the first quarter of 2013 was $420 million, a 26 percent increase from the same period of 2012. Non-GAAP net earnings for the quarter would have been $386 million including stock-based compensation expense of $34 million, net of tax.

    GAAP net earnings per diluted share was $0.35 in the first quarter of 2013, compared to $0.23 in the first quarter of 2012. Non-GAAP net earnings per diluted share was $0.38 in the first quarter of 2013, compared to $0.27 in the first quarter of 2012. Non-GAAP net earnings per diluted share for the quarter would have been $0.35 per share including $0.03, net of tax, related to stock-based compensation.

    Business Highlights

    • Yahoo! launched its new, fast and personalized Yahoo.com experience, with a customizable news feed, infinite scroll, and intuitive interface optimized for mobile devices, tablets and the Web.
    • Yahoo! continued to improve the Mail experience, announcing a partnership with Dropbox to make it easier for users to share and store larger files as attachments.
    • Yahoo! acquired Snip.it, Alike, and Jybe, further accelerating the Company’s efforts to build world-class technology and engineering teams in mobile and personalization.
    • Yahoo! also announced the acquisition of Summly, a company that helps simplify the way we get information – making it faster, easier to read and more concise. As part of the acquisition, Yahoo! acquired Summly’s technology and intellectual property, which it plans to integrate across its mobile content experiences.
    • Yahoo! continued to invest in people, building out its executive team and recruiting exceptional talent from around the world. Yahoo! welcomed Sandy Gould, senior vice president of talent acquisition and development; and Bob Stohrer, senior vice president of brand creative.
    • The Company announced a global, non-exclusive agreement with Google to display ads on various Yahoo! Properties and certain co-branded sites using Google’s AdSense for Content and AdMob services. By adding Google to its list of world-class contextual ad partners, Yahoo! can serve users with ads that are even more meaningful and personal.
    • Yahoo! launched the second season of its acclaimed series, Burning Love. The popular series, which spoofs reality dating shows and features A-list comedians and stars, premiered on Yahoo! Screen and aired on cable television for the first time.

    First Quarter 2013 Financial Highlights

    Display:

    • GAAP display revenue was $455 million for the first quarter of 2013, an 11 percent decrease compared to $511 million for the first quarter of 2012.
    • Display revenue ex-TAC was $402 million for the first quarter of 2013, an 11 percent decrease compared to $454 million for the first quarter of 2012.
    • The Number of Ads Sold (excluding Korea) decreased approximately 7 percent compared to the first quarter of 2012.
    • Price-per-Ad (excluding Korea) decreased approximately 2 percent compared to the first quarter of 2012.

    Search:

    • GAAP search revenue was $425 million for the first quarter of 2013, a 10 percent decrease compared to $470 million for the first quarter of 2012.
    • Search revenue ex-TAC was $409 million for the first quarter of 2013, a 6 percent increase compared to $384 million for the first quarter of 2012.
    • Paid Clicks (excluding Korea) increased approximately 16 percent compared to the first quarter of 2012.
    • Price-per-Click (excluding Korea) decreased approximately 7 percent compared to the first quarter of 2012.

    Cash Balance:

    • Cash, cash equivalents, and investments in marketable debt securities were $5.4 billion as of March 31, 2013 compared to $6 billion as of December 31, 2012, a decrease of $0.6 billion.
    • During the first quarter of 2013, Yahoo! repurchased 38 million shares for $775 million.

    Conference Call

    Yahoo! will host a conference call to discuss first quarter 2013 results at 5 p.m. Eastern Time today. On the conference call, Yahoo! will also provide its business outlook for the second quarter and full year of 2013. A live Webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations Website at http://investor.yahoo.com/results.cfm. In addition, an archive of the Webcast can be accessed through the same link. An audio replay of the call will be available for one week following the conference call by calling toll-free (855) 859-2056 or toll (404) 537-3406, conference ID number: 31852463.

    Non-GAAP Financial Measures

    This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission (“SEC”): revenue ex-TAC; adjusted EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP net earnings per share – diluted; and free cash flow.

    Revenue ex-TAC is GAAP revenue less traffic acquisition costs. Adjusted EBITDA, non-GAAP income from operations, non-GAAP net earnings and non-GAAP net earnings per share – diluted, exclude from the most comparable GAAP financial measures certain gains, losses, and expenses that we do not believe are indicative of ongoing results, and exclude stock-based compensation expense. Adjusted EBITDA also excludes taxes, depreciation, amortization of intangible assets, other income, net (which includes interest), earnings in equity interests, and net income attributable to noncontrolling interests. Free cash flow is GAAP net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net and dividends received from equity investees.

    These measures may be different than non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (“GAAP”). Explanations of the Company’s non-GAAP financial measures and reconciliations of these financial measures to the GAAP financial measures the Company considers most comparable are included in the accompanying “Note to Unaudited Condensed Consolidated Financial Statements,” “Supplemental Financial Data and GAAP to Non-GAAP Reconciliations,” and “GAAP to Non-GAAP Reconciliations.”

    About Yahoo!

    Yahoo! is focused on making the world’s daily habits inspiring and entertaining. By creating highly personalized experiences for our users, we keep people connected to what matters most to them, across devices and around the world. In turn, we create value for advertisers by connecting them with the audiences that build their businesses. Yahoo! is headquartered in Sunnyvale, California, and has offices located throughout the Americas, Asia Pacific (APAC) and the Europe, Middle East and Africa (EMEA) regions. For more information, visit the pressroom (pressroom.yahoo.net) or the company’s blog (yodel.yahoo.com).

    “Affiliates” refers to the third-party entities that have integrated Yahoo!’s advertising offerings into their Websites or other offerings (those Websites and other offerings, “Affiliate sites”).

    “Alibaba Group” means Alibaba Group Holding Limited.

    “Net earnings” means net income attributable to Yahoo! Inc., and “net earnings per diluted share” means net income attributable to Yahoo! Inc. common stockholders per share – diluted.

    “Number of Ads Sold” is defined as the total number of ads displayed, or impressions, for paying advertisers on Yahoo! Properties.

    “Paid Clicks” are defined as the total number of times an end-user clicks on a sponsored listing on Yahoo! Properties and Affiliate sites for which an advertiser pays on a per click basis.

    “Price-per-Ad” is defined as display revenue from Yahoo! Properties divided by our Number of Ads Sold.

    “Price-per-Click” is defined as search revenue divided by our Paid Clicks.

    Additional information about how “Number of Ads Sold,” “Paid Clicks,” “Price-per-Ad,” and “Price-per-Click” are defined and calculated is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which is on file with the SEC and available on the SEC’s website at www.sec.gov. Due to the closure of the Korea business in the fourth quarter of 2012, “Number of Ads Sold”, “Paid Clicks”, “Price-per-Ad”, and “Price-per-Click,” as presented above, exclude the Korea market for all periods.

    “Search Agreement” refers to the Search and Advertising Services and Sales Agreement between Yahoo! and Microsoft Corporation, as amended.

    “TAC” refers to traffic acquisition costs. TAC consists of payments to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo! Properties.

    “Yahoo! Properties” refers to the online properties and services that Yahoo! provides to users.

    This press release contains forward-looking statements concerning Yahoo!’s expected financial performance and Yahoo!’s strategic and operational plans (including, without limitation, the quotation from management). Risks and uncertainties may cause actual results to differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, acceptance by users of new products and services (including, without limitation, products and services for mobile devices and alternative platforms); Yahoo!’s ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with the Search Agreement with Microsoft Corporation; risks related to Yahoo!’s regulatory environment; interruptions or delays in the provision of Yahoo!’s services; security breaches; risks related to joint ventures and the integration of acquisitions; risks related to Yahoo!’s international operations; adverse results in litigation; Yahoo!’s ability to protect its intellectual property and the value of its brands; dependence on third parties for technology, services, content, and distribution; and general economic conditions. All information set forth in this press release and its attachments is as of April 16, 2013. Yahoo! does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances. More information about potential factors that could affect the Company’s business and financial results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which is on file with the SEC and available on the SEC’s website at www.sec.gov. Additional information will also be set forth in those sections in Yahoo!’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, which will be filed with the SEC in the second quarter of 2013.

    Yahoo! and the Yahoo! logos are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or registered trademarks of their respective owners.

    Yahoo! Inc.
    Unaudited Condensed Consolidated Balance Sheets
    (in thousands)
    December 31, March 31,
    2012 2013
    ASSETS
    Current assets:
    Cash and cash equivalents $ 2,667,778 $ 1,174,633
    Short-term marketable debt securities 1,516,175 1,838,527
    Accounts receivable, net 1,008,448 943,658
    Prepaid expenses and other current assets 460,312 644,204
    Total current assets 5,652,713 4,601,022
    Long-term marketable debt securities 1,838,425 2,382,026
    Alibaba Group Preference Shares 816,261 830,925
    Property and equipment, net 1,685,845 1,612,690
    Goodwill 3,826,749 3,803,433
    Intangible assets, net 153,973 136,610
    Other long-term assets 289,130 239,427
    Investments in equity interests 2,840,157 2,884,846
    Total assets $ 17,103,253 $ 16,490,979
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable $ 184,831 $ 110,162
    Accrued expenses and other current liabilities 808,475 720,463
    Deferred revenue 296,926 308,462
    Total current liabilities 1,290,232 1,139,087
    Long-term deferred revenue 407,560 370,414
    Capital lease and other long-term liabilities 124,587 121,475
    Deferred and other long-term tax liabilities, net 675,271 674,077
    Total liabilities 2,497,650 2,305,053
    Total Yahoo! Inc. stockholders’ equity 14,560,200 14,139,915
    Noncontrolling interests 45,403 46,011
    Total equity 14,605,603 14,185,926
    Total liabilities and equity $ 17,103,253 $ 16,490,979

     

    Yahoo! Inc.
    Unaudited Condensed Consolidated Statements of Income
    (in thousands, except per share amounts)
    Three Months Ended
    March 31,
    2012 2013
    Revenue $ 1,221,233 $ 1,140,368
    Operating expenses:
    Cost of revenue – traffic acquisition costs 144,091 66,068
    Cost of revenue – other 253,980 278,007
    Sales and marketing 285,267 257,019
    Product development 228,478 219,580
    General and administrative 124,271 133,421
    Amortization of intangibles 10,053 7,365
    Restructuring charges (reversals), net 5,717 (7,062 )
    Total operating expenses 1,051,857 954,398
    Income from operations 169,376 185,970
    Other income, net 2,278 17,072
    Income before income taxes and earnings in equity interests 171,654 203,042
    Provision for income taxes (56,419 ) (29,736 )
    Earnings in equity interests 172,243 217,588
    Net income 287,478 390,894
    Less: Net income attributable to noncontrolling interests (1,135 ) (609 )
    Net income attributable to Yahoo! Inc. $ 286,343 $ 390,285
    Net income attributable to Yahoo! Inc. common stockholders per share – diluted $ 0.23 $ 0.35
    Shares used in per share calculation – diluted 1,226,486 1,108,095
    Stock-based compensation expense by function:
    Cost of revenue – other $ 2,893 $ 3,578
    Sales and marketing 21,097 16,045
    Product development 19,471 8,263
    General and administrative 12,505 16,719
    Supplemental Financial Data:
    Revenue ex-TAC $ 1,077,142 $ 1,074,300
    Adjusted EBITDA $ 384,307 $ 385,605
    Free cash flow $ 195,823 $ 149,908

     

    Yahoo! Inc.
    Unaudited Condensed Consolidated Statements of Cash Flows
    (in thousands)
    Three Months Ended
    March 31,
    2012 2013
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income $ 287,478 $ 390,894
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation 122,750 143,864
    Amortization of intangible assets 31,345 18,410
    Stock-based compensation expense 55,966 44,605
    Non-cash restructuring charges – 547
    Accrued dividend income related to Alibaba Group Preference Shares – (20,251 )
    Dividends received from equity investees – 12,000
    Tax benefits from stock-based awards 1,014 9,537
    Excess tax benefits from stock-based awards (8,161 ) (12,807 )
    Deferred income taxes (4,399 ) (20,158 )
    Earnings in equity interests (172,243 ) (217,588 )
    (Gain) loss from sale of investments, assets, and other, net (3,857 ) 11,905
    Changes in assets and liabilities, net of effects of acquisitions:
    Accounts receivable, net 102,641 57,853
    Prepaid expenses and other (9,430 ) 19,707
    Accounts payable (42,442 ) (71,135 )
    Accrued expenses and other liabilities (43,988 ) (123,472 )
    Deferred revenue (19,221 ) (25,229 )
    Net cash provided by operating activities 297,453 218,682
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property and equipment, net (109,791 ) (69,581 )
    Purchases of marketable debt securities (176,220 ) (1,481,293 )
    Proceeds from sales of marketable debt securities 133,961 424,347
    Proceeds from maturities of marketable debt securities 77,700 183,100
    Purchases of intangible assets (1,802 ) (1,128 )
    Acquisitions, net of cash acquired – (10,147 )
    Other investing activities, net (7,280 ) 3,822
    Net cash used in investing activities (83,432 ) (950,880 )
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock, net 11,623 61,108
    Repurchases of common stock (70,500 ) (775,075 )
    Excess tax benefits from stock-based awards 8,161 12,807
    Tax withholdings related to net share settlements of restricted stock awards and restricted stock units (31,504 ) (43,689 )
    Other financing activities, net (1,013 ) (1,405 )
    Net cash used in financing activities (83,233 ) (746,254 )
    Effect of exchange rate changes on cash and cash equivalents 26,790 (14,693 )
    Net change in cash and cash equivalents 157,578 (1,493,145 )
    Cash and cash equivalents, beginning of period 1,562,390 2,667,778
    Cash and cash equivalents, end of period $ 1,719,968 $ 1,174,633

     

    Yahoo! Inc.

    Note to Unaudited Condensed Consolidated Financial Statements

    This press release and its attachments include the non-GAAP financial measures of revenue excluding traffic acquisition costs (“revenue ex-TAC”); adjusted EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP net earnings per diluted share; and free cash flow, which are reconciled to revenue; net income attributable to Yahoo! Inc. (in the case of adjusted EBITDA and non-GAAP net earnings); income from operations; net income attributable to Yahoo! Inc. common stockholders per share – diluted; and net cash provided by operating activities, which we believe are the most comparable GAAP measures. We use these non-GAAP financial measures for internal managerial purposes and to facilitate period-to-period comparisons. We describe limitations specific to each non-GAAP financial measure below. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure or measures. Further, management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, revenue, net income attributable to Yahoo! Inc., income from operations, net income attributable to Yahoo! Inc. common stockholders per share – diluted, and net cash provided by operating activities calculated in accordance with GAAP.

    Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue less TAC. TAC consists of payments made to third-party entities that have integrated our advertising offerings into their Websites or other offerings (those Websites and other offerings, “Affiliate sites”) and payments made to companies that direct consumer and business traffic to Yahoo!’s online properties and services (“Yahoo! Properties”). Based on the terms of the Search Agreement with Microsoft, Microsoft retains a revenue share of 12 percent of the net (after TAC) search revenue generated on Yahoo! Properties and Affiliate sites in transitioned markets. Yahoo! reports the net revenue it receives under the Search Agreement as revenue and no longer presents the associated TAC. Accordingly, for transitioned markets Yahoo! reports GAAP revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. For markets that have not yet transitioned, revenue continues to be recorded on a gross basis, and TAC is recorded as a part of operating expenses. We present revenue ex-TAC to provide investors a metric used by the Company for evaluation and decision-making purposes during the Microsoft transition and to provide investors with comparable revenue numbers when comparing periods preceding, during and following the transition period. A limitation of revenue ex-TAC is that it is a measure which we have defined for internal and investor purposes that may be unique to the Company, and therefore it may not enhance the comparability of our results to other companies in our industry who have similar business arrangements but address the impact of TAC differently. Management compensates for these limitations by also relying on the comparable GAAP financial measures of revenue and total operating expenses, which includes TAC in non-transitioned markets.

    Adjusted EBITDA is defined as net income attributable to Yahoo! Inc. before taxes, depreciation, amortization of intangible assets, stock-based compensation expense, other income, net (which includes interest), earnings in equity interests, net income attributable to noncontrolling interests and other gains, losses, and expenses that we do not believe are indicative of our ongoing results. Yahoo! presents adjusted EBITDA because the exclusion of certain gains, losses, and expenses facilitates comparisons of the operating performance of our Company on a period to period basis. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under GAAP. These limitations include: adjusted EBITDA does not reflect tax payments and such payments reflect a reduction in cash available to us; adjusted EBITDA does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses; adjusted EBITDA does not include stock-based compensation expense related to the Company’s workforce; adjusted EBITDA also excludes other income, net (which includes interest), earnings in equity interests, net income attributable to noncontrolling interests and other gains, losses, and expenses that we do not believe are indicative of our ongoing results, and these items may represent a reduction or increase in cash available to us; and adjusted EBITDA is a measure that may be unique to the Company, and therefore it may not enhance the comparability of our results to other companies in our industry. Management compensates for these limitations by also relying on the comparable GAAP financial measure of net income attributable to Yahoo! Inc., which includes taxes, depreciation, amortization, stock-based compensation expense, other income, net (which includes interest), earnings in equity interests, net income attributable to noncontrolling interests and the other gains, losses and expenses that are excluded from adjusted EBITDA.

    Non-GAAP income from operations is defined as income from operations excluding certain gains, losses, and expenses that we do not believe are indicative of our ongoing operating results and further adjusted to exclude stock-based compensation expense. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on income from operations. We consider non-GAAP income from operations to be a profitability measure which facilitates the forecasting of our operating results for future periods and allows for the comparison of our results to historical periods. A limitation of non-GAAP income from operations is that it does not include all items that impact our income from operations for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measure of income from operations which includes the gains, losses, and expenses that are excluded from non-GAAP income from operations.

    Non-GAAP net earnings is defined as net income attributable to Yahoo! Inc. excluding certain gains, losses, expenses, and their related tax effects that we do not believe are indicative of our ongoing results and further adjusted to exclude stock-based compensation expense and its related tax effects. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on net income and net income per share. We consider non-GAAP net earnings and non-GAAP net earnings per diluted share to be profitability measures which facilitate the forecasting of our results for future periods and allow for the comparison of our results to historical periods. A limitation of non-GAAP net earnings and non-GAAP net earnings per diluted share is that they do not include all items that impact our net income and net income per diluted share for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measures of net income attributable to Yahoo! Inc. and net income attributable to Yahoo! Inc. common stockholders per share – diluted, both of which include the gains, losses, expenses and related tax effects that are excluded from non-GAAP net earnings and non-GAAP net earnings per diluted share.

    Free cash flow is a non-GAAP financial measure defined as net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net and dividends received from equity investees. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including, among others, investing in the Company’s business, making strategic acquisitions, strengthening the balance sheet, and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company’s unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.

    Yahoo! Inc.
    Supplemental Financial Data and GAAP to Non-GAAP Reconciliations
    (in thousands)
    Three Months Ended
    March 31,
    2012 2013
    Revenue for groups of similar services:
    Display $ 511,217 $ 455,071
    Search 470,397 424,687
    Other 239,619 260,610
    Total revenue $ 1,221,233 $ 1,140,368
    Revenue excluding traffic acquisition costs (“revenue ex-TAC”) for groups of similar services:
    GAAP display revenue $ 511,217 $ 455,071
    TAC associated with display revenue (57,426 ) (53,047 )
    Display revenue ex-TAC $ 453,791 $ 402,024
    GAAP search revenue $ 470,397 $ 424,687
    TAC associated with search revenue for non-transitioned markets (86,665 ) (16,057 )
    Search revenue ex-TAC $ 383,732 $ 408,630
    Other GAAP revenue $ 239,619 $ 260,610
    TAC associated with other GAAP revenue – 3,036
    Other revenue ex-TAC $ 239,619 $ 263,646
    Revenue ex-TAC:
    GAAP revenue $ 1,221,233 $ 1,140,368
    TAC (144,091 ) (66,068 )
    Revenue ex-TAC $ 1,077,142 $ 1,074,300
    Revenue ex-TAC by segment:
    Americas:
    GAAP revenue $ 836,033 $ 842,195
    TAC (42,955 ) (37,522 )
    Revenue ex-TAC $ 793,078 $ 804,673
    EMEA:
    GAAP revenue $ 133,962 $ 94,824
    TAC (45,662 ) (11,536 )
    Revenue ex-TAC $ 88,300 $ 83,288
    Asia Pacific:
    GAAP revenue $ 251,238 $ 203,349
    TAC (55,474 ) (17,010 )
    Revenue ex-TAC $ 195,764 $ 186,339
    Total revenue ex-TAC $ 1,077,142 $ 1,074,300
    Direct costs by segment (1):
    Americas $ 179,225 $ 170,124
    EMEA 40,221 38,428
    Asia Pacific 51,491 55,014
    Global operating costs (2) 421,898 425,129
    Restructuring charges, net 5,717 (7,062 )
    Depreciation and amortization 153,248 162,092
    Stock-based compensation expense 55,966 44,605
    Income from operations $ 169,376 $ 185,970
    Reconciliation of net income attributable to Yahoo! Inc. to adjusted EBITDA:
    Net income attributable to Yahoo! Inc. $ 286,343 $ 390,285
    Depreciation and amortization 153,248 162,092
    Stock-based compensation expense 55,966 44,605
    Restructuring charges, net 5,717 (7,062 )
    Other income, net (2,278 ) (17,072 )
    Provision for income taxes 56,419 29,736
    Earnings in equity interests (172,243 ) (217,588 )
    Net income attributable to noncontrolling interests 1,135 609
    Adjusted EBITDA $ 384,307 $ 385,605
    Reconciliation of net cash provided by operating activities to free cash flow:
    Net cash provided by operating activities $ 297,453 $ 218,682
    Acquisition of property and equipment, net (109,791 ) (69,581 )
    Dividends received from equity investees – (12,000 )
    Excess tax benefits from stock-based awards 8,161 12,807
    Free cash flow $ 195,823 $ 149,908
    (1) Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses.
    (2) Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.

     

    Yahoo! Inc.
    GAAP to Non-GAAP Reconciliations
    (in thousands, except per share amounts)
    Three Months Ended
    March 31,
    2012 2013
    GAAP income from operations $ 169,376 $ 185,970
    (a) Restructuring charges, net 5,717 (7,062 )
    (b) Stock-based compensation expense 55,966 44,605
    Non-GAAP income from operations (3) $ 231,059 $ 223,513
    GAAP net income attributable to Yahoo! Inc. $ 286,343 $ 390,285
    (a) Restructuring charges, net 5,717 (7,062 )
    (b) Stock-based compensation expense 55,966 44,605
    (c) To adjust the provision for income taxes to exclude the tax impact of items (a) and (b) above for the three months ended March 31, 2012 and 2013 (14,444 ) (7,646 )
    Non-GAAP net earnings (4) $ 333,582 $ 420,182
    GAAP net income attributable to Yahoo! Inc. common stockholders per share – diluted $ 0.23 $ 0.35
    Non-GAAP net earnings per share – diluted (4) $ 0.27 $ 0.38
    Shares used in per share calculation – diluted 1,226,486 1,108,095
    (3) Commencing in 2013, non-GAAP income from operations excludes stock-based compensation expense. Prior period amounts have been revised to conform to the current presentation.
    (4) Commencing in 2013, non-GAAP net earnings and non-GAAP net earnings per share – diluted exclude stock-based compensation expense and its related tax effects. Prior period amounts have been revised to conform to the current presentation.

  • Google To Alter Search Results To Settle With EU

    No official announcement has been made yet, but reports have come out indicating that Google has settled with the European Commission in a two-year antitrust investigation. This one goes far beyond the settlement the company recently reached with the Federal Trade Commission in the United States.

    Under the proposal, as it’s being reported, Google will label its own results, and it will show competitors’ links in cases where it shows its on results. The New York Times reports:

    Google will not have to change the algorithm that produces its search results, the people said. Under the proposal, Google agrees to clearly label search results from its own properties, like Google Plus Local or Google News, and in some cases to show links from rival search engines.

    …

    In areas where Google does not make money from search results, like weather or news, the company will label the results as Google-owned properties. In areas where Google sells ads, like local business reviews, it will show links to at least three competitors. In areas in which all search results are paid ads, like shopping, Google will auction links to rivals.

    Like in the U.S., Google will also have to give sites a way to keep their content from being included in vertical search results while letting them stay in regular search results. According to the Times, sites will be able to keep portions (as much as 10%) of their content out of Google so users are compelled to visit the site. It gives the example of Yelp keeping out business hours.

    Additionally, Google is reportedly agreeing to be policed by an unknown third party, and will face fines if it doesn’t comply with the terms. This will go on for five years.

    With the proposal, Google will avoid a lengthy and costly legal battle in Europe.

    According to Bloomberg, Google competitors aren’t happy with the details of Google’s proposal that have surfaced, despite going significantly further than the concessions made in the U.S.

    Last week, FairSearch announced a complaint with the EU claiming that Android gives Google an unfair advantage in search. More on that here.

    Last month, Google released an opt-out tool for sites to keep content out of its vertical search engines.

  • Facebook’s Paid Messages Test Continues to Expand

    It appears that Facebook’s paid messaging test has crossed the pond, as users in the U.K. are reporting that they are being given the opportunity to pay upwards of £10 to send messages to some users’ inboxes.

    “The system of paying to message non-friends in their inbox is designed to prevent spam while acknowledging that sometimes you might want to hear from people outside your immediate social circle,” said Facebook in a statement.

    This is an expansion on a months-old test that first originated in the U.S. back in December of 2012. Facebook began to test the “paid messages,” which allow users to pay a small fee to ensure that the messages they send reach the intended recipient’s inbox.

    Note it’s their inbox that we’re shooting for – not the “other” folder. That’s Facebook’s version of a spam folder, and it houses messages deemed spammy or unimportant, based on a sorting algorithm.

    The Telegraph reports that U.K. users are seeing a sliding pay scale for celebrities that quotes a message price based on their number of followers and message competition.

    “We are testing a number of price points in the UK and other countries to establish the optimal fee that signals importance. Part of that test involves charging higher amounts for public figures, based on the number of followers they have. This is still a test and these prices are not set in stone,” said Facebook.

    It’s likely that any message a random Facebook user sends to a celebrity with millions of followers or even someone that they simply don’t know and is way outside their network will be relegated to the “other” messages folder. With this test, Facebook is giving users a way to make sure that these messages reach the main inbox.

    Although it could be seen as Facebook giving people a way to pay to spam you, Facebook has always said that it’s about reducing spam.

    “Several commentators and researchers have noted that imposing a financial cost on the sender may be the most effective way to discourage unwanted messages and facilitate delivery of messages that are relevant and useful,” said Facebook when they first launched the test.

  • Google: That Paid Links Thing Goes For Google News Too

    Google: That Paid Links Thing Goes For Google News Too

    After the whole Interflora paid links fiasco, Google took to its Webmaster Central blog to remind webmasters about the no-nos of paid links and advertorials.

    Today, Google took to the Google News blog to remind bloggers and publishers that the rules apply in Google News too.

    “Credibility and trust are longstanding journalistic values, and ones which we all regard as crucial attributes of a great news site,” writes Google Sr. Director of News and Social Products, Richard Gingras. “It’s difficult to be trusted when one is being paid by the subject of an article, or selling or monetizing links within an article. Google News is not a marketing service, and we consider articles that employ these types of promotional tactics to be in violation of our quality guidelines.”

    “Please remember that like Google search, Google News takes action against sites that violate our quality guidelines,” he adds. “Engagement in deceptive or promotional tactics such as those described above may result in the removal of articles, or even the entire publication, from Google News.”

    You can get a look at the Google News quality guidelines here. Similar language in those says:

    Google News is not a marketing service. We don’t want to send users to sites created primarily for promoting a product or organization, or to sites that engage in commerce journalism. If your site mixes news content with other types of content, especially paid advertorials or promotional content, we strongly recommend that you separate non-news types of content. Otherwise, if we find non-news content mixed with news content, we may exclude your entire publication from Google News.

    “If a site mixes news content with affiliate, promotional, advertorial, or marketing materials (for your company or another party), we strongly recommend that you separate non-news content on a different host or directory, block it from being crawled with robots.txt, or create a Google News Sitemap for your news articles only,” says Gingras. “Otherwise, if we learn of promotional content mixed with news content, we may exclude your entire publication from Google News.”

    Don’t say you weren’t warned. Now we’re wondering what exactly prompted this post. Did Google just bust someone? That appeared to be the motivation for Cutts’ earlier post.

    We’re also wondering whatever came of that recent incident where Google itself was busted with paid links again.

  • Google: If We Mistakenly Penalize You For Paid Links, There Would Be A ‘Ton Of Collateral Damage’

    There has been a lot of talk about Google and paid links in the news lately, so it’s only fitting that they’re the topic of the latest Webmaster Help video from the company. In this one, Matt Cutts responds to this question:

    On our travel site, we recommend and link out to hotels and B&B’s in our niche. Our readers find it useful. They’re not paid links, so we don’t add the nofollow attribute. What stops Google from suspecting these are paid links and penalizing us?

    “The short answer is: if you’re linking to high quality sites, and you editorially think that they’re good sites, that’s how most of the web works,” says Cutts. “We get into this tiny little area of search and SEO, and we’re convinced all links are nofollowed, and if a link looks good, it must be paid or something like that, and the fact is that for the most part, whenever you’re looking at links, people are linking to stuff that they like. They’re linking to stuff that they enjoy.”

    “So, if we mistakenly thought that those were paid links, and as a result, penalized you, there would be a ton of collateral damage,” he says. “There would be a ton of algorithmic damage to our search rankings. So it’s in our enlightened, best self interest, as well as in the interest of our users to make sure that we don’t accidentally classify links as paid and penalize the site. And normally, even if we would classify links as paid, we might not trust the links from your site, but we wouldn’t have things where your site would necessarily stop ranking as well. It can happen if somebody is selling a lot of links, they’ve been selling them for a long time, and those sorts of things, so we do take strong action in some situations, but a lot of the times if we think that a link might be sold or if we have very good reason to suspect, we might just not trust that site’s links nearly as much or maybe zero.”

    Concluding the video, Cutts reiterates that it’s in the company’s best interest to be precise when it comes to getting paid links right.

  • Google Appears To Be Busted With Its Own Paid Links AGAIN

    It appears that Google has been caught doing paid links again. We’re still waiting for Google to provide an explanation, but the evidence makes it look like this is the case.

    Our friend Aaron Wall at SEOBook has found some examples of an apparent “‘series’ of advertorials” for Google products like AdWords, Google Analytics, Chromebooks, and Hangouts. He points to content from The Globe And Mail and Edutopia that claim to be “brought to you by Google” and “sponsored by Chromebooks” respectively. He points to a handful of questionable links within the content.

    Should Google penalize its own pages? It would seem like the fair thing to do, but at the same time, does this help the user experience when people are searching for the products in question? Share your thoughts in the comments.

    “None of those links in the content use nofollow, in spite of many of them having Google Analytics tracking URLs on them,” Wall writes. “And I literally spent less than 10 minutes finding the above examples & writing this article. Surely Google insiders know more about Google’s internal marketing campaigns than I do. Which leads one to ask the obvious (but uncomfortable) question: why doesn’t Google police themselves when they are policing others? If their algorithmic ideals are true, shouldn’t they apply to Google as well?”

    Wall makes a very good point, though Google (at least when it’s caught in such acts) does take action against itself. As you may recall, Google got some attention last year for a very similar situation, which it blamed on a different firm, who was working on its behalf. Google ultimately penalized its Chrome landing page in search results, and left it in the penalty box for the requisite “at least 60 days“.

    But why isn’t Google catching this stuff on its own? Why does it have to be pointed out by others first? Google is pretty good at going after other sites that do it. Ask Interflora or JC Penney, or Overstock, who blamed Google for an “ugly” financial year.

    The truth of the matter is that this whole thing exposes a flaw in the paid link penalty process itself. Nobody (other than those competing for the rankings) benefits from sites being penalized when those sites really are the best results for what people want. If Chrome, for example, is the best result for a user’s search query, should it be buried just because Google didn’t follow the rules? From a fairness standpoint, yes, but from a user experience standpoint? The same goes for any other site that Google may have penalized (like JC Penney, Interflora or Overstock). It makes sense for Google to discourage this kind of gaming of the system, but the problem isn’t necessarily made better by the penalty in all cases.

    While Google has yet to comment directly on this particular case, it seems likely that it will follow a similar path to what it did with the Chrome situation. Danny Sullivan at Search Engine Land shares this statement from the company:

    We’ll investigate this report just as we would a report about any other company, and take the same action we would for any other company.

    We’ve since reached out for additional comment, and will update if we hear back. Update: We got pretty much the same statement:

    We’re investigating this report just as we would a report about any other company, and if we find evidence of violations of our guidelines we’ll take the same action we would for any other company.

    As Sullivan notes, this is far from the first time Google itself has engaged in paid links. Even before last year’s Chrome incident there were other cases.

    “Google’s also penalized Google Japan in 2009 for paid links, its AdWords help area for cloaking in 2010, and the BeatThatQuote service it acquired in 2011 was penalized on day it was purchased over spam violations,” he writes.

    The timing of this new discovery is quite interesting. Google just (apparently) slapped UK flower seller Interflora for paid links, along with the newspaper sites who had the “advertorials”. Google did not specifically comment on this, but “randomly” put up a generic post about selling links that pass PageRank on its Webmaster Central blog just over that situation got some media coverage.

    In Google’s post, Matt Cutts wrote, “Please be wary if someone approaches you and wants to pay you for links or ‘advertorial’ pages on your site that pass PageRank. Selling links (or entire advertorial pages with embedded links) that pass PageRank violates our quality guidelines, and Google does take action on such violations. The consequences for a linkselling site start with losing trust in Google’s search results, as well as reduction of the site’s visible PageRank in the Google Toolbar. The consequences can also include lower rankings for that site in Google’s search results.”

    Google also put out this video of Cutts talking about the basics of paid links a few months ago:

    “Whenever you’re paying for links that pass PageRank, fundamentally, you’re paying for something that manipulates search engines,” he says in that video. “You’re paying for something that makes a worse search experience for users, and that’s something that we consider a violation of our guidelines in the same way that people who would pay the radio to have their song played a lot, and not have it disclosed, nofollow or some attribute like that is our way of disclosing that that is paid, and so if you are buying a link, and you’re not making sure that it doesn’t pass PageRank, then it looks a lot like payola to us.”

    Last year, Cutts also shared an email he sent to a newspaper who was hit with a paid link penalty. Within that, he wrote:

    In particular, earlier this year on [website] we saw links labeled as sponsored that passed PageRank, such as a link like [example link]. That’s a clear violation of Google’s quality guidelines, and it’s the reason that [website]‘s PageRank as well as our trust in the website has declined.

    Is Google losing trust in itself? It is, after all, apparently a repeat offender.

    It will be interesting to see how Google proceeds with the series Wall has brought to the forefront, and if Google comments directly on the situation.

    How should Google proceed following this apparent debacle? Let us know what you think in the comments.

    Image: Aaron Wall

  • Yahoo Is Not Pleased With Its Microsoft Search Deal

    That big Yahoo Microsoft search deal is not working as well as Yahoo would like.

    Do you think Yahoo will sever its ties with Microsoft prematurely? Do you think it should? Share your thoughts in the comments.

    CEO Marissa Mayer made comments at the Goldman Sachs Technology and Internet Conference in San Francisco on Tuesday expressing disappointment with the deal. Reuters quotes her:

    “One of the points of the alliance is that we collectively want to grow share rather than just trading share with each other…”

    “We need to see monetization working better because we know that it can and we’ve seen other competitors in the space illustrate how well it can work.”

    Rumors have existed for quite some time, that Yahoo and Microsoft could kill their search deal early, but we’ve heard nothing substantial enough to suggest this is going to happen. However, Yahoo seems to be getting increasingly impatient.

    Yahoo is a different company than it was when it made the deal with Microsoft. Marissa Mayer is the fifth person to hold the CEO position while the deal has been in place (granted, two of them were interim CEOs). It was announced under Carol Bartz, and has gone through leadership from Tim Morse, Scott Thompson, Ross Levinsohn, and finally Mayer.

    Mayer is, of course, a former Googler, and has brought other former Googlers along for the ride. Since Mayer has been at Yahoo, the company seems to be closer with Google than any other time in recent memory. In fact, last week, Yahoo announced a new partnership with Google (non-exclusive) for contextual ads, which will see Yahoo displaying contextual display ads from Google on various Yahoo properties and “certain co-branded sites” using Google’s AdSense for Content and AdMob advertising offerings.

    “By adding Google to our list of world-class contextual ads partners, we’ll be able to expand our network, which means we can serve users with ads that are even more meaningful,” said Yahoo in its announcement. “For our users, there won’t be a noticeable difference in how or where ads appear. More options simply mean greater flexibility. We look forward to working with all of our contextual ads partners to ensure we’re delivering the right ad to the right user at the right time.”

    We asked Microsoft’s Stefan Weitz about Google and Yahoo’s partnership last week, when we spoke with him about Microsoft’s new “Scroogled” campaign. The only comment he offered on the subject, was “I’d say I wonder how Google is using the content [of] your private communications in Gmail to serve ads in other places.”

    Google Executive Chairman Eric Schmidt recently expressed interest in partnering with Yahoo, years after the two companies tried to partner on a similar search deal to what Yahoo has with Microsoft. The partnership never happened thanks to the threat of regulation, so Yahoo settled for Bing, which regulators did not have a problem with.

    Since all of that, Google has cleared some significant regulatory hurdles (though it faces others). Last month, the company settled with the Federal Trade Commission, which found that Google’s search practices did not violate antitrust law.

    A couple weeks ago, Yahoo released its earnings report for Q4 and the full year 2012. The report was better than many analysts had expected, and this was helped significantly by better-than-expected search performance. Mayer made some comments during the company’s earnings call, indicating that search is a major priority at Yahoo. Wired quoted her:

    “Overall in search, it’s a key area of investment for us,” Mayer said. “We need to invest in a lot of interface improvements. All of the innovations in search are going to happen at the user interface level moving forward and we need to invest in those features both on the desktop and on mobile and I think both ultimately will be key plays for us.”

    “We have a big investment we want to make and a big push on search. We have lost some share in recent years and we’d like to regain some of that share and we have some ideas as to how.”

    It was interesting to see this emphasis put on search, but still on the front end, which would seem to imply that Yahoo is happy to continue outsourcing the back end. It makes you wonder what Mayer’s thinking, particularly if she’s not happy with the Microsoft/Yahoo deal performance.

    Last week, reports emerged that Russian search engine Yandex has surpassed Bing in global search queries, though as Danny Sullivan at Search Engine Land notes, Bing is still well head of Yandex in unique searchers.

    Recent research from RKG has indicated that the Yahoo Bing Network continues to take away market share from Google, as Bing recently pointed out to us, noting that Bing Ads have gained paid search spend share from Google four quarters in a row.

    Obviously it’s not benefiting Yahoo to the extent the company would like.

    Microsoft did tell us about some new ad formats that it will be launching this year, such as Google-like product listing ads and click-to-call ads with Skype integration. Both formats have proven popular with Google advertisers, and the Yahoo Bing Network continues to strive to emulate Google’s success.

    David Pann, GM of Microsoft’s Search Network tells us that advertisers come over to the Yahoo Bing Network with the mentality of “It performs well over there [Google], so it will here too.”

    Will Yahoo and Microsoft’s Search Alliance stay in place? How long will Yahoo remain patient?

    This is not the first time we’ve seen Yahoo speak publicly about dissatisfaction with Microsoft in recent memory. Regarding IE 10’s “Do Not Track” default, Yahoo recently slammed Microsoft saying that the company’s move “degrades the experience for the majority of users and makes it hard to deliver our value proposition to them.”

    That was not an off the cuff remark. That was an official blog post.

    At the conference, Mayer also reportedly made comments expressing an interest in strengthening Yahoo’s relationship with Facebook (a big partner of Bing’s). Bloomberg reports that Mayer said she plans to focus on mobile apps and strengthening ties with Facebook to “bolster turnaround efforts at the biggest U.S. web portal.” Brian Womack and Peter Burrows quote her:

    “A lot of the strengths of Facebook are available to Yahoo users,” Mayer said yesterday at an investor conference in San Francisco hosted by Goldman Sachs Group Inc. “That’s something we want to build upon. We have a real commitment to bringing valuable content to our users.”

    …

    Enhancing social features is crucial to Yahoo’s success, Mayer said, as she reinforced her preference to partner with companies like Google, Apple Inc. and Facebook rather than build expensive new products.

    Facebook CEO Mark Zuckerberg said he would “love” to work with Google at a recent company press event, though he indicated that those two companies aren’t really on speaking terms. He did, however, also say, ““We want to work with any company as long as they’ll honor the privacy of the folks on Facebook.” (as quoted by The Verge).

    On Wednesday, Yahoo announced that it has expanded its display advertising partnership with Microsoft and AOL into Canada.

    Do you think a Yahoo search partnership with Google would be good for users? For advertisers? Could the deal that the companies backed out of a few years ago work in the future? Is Yahoo better off sticking with Microsoft? We’d love to hear what you think about it.

    Image: Google Talks Archive (YouTube)