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  • Yahoo Takes Major Search Partner Away From Google

    Yahoo may have lost its way in search over the years, but it would appear that CEO Marissa Mayer is determined to bring search back to the forefront. Going to head with her former employer in its specialty may not be an easy feat, but she’s doing everything she can, it would seem, to cement Yahoo’s brand back into search relevance. Keep in mind, Yahoo was the king of search at one point, and a lot of people are frustrated with Google for various reasons (look no further than the comment sections on our Google search articles for proof of that).

    Can Yahoo make a significant comeback in search? Share your thoughts in the comments.

    Yahoo and Mozilla announced a strategic five-year partnership making Yahoo Search the default search engine for Firefox in the United States both on mobile and desktop.

    “This is the most significant long-term partnership for Yahoo in five years,” a spokesperson for the company tells WebProNews. “As part of this, Yahoo will introduce an enhanced search experience, which U.S. Firefox users will receive first in December 2014.”

    This is huge news for both parties as well as for search in general. Google has been the global default search experience in Firefox for the past ten years. While Chrome has emerged in the meantime, Firefox remains a popular browser, and should give Yahoo a significant boost in searches.

    Here’s what the desktop web browser market share looked like last month (via Wikipedia):

    The Mozilla Google deal came up for renewal this year, and Mozilla decided to review its competitive strategy and explore its options.

    “In evaluating our search partnerships, our primary consideration was to ensure our strategy aligned with our values of choice and independence, and positions us to innovate and advance our mission in ways that best serve our users and the Web,” said CEO Chris Beard. “In the end, each of the partnership options available to us had strong, improved economic terms reflecting the significant value that Firefox brings to the ecosystem. But one strategy stood out from the rest.”

    Firefox will on longer have a single global default search provider. Mozilla says it’s adopting a “more local and flexible” approach with different partnerships for different countries. While Yahoo is the U.S. partner, it’s Yandex in Russia and Baidu in China. In all, Firefox will have 61 different search providers pre-installed across 88 different language versions. Google will still be among those options, and it will continue to power Safe Browsing and Geolocation features in Firefox. Google will also remain the default in Europe.

    That could change, however, and given that Mozilla and Yahoo are now buddies, you have to wonder if Yahoo will eventually take the reins there too.

    Mayer said, “We’re thrilled to partner with Mozilla. Mozilla is an inspirational industry leader who puts users first and focuses on building forward-leaning, compelling experiences. We’re so proud that they’ve chosen us as their long-term partner in search, and I can’t wait to see what innovations we build together. Yahoo, we believe deeply in search – it’s an area of investment, opportunity and growth for us. This partnership helps to expand our reach in search and also gives us an opportunity to work closely with Mozilla to find ways to innovate more broadly in search, communications, and digital content.”

    “Our teams worked closely with Mozilla to build a clean, modern, and immersive search experience that will launch first to Firefox’s U.S. users in December and then to all Yahoo users in early 2015. The interactive and integrated experience also better leverages our world-class content and personalization technologies,” she said. “Search inspires us because we think it’s something that will change and improve dramatically, and because fundamentally, search is about human curiosity — and that is something that will never be finished.”

    “Search is a core part of the online experience for everyone, with Firefox users alone searching the Web more than 100 billion times per year globally,” said Beard. “Our new search strategy doubles down on our commitment to make Firefox a browser for everyone, with more choice and opportunity for innovation. We are excited to partner with Yahoo to bring a new, re-imagined Yahoo search experience to Firefox users in the U.S. featuring the best of the Web, and to explore new innovative search and content experiences together.”

    In recent years, Yahoo has become known more for its display advertising business than its search business, but in its most recent earnings report, it actually revealed that it’s doing better in search. The company saw its eleventh quarter of year-over-year search revenue growth with price-per-click up in most regions.

    “We continue to find ways to enhance the performance of our search ads through better user interfaces and higher quality traffic and as advertisers ultimately find our search ads more valuable,” Mayer said at the time.

    She also talked a little about search on the conference call that followed the earnings release. She said, “When we think about what will search look like, on a phone, on a smaller device 10 years from now, we think it looks pretty different then it looks today. We really like the Aviate technology that we acquired we’ve been looking at how can really enrich the experience such that its not a lot of different answers perfectly ranked but actually the one answer you need when you’re on the go, or you’re working in a more constrained display, real constrained screening environment.”

    More on the Aviate acquisition here.

    As you probably know, Yahoo made a deal with Microsoft in the pre-Mayer years, which saw Bing powering Yahoo search, but it’s become increasingly clear that Mayer isn’t a big fan of the deal, and it will likely end eventually. Having a partnership with Mozilla will help it better compete with both Google and Microsoft, which of course uses Bing for its Internet Explorer browser.

    Interestingly enough, it sounds like Bing doesn’t think it will really ever be able to take significant market share away from Google when it comes to core search.

    For what it’s worth, the Yahoo/Bing partnership saw its biggest paid search market share increase in five years in Q3.

    As far as Firefox goes, Mozilla is doing plenty to keep its flagship product relevant, which will only help Yahoo in the United States. It recently announced some major privacy-related initiatives, and that’s something that’s been on a lot of people’s minds, particularly since the whole NSA/PRISM scandal came to light. By the way, under the partnership, Mozilla says Yahoo will support Do Not Track in Firefox.

    Mozilla is also courting developers with a new Developer Edition of Firefox.

    As of this summer, Mozilla is under new leadership as Beard became CEO, though he’s been “deeply involved with every aspect of Mozilla” since 2004.

    Google’s dominance has been helped by partnerships like the ones it has held with Google and Apple over the years, but those are starting to break down. Apple has also been distancing itself from Google reliance in a variety of ways over the past couple years.

    Google is too big at this point to face any major threat, but losing such significant partnerships has to hurt it to some extent. And if you’ll recall, when Google released its latest earnings report, one of the storylines was whether or not Google’s core business is actually in trouble. Some analysts seem to think it might be as growth has slowed. Google has also seen twelve straight quarters of ad price decline.

    In case you haven’t noticed, Yahoo has been making a lot of acquisitions over the past couple years, and has been launching major overhauls to its core products while getting rid of others so it can focus on the ones that really matter. It’s hard to argue that Mayer hasn’t breathed new life into the company since she took over.

    Yahoo doesn’t have to become top dog in search again to have a major impact on the web and businesses. Either way, for the first time in a long time, it would seem that Yahoo has plenty to be excited about when it comes to search.

    Do you use Firefox? Yahoo Search? Do you you think Yahoo is headed in the right direction? Discuss.

    Image via Wikimedia Commons

  • Report: Big-Spending SMBs Prioritize Search

    Search engine marketing is the top digital marketing priority for most higher-spending small and medium-sized businesses, according to anew report from BIA/Kelsey. These are businesses spending over $25,000 a year on advertising and promotion. On average, they’re spending $79,000.

    60.6% rated search advertising and marketing (including SEO) as an “extremely high” or “very high” priority for the coming twelve months. 20.7% reported using PPC advertising in the previous 12 months, compared to 19.6% in 2013.

    “The LCM [Local Commerce Monitor – the study] findings indicate small businesses want to improve on the ability for consumers to discover them,” said Steve Marshall, director of research, at BIA/Kelsey. “SEM, SEO, and pay per click are fundamental to achieving this goal, particularly with the growth of mobile search.”

    According to the firm, local search revenues are expected to reach $7.2 billion in 2015, which would be up from $7.1 billion this year. It maintains that local mobile search will account for 51.1% of mobile ad spending in 2015.

    The LCM recently found that small businesses spend more on social media than any other media category with Facebook dominating at 55.1% of SMBs reporting they have Pages.

    BIA/Kelsey will release additional findings at an upcoming local media conference in December.

    Image via BIA/Kelsey

  • Google Has A New Marketing App Called Primer

    Google Has A New Marketing App Called Primer

    Google has a new iPhone app called Primer aimed at “knocking some sense into marketing,” or in other words, getting marketers to use more Google services. As the site explains:

    Primer is a no-nonsense, jargon-free app designed specifically for busy startups. Our marketing lessons take 5 minutes or less and use real world experience.

    With case studies, insider tips and interactive quizzes, Primer teaches you how to promote your business, get more customers and avoid common mistakes.

    Lessons include search engine marketing, getting media coverage, and content marketing, but Google promises more topics to come.

    The app works offline, so you can “learn marketing on the subway, in an airplane or anywhere else you may not have a signal.”

    While it’s only available for iOS, an Android version is on the way. You can sign up to be notified when that’s live.

    Via TechCrunch

    Image via iTunes

  • Is Google’s Paid Search Query Removal Worth Panicking About?

    Google announced that it is extending its secure search efforts to paid search, and that it will remove queries from referers on ad clicks originating from SSL searches on Google.com. In other words, the reason you’ve been seeing keywords “not provided” in Google Analytics now applies to Google ads.

    What do you think of Google’s decision to extend this to paid search? Let us know in the comments.

    A previous report had indicated that Google would eliminate data for third-parties, but as Larry Kim of Wordstream points out, paid seach query data “is not dead.”

    “Stop panicking,” he writes. “Google has been cracking down on who can access search query data for several years now in a few ways – enforcing terms of service on how the data may be used, and limiting access to a smaller number of third-party vendors who implement a required minimum functionality (RMF). Basically, in order to have access to the query data, you need to be a legit software company that has built a functioning AdWords management platform. If you were an SEO agency that used to have an AdWords API token, it’s probably been shut down over the last few years, and if it hasn’t already been shut down, it won’t last long. If Google was going to stop providing this data to all 3rd parties, then that would be new/surprising.”

    “Legit third-party AdWords management platforms (like WordStream, Marin, etc.) will continue to function as normal,” he adds. “Also, if you just use AdWords and no third-party platform, nothing has changed there either. Let’s not overstate the impact of this announcement.”

    So what did Google actually announce?

    “Advertisers will continue to have access to useful data to optimize and improve their campaigns and landing pages,” writes AdWords product management director Paul Feng. “For example, you can access detailed information in the AdWords search terms report and the Google Webmaster Tools Search Queries report.”

    “The AdWords search terms report (previously known as the search query performance report) lets you see search queries that generated ad clicks along with key performance data,” he adds. “And the Search Queries report available in Google Webmaster Tools provides aggregate information about the top 2000 queries, each day, that generated organic clicks.”

    For those using the query in the referer for generating reports or automated keyword management, Google now suggests using the AdWords API Search Query Performance Report or the AdWords Scripts Report Service.

    For those using the query in the referer for customizing landing pages, Google is suggesting using the keyword that generated the ad click rather than the query. The Keyword and match type, it notes, can be passed to your web server by using a ValueTrack parameter in your destination URLs.

    “We understand that some partners may need to make changes to their systems and operations, but we think that this is the right path forward for the security of our users searching on Google.com,” says Feng.

    It’s interesting that it has taken this long for Google to determine that this was the right path considering that Google started doing this with organic search like three years ago. Back in 2011, when Google rolled out secure search as the default for signed-in users, product manager Evelyn Kao wrote:

    What does this mean for sites that receive clicks from Google search results? When you search from https://www.google.com, websites you visit from our organic search listings will still know that you came from Google, but won’t receive information about each individual query. They can also receive an aggregated list of the top 1,000 search queries that drove traffic to their site for each of the past 30 days through Google Webmaster Tools. This information helps webmasters keep more accurate statistics about their user traffic. If you choose to click on an ad appearing on our search results page, your browser will continue to send the relevant query over the network to enable advertisers to measure the effectiveness of their campaigns and to improve the ads and offers they present to you.

    The company has often been criticized for an apparent double standard when it comes to secure search. It has always maintained that the changes were made to protect the privacy of users, but when people were paying for that information, well, that was different.

    Google actually hinted that such a change was on the horizon last month when Amit Singhal spoke at the Search Marketing Expo:

    He didn’t really help us to understand why Google has changed its mind, but he did acknowledge that the search ands ads teams had been talking to one another about the subject.

    Back in the fall, we looked at data from NotProvidedCount.com, which saw the rise of “not provided” queries for sixty sites at about 74%, on a steady increase:

    It’s risen even further since then. As of the time of this writing, it’s at over 80%.

    As far as paid search goes, it sounds like marketers, for the most part, aren’t panicking too much.

    “This impacts mostly those who don’t use those tools [those suggested by Google above] or who relied on basic Google Analytics and/or old fashion technology,” writes Barry Schwartz at Search Engine Roundtable.

    “It just means that people will have to start doing what they should have been doing all along,” writes Ryan Jones in a comment on a Search Engine Land post.

    Do you agree? Is Google making the right move by removing queries from referers on ad clicks? Let us know in the comments.

    Note: This article has been updated in light of further discussion.

    Image via NotProvidedCount.com

  • Google Reportedly Expanding ‘Not Provided’ To 3rd-Party Paid Search

    Update: OK, this just happened.

    Last month at the Search Engine Marketing Expo (West), Google’s Singhal said there would soon be an announcement related to changes with the controversial “not provided” issue.

    Google implemented secure search a few years ago, and by doing so, stopped providing publishers with keywords searchers use to find pages on their sites. It has, however, continued to show such data to advertisers, which is one of the controversial parts. The apparent double standard has often been brought up by members of the SEO industry, but historically Google has pretty much brushed it off.

    Singhal didn’t specify what Google would be announcing, but his words seemed to suggest that getting rid of the data for advertisers may have been the news.

    Now, reports are coming out that Google is taking the paid search data away from third-parties. A.J. Ghergich (via Search Engine Journal) says Google will cease supplying 3rd parties with paid search query data, but that reports within AdWords will remain unaffected.

    “This will also have an affect on website analytics packages but we’ve not yet heard about anything with Google Analytics,” he writes. “Services that use this query data may have no way to access it anymore.”

    He says that his sources received a notice about the change directly from Google, and that he has read the document himself. The change, he says, is expected in the next few weeks.

    If this is really all Singhal was talking about, it’s not going to do much to curb criticism over the double standard accusations. Google has maintained that the switch to not provided is about user privacy, but has continued to give it to those willing to pay.

    Image via YouTube

  • Email Marketing Best Online Channel For ROI [Report]

    Email Marketing Best Online Channel For ROI [Report]

    Econsultancy has released its 8th annual Email Marketing Industry Census, based on what it says is the largest UK survey of email marketers. It finds that revenue from email has increased by 28% in one year.

    68% of companies rated email marketing as “good” or “excellent,” making it the best-ranked channel compared to SEO, content marketing, paid search, online direct marketing, social media, affiliate marketing, mobile marketing and online display advertising.

    “This marks a 3% increase since last year, while the previously highest ranked digital marketing channel, search engine optimisation, dropped 8%, possibly due to the effect of ‘not provided’ keyword data,” says Econsultancy’s Graham Charlton.

    This is how respondents rated each channel:

    According to the report, companies are attributing 23% of their total sales to email marketing, up 18% from last year. 24%, it says, attribute 30% or more of their sales to email marketing (up from 18% two years ago).

    You can download a sample of the report for free from here, but the whol 92-page document is going to cost you nearly $700.

    Image via Econsultancy

  • Report: Half Of Google Paid Search Clicks Will Come From Mobile By December Of Next Year

    Report: Half Of Google Paid Search Clicks Will Come From Mobile By December Of Next Year

    50% of Google paid search clicks will come from mobile devices by December of next year, according to Marin Software, which has a new report out on the subject. That figure is based on the current growth rate.

    The report (via Search Engine Land) is based on data from advertisers who invest over $6 billion per year in ad spend on Marin’s platform. It also found that cost per click on mobile device s increased at a much higher rate that on desktop last year, with tablet CPCs surpassing desktop in some regions.

    Conversion rates on tablets and smartphones increased throughout last year as users got more comfortable with mobile commerce, the report says. Conversion rates on tablets even surpassed those on desktops.

    Marin CMO Matt Ackley says, “We’re at the cusp of mobile becoming the dominant channel in search marketing. Consumers are becoming much more comfortable using their smartphones and tablets to complete transactions online, and as we see that comfort level rise advertisers will follow suit with continued investment and optimization in mobile.”

    A new report from eMarketer finds that global mobile ad spend increased by 105% in 2013, reaching $17.96 billion, and is on pace to hit $31.45 billion this year.

    Images via Marin Software

  • 2014: The Year Affiliate Marketing Grows Up

    2014: The Year Affiliate Marketing Grows Up

    Affiliate marketing is stagnant and ripe for innovation. In-content “affiliate” or “performance” marketing — driving traffic through product links embedded in original content — is one of the oldest business models on the web and it has barely changed in a decade. This year, 2014, change is emerging.

    A new affiliate exchange, bringing merchants and publishers together to buy and sell clicks in real time, launched in the summer of 2013. This new content-driven commerce exchange is picking up steam. As a result of this exchange and others like it, publishers will unlock billions of dollars in revenues in the next five years. Merchants will be able to reliably and predictably buy product specific content-driven commerce clicks on demand and at scale.

    Affiliate marketing is plagued by a reputation for fraud. It is also dominated by coupon sites that often do little more for merchants than create margin pressure. Equally problematic, affiliate marketing suffers from mind boggling fragmentation and complexity. Tens of thousands of merchant programs are spread across dozens of affiliate networks in the US alone. Much of the work required of publishers for earning from clicks they drive to merchants remains manual and error prone. Until recently, real- time bidding for contextually-relevant product placements within original content hasn’t been possible.

    Sites like the New York Times don’t monetize through affiliate marketing not out of high-minded editorial integrity but because old school affiliate marketing isn’t worth the trouble. For these reasons, affiliate marketing has never achieved the economies of scale of either search or display advertising.

    In 2014, this has all started to change. A combination of big data, Natural Language Processing, and powerful predictive analytics has automated away the complexity. These technologies sound complex. In fact, they simplify all of the messy pieces that comprise creating, pricing, and filling affiliate inventory in a rational two-sided marketplace. Both the buyers (online merchants) and the sellers (online publishers) of affiliate clicks are benefiting.

    This has allowed for the emergence of the first ever content-driven commerce exchange. In this exchange publishers auction clicks on product links embedded in their content to the highest bidder that sells the product (A Nikon D5300 camera is the same camera if you buy it at BestBuy or on Amazon). By bidding to buy these in-content shopping clicks, merchants are winning more sales. At scale, this shift will boost publishers’ commerce-based revenues by double-digit to triple-digit percentages. Online merchants finally gain reliable, predictable access to commerce driven by trusted content and the aggregated audience of in market shoppers.

    The drivers for this change are self-evident to every online publisher. Today, publishers sell clicks on product mentions embedded in their original content with no idea how much the average click yields in revenue. They cannot keep track of changes in commission structures across dozens of affiliate networks or direct performance marketing relationships with merchants. They cannot predict in advance whether traffic to one online merchant will convert at a higher rate than traffic to another.

    Publishers should not be expected to build sophisticated models to predict which merchant will pay the most for, let’s say, a German visitor on a mobile phone clicking on a deep link to a pair of dress shoes. The results are woeful inefficiency. A publisher trying to manage affiliate marketing manually is lucky to monetize a third of their commerce clicks, and at rates that drastically undervalue their worth. This is a classic yield management problem, long ago solved for both search and display.

    Merchants also suffer. There is no unified marketplace, no NASDAQ or DoubleClick or AdWords for clicks from content. Today, merchants must navigate the existing universe of sophisticated click traffickers. These include the classic affiliate networks, comparison shopping engines and countless other niche players. Successful integration into an affiliate network is neither easy nor fast. As a result, switching costs are high. In the end, merchants that need to buy extra shopping clicks struggle to find them.

    The solution for affiliate clicks is a platform where big data trains ever-smarter models that drive advertising automation. What humans see as chaos — a pool of content and clicks fragmented across a giant mass of affiliate networks — computers see as data — normalized, structured, relational data.

    This allows software to create linkages between content sites and commerce sites and to price those linkages efficiently. This efficiency will place the best merchant offers on clicks delivered by the publishers with the best audience. Today, the best models can automatically identify product mentions with high precision. Predictive pricing models select the most economically rational link based on factors such as commission fee structure and merchant conversion rates. Software automatically embeds that link, routing traffic to the most competitive retailer.

    The first content-driven commerce exchange opened for business in June. Every day, it auctions off thousands of clicks on product mentions to eager merchants. Publishers see earnings per click that were 200% to 300% higher, on average, as compared to clicks not flowing through the exchange. A number of merchants eagerly jumped in to gain access to one of the largest aggregated pools of content-driven shoppers on the Web today. Most importantly, the whole process was orderly and painless on both sides. It’s the future of content-driven commerce and it’s inevitable.

  • Was This A Wise Marketing Strategy By Groupon?

    Was This A Wise Marketing Strategy By Groupon?

    Groupon is doing what it does best – attracting attention for being just a little bit “off the wall.” The company has been doing this for as long as I can remember, and apparently not much has changed in that department since CEO Andrew Mason was ousted. Well, except that they killed the Groupon Kidz Club, and are pretending it never existed.

    It did:

    Last Friday, the company put out a press release for Presidents’ Day Weekend with a “President Alexander Hamilton” campaign.

    What did you think of Groupon’s “President” Hamilton stunt? Smart PR or bad for Groupon’s reputation? Let us know what you think.

    A spokesperson said in an email, “The $10 bill, as everyone knows, features President Alexander Hamilton — undeniably one of our greatest presidents and most widely recognized for establishing the country’s financial system.”

    The full text of the press release says:

    Starting tomorrow, Groupon (www.groupon.com) (NASDAQ: GRPN) will be kicking off Presidents Day weekend by giving customers 10 dollars off 40 dollars when they purchase a deal for any local business. The $10 bill, as everyone knows, features President Alexander Hamilton — undeniably one of our greatest presidents and most widely recognized for establishing the country’s financial system.

    Beginning Saturday, Feb. 15 at 9 am CST, shoppers will be able to redeem this offer by using the promo code “10OFF40LOCAL”, which isn’t very catchy, but neither was President Hamilton’s famous saying, “nobody expects to trust his body overmuch after the age of fifty.”

    President Hamilton is best known for the fiscal sensibilities that led him to author economic policies, establish a national bank and control taxes. Customers can honor our money-minded commander-in-chief and find deals by searching Groupon.com for local deals all through President’s Day weekend. Promo codes are limited, and more information can be found at: https://www.groupon.com/faq#faqs:content-269.

    That’s the whole thing other than the about section and contact info. Oh, and a picture of a ten dollar bill.

    Of course, Hamilton was never president, as MANY were quick (and not so quick) to point out. People couldn’t wait to talk about how dumb Groupon is, and how they messed up. To some familiar with Groupon’s history of quirky antics, the joke was pretty obvious, but most people (including bloggers and reporters) seem to have thought it was just a “gaffe” as Politico put it. The Twitter reaction seemed to be the same. USA Today said, “Oops! Groupon discounts U.S. history and pays tribute to “President Hamilton.”

    The quirky antics continued on Twitter where Groupon told users arguing that Hamilton was never president that they simply had a different “opinion.”

    It should have been clear that it was a joke at that point, not to mention when Groupon was retweeting tweets from this Twitter account, which links to Groupon in its bio):


    But it wasn’t. Still, headlines like this made the rounds: “Derp! Groupon Spox Respects ‘Opinion’ That Alexander Hamilton Was Never President”

    Groupon was just being Groupon, but clearly that didn’t exactly resonate with the world at large. Ultimately, Groupon undoubtedly got want it wanted above all else: attention. But was it worth getting this kind of attention? You have to wonder how many of those who thought it was a mistake ever saw the follow-ups about it being intentional. You also have to wonder if Groupon expected that many people to not get it. Especially the media. With its stunt, it got plenty of coverage in the news, but more basically suggesting Groupon is dumb as opposed to being funny.

    They did manage to grab a great deal of attention, and even spark trends on the search engines. “Alexander Hamilton President?” was trending on Bing. If nothing else, perhaps some people learned a little history from the stunt.

    Ultimately, the whole thing will probably fade from most people’s memory, and have little effect (positive or negative) on general perception of Gropuon.

    What do you think? Was this a smart PR move or as dumb as some people made Groupon out to be? Share your thoughts in the comments.

    Image via Twitter

  • Paid Search Ads May Not be Worth Anything, Shows Study

    Paid Search Ads May Not be Worth Anything, Shows Study

    As advertisers have begun adapting to the internet, paid search ads have become a common way for businesses to advertise to potential customers. Specifically, Google has pioneered the paid search ad category for search engines, giving advertisers an easy way to show up in search results without gaining the popularity that would rank them higher in natural search results.

    As common as paid search ads are, a new study has now shown that they may not be as effective as advertisers assume they are. The study, conducted by economists at the University of California – Berkeley, found that paid search ads may not affect sales at all.

    The study’s authors worked with eBay to test the effectiveness of paid search ads. In 68 “direct marketing areas of the U.S.,” eBay paid search was completely turned off. After 60 days the researchers compared the sales of groups that had no paid search ads placed and those that did have paid search ads. The researcher later also tested eBay’s paid keyword searches, turning them off and then comparing sales data. They found no measurable impact on sales from paid search advertising.

    “We found that when you turn off the paid advertising, almost all of the traffic that came through the paid search is just substituted by the other free channels,” said Steven Tadelis, associate professor at the Haas School of Business at Berkeley. “If advertising is indeed a strong driver of sales, we should have seen sales plummet. But the impact on sales was indistinguishable and not significantly different than zero.”

  • Can Search Improvements Make Pinterest More Valuable To Businesses?

    Can Search Improvements Make Pinterest More Valuable To Businesses?

    Pinterest is becoming a better search engine, and it’s likely only getting started.

    Have you ever used Pinterest specifically to search for something? Do you think it is capable of providing helpful results for certain types of queries? Share your thoughts in the comments.

    This week, the company announced the launch of an improved recipe search experience. Recipes are one of the most popular verticals on the site, so this is a great place to start with the search improvements.

    “Now when you search for ingredients, say whatever is in your fridge, you’ll see a collection of relevant recipes as well as filters, such as vegetarian, vegan, gluten-free, and paleo,” a spokesperson for the company tells WebProNews. “For example, if you search for ‘avocados, black beans and bell peppers,’ you’ll see recipes for quinoa salad, pork tenderloin with red bell pepper chili rub, and black bean quesadillas.”

    “This is the latest update to more useful Pins, which uses structured data, such as ingredients, cook time and servings, to display more information right on the Pin,” the spokesperson adds. “All recipe search results will show this rich information. Food is one of the most popular categories on Pinterest, and the new recipe search makes it easier than ever to find meal inspiration from some of the best recipes on the web, and plan great dishes tailored to your tastes.”

    “More Useful Pins” is an initiative the company launched last May. It added more info for product pins (pricing, availability and where to buy), recipe pins (cook times, ingredients, servings) and movie pins (content ratings, cast members, etc.).

    You can see where this stuff would serve to make Pinterest more efficient as a search tool.

    The new recipe improvements stem from the company’s acquisition of Pinterest-like recipe site Punchfork a year ago. Punchfork CEO Jeff Miller has led the development of this new product.

    It’s easy to see Pinterest expanding the strategy into more verticals. Travel, Local and Articles come to mind, given some of the announcements the company made last year.

    In November, it launched Place Pins, which show details like the address of a place, phone number, etc.

    Pinterest Place Pins

    In March, Pinterest announced its acquisition of Livestar, an app that helped people find local recommendations from friends and others. The product was shut down, and the engineering talent became part of the Pinterest team.

    In March, Pinterest launched redesigned article pins, providing more info like headlines, authors and story descriptions.

    Article Pins

    Search is a popular way to monetize a site, and the more Pinterest expands as a search tool, the better this tool could be for advertisers.

    The Wall Street Journal has an interview out with Pinterest CEO Ben Silbermann. Asked about Pinterest’s business model, he says, “It will be getting them to discover the things they want. And it may be a product that they buy; it may be a service that they use sometime down the line. But it’s not purely transactional.”

    Earlier his month, Pinterest announced that it acquired VisualGraph, an image recognition and visual search company, consisting of two people who have joined Pinterest’s engineering team. Both have experience at Google. Kevin Jing began working for the search giant in 2004, and helped build some of its first machine vision applications. David Liu interned at the company, as well as at Facebook.

    “The acquisition of VisualGraph will help us build technology to better understand what people are Pinning,” a spokesperson for Pinterest told us. “By doing so, we hope to make it easier for people to find the things they love.”

    “On Pinterest, millions of people are curating and sharing billions of Pins everyday,” said Jing and Liu. “And these Pins are more than just images — they link to contents that can inspire and enrich people’s lives. We are excited for the opportunity to combine machine vision with human vision and curation, and to build a visual discovery experience that is both aesthetically appealing and immensely useful for people everywhere.”

    This technology should only help Pinterest improve its search experience.

    Danny Maloney is the CEO and co-founder of Pinterest analytics firm Tailwind. He tells WebProNews, “Pinterest is more of a discovery engine than a search engine, but I believe visual search could be a hidden gem of the Pinterest business model. Just as with Google or Bing, search on Pinterest tends to indicate users have a strong commercial intent. In many cases, search traffic over time leads revenue generated from pins to occur later in the pin’s life, even if it sees a good deal of viral sharing soon after being pinned.”

    “The acquisition of VisualGraph brings a couple of very talented engineers to Pinterest’s team,” he says. “I suspect most of their work is yet to be done, but the principle of Pinterest being able to understand images the way a human brain might is very powerful. Such capabilities should unlock better search results, improved content recommendations for users and an ability to organize and understand content at a much deeper level. Businesses will use this technology just by participating in the platform, as it will help their content surface to an increasingly better targeted audience.”

    Maloney says he expects the next steps in the evolution of Pinterest’s promoted pins ad product to come this year (which appears to indeed be the case based on what Silbermann told the Wall Street Journal). He thinks we’ll see the Pinterest ecosystem become “much richer” as third parties continue to build value-added tools that help businesses adopt the platform.

    “And of course, I expect deeper innovation on the consumer side, from continued localization bringing Pinterest to new countries to improved search and discovery capabilities and innovative new ways to organize content,” he says.

    Pinterest itself is only gaining momentum. It appears that it is not just a fad at this point. Content sharing to Pinterest increased by 58% last year, surpassing even email, according to a report from ShareThis (via MarketingCharts).

    Do you see significant business opportunities with Pinterest? Specifically with Pinterest search? Let us now what you think.

    Images via Pinterest

  • Ecommerce Sites Aren’t Utilizing Site Search Data Like They Should Be

    Ecommerce Sites Aren’t Utilizing Site Search Data Like They Should Be

    SLI Systems has put out a report finding that most eCommerce sites are missing out on a big opportunity to use data from their internal site search tool to improve the effectiveness of their marketing campaigns.

    The firm surveyed 160 global eCommerce professional, and found that 57% don’t use site search reports and data to enhance their marketing. 50% of them aren’t even using site search data or analytics to enhance any of their business offerings or processes.

    Site Search

    Still, site search, according to the survey, is one of their top priorities for next year (along with eCommerce platform, SEO and mobile).

    “These findings demonstrate a significant missed opportunity for retail marketers in improving brand visibility, customer engagement and ultimately sales,” SLI says in the report.

    Only 25% of those that actually do utilize site search data in their marketing campaigns are integrating that data into email marketing to customize offers for customers.

    On why they’re not doing more with site search data, half of those surveyed blamed limited resources, while about 30% said they don’t know how to use the data effectively, and 10% said their site search solution doesn’t allow for integration with marketing programs.

    Some other interesting stats:

    • 27% have created search engine-optimized landing pages populated with site search results and custom banners.
    • 13% are taking advantage of site search to power mobile search
    • 11% are integrating site search with social media channels to improve amplification of marketing programs

    You can find the full report here.

    [via MarketingCharts]

    Image: SLI Systems

  • 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.

  • 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.

  • Google Image Search Changes Have Not Been Kind To Webmasters

    Earlier this year, Google launched a new design for its image search, and ever since, there has been a substantial amount of backlash from webmasters claiming that the changes have decreased the amount of traffic they get to their sites.

    Have you seen less traffic from Google Image Search since the redesign? Let us know in the comments.

    Webmasters complaining about changes made by Google is nothing new. Every time Google releases a major algorithm update like Penguin or Panda, the outcry is everywhere. But, like it or not, that’s Google trying to better its algorithm, and ultimately improve its search results. You could also argue that any traffic one site loses, another gains. Somebody wins.

    The Image Search story is a bit different, however. This is not an algorithmic change designed to point users to higher quality images or more relevant image results. It’s a cosmetic change, and while some users may find the experience to be an upgrade, it’s clear that many webmasters have not welcomed the redesign.

    We got over seventy comments about the changes on a previous article we published. Not many were positive. In fact, most were from webmasters talking about the traffic they lost almost instantly. Here are a few examples:

    “55% dropped for websites with images…”

    “My traffic has dropped to 1/5 of what it was before the new Google Images search roll out…”

    “My traffic was cut by half overnight…”

    “My image based website has lost 2/3 of the visitors after the change…”

    “Google image traffic has dropped by 50-70% on my site…”

    We could go on. See for yourself.

    That was back in January. It doesn’t appear that things have gotten much better.

    Define Media Group published some findings from a recent study on Monday (hat tip to Search Engine Land). According to the firm, you might as well spend your time in other areas of search engine optimization and online marketing, and not worry so much about optimizing for image search anymore.

    “We analyzed the image search traffic of 87 domains and found a 63% decrease in image search referrals after Google’s new image search UI was released,” explains Shahzad Abbas. “Publishers that had previously benefitted the most from their image optimization efforts suffered the greatest losses after the image search update, experiencing declines nearing 80%.”

    “In the eleven weeks after Google’s new image search was released, there has been no recovery – which means for image search, the significantly reduced traffic levels we’re seeing is the new normal,” he adds. “In the aftermath of the new image search experience, image SEO has been severely compromised, and we have no choice but to recommend deprioritizing image SEO when weighed against other search traffic initiatives.”

    Of course, there’s always the chance that your images could turn up in universal search results on Google’s web results pages, but even then, personalized “Search Plus Your World” results tend to get the emphasis when applicable.

    It’s all made even more interesting due to the fact that Google pitched the changes as good for webmasters, indicating that they would actually drive more traffic to sites.

    “The domain name is now clickable, and we also added a new button to visit the page the image is hosted on,” wrote associate product manager Hongyi Li in the announcement. “This means that there are now four clickable targets to the source page instead of just two. In our tests, we’ve seen a net increase in the average click-through rate to the hosting website.”

    “The source page will no longer load up in an iframe in the background of the image detail view,” Li added. “This speeds up the experience for users, reduces the load on the source website’s servers, and improves the accuracy of webmaster metrics such as pageviews. As usual, image search query data is available in Top Search Queries in Webmaster Tools.”

    It’s possible that some sites are seeing more traffic from the Image Search changes, and just aren’t being as vocal, but there has been an overwhelming amount of complaints since the redesign, and this new study is not doing anything to defend Google’s case.

    Of course, Google is all about placing users first (even over webmasters), and they’ll continue to do what they think is best for them. From a user experience perspective, the changes aren’t bad. But that’s little consolation for those who now have to find other ways to get their content in front of an audience.

    Do you see Google’s recent Image Search changes as a positive or a negative? Let us know 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.

  • You Can Get Keyword Data From Facebook Graph Search in Google Analytics

    Will Facebook’s Graph Search become a major piece of successful online marketing strategies? It’s still in its infancy, and does only a small fraction of what it promises to do at this point, but just given the fact that it’s the search feature of Facebook (over a billion users), it seems like something that should play a significant part.

    Not only does Graph Search not currently have all the functionality that Facebook has planned for it, but it’s also still in the process of slowly rolling out. And I do mean slowly. Any notions you have about Graph Search thus far are simply incomplete. What’s available now is nothing compared to what will be available.

    Even still, some have big hope for Facebook’s revamped search and its potential effects on small businesses. Consider this infographic from Advantage Capital Funds:

    Infographic: Can Facebook Graph Make You Money?

    Infographic by Advantage Capital Funds

    That’s all fine and good, but online marketers need data. When it comes to search marketing, keyword data is obviously of the utmost importance (though it’s getting harder to come by thanks to the whole “not provided” ordeal), but this isn’t something that’s readily available from Facebook. You can’t just look at your search data in Google Analytics and see the Graph Search referrals, because Graph Search is part of Facebook, which Google considers social rather than search, even though Graph Search sends users to Bing results in cases where Facebook’s own data doesn’t match the query.

    It’s entirely possible that the situation will get better for webmasters and marketers in the future, but for now, there is a workaround, which Glenn Gabe discusses in a blog post (via Search Engine Land).

    Facebook does have keyword data available via referral strings. As Gabe noticed, the keyword is being passed along int he referrer. He shows this example:

    Graph Search keyword

    “As you can guess, I jumped into Google Analytics to see how this was being picked up,” Gabe writes. “Since Facebook isn’t an official search engine in GA, it was still showing up as a referring site (without the keyword showing up). But, since the q= querystring parameter was being passed in the referrer, I knew I could surface those keywords via advanced filters. So, I quickly set up a new profile and added a filter that would capture graph searches from Facebook. And it works.”

    Gabe goes on to provide step-by-step instructions for doing this, so check out the post if this is something you want to do.

    Tracking this data is bound to make Graph Search a lot more helpful to your business. And wait until the product really gets into full swing.

  • 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)

  • Yahoo Earnings Better Than Expected With Some Help From Search

    Yahoo just released its earnings for the fourth quarter and full year 2012, beating analysts’ expectations, and perhaps more noteworthy, showing solid signs for Yahoo’s search business.

    GAAP revenue for the quarter was $1,346 million. For the year, it was $4,987 million. Revenue ex-TAC for the quarter were $1,221 million. For the year, they were $4,468 million. Non-GAAP income from operations was $283 million. For the year, it was $825 million.

    GAAP search revenue for the quarter was $482 million, up 4% year-over-year. GAAP search revenue was $1,886 million for the year, up 2% year-over-year. Search revenue ex-TAC was $427 million for the quarte (up 14% year-over-year) and $1,611 million for the year (up 9% year-over-year). Paid clicks were up 11% year-over-year and 8% quarter over quarter. PPCs increased by 1% year-over-year, but decreased by 2% quarter-over-quarter.

    CEO Marissa Mayer said, “I’m proud of Yahoo!’s 2012 and fourth quarter results. In 2012, Yahoo! exhibited revenue growth for the first time in 4 years, with revenue up 2 percent year-over-year. During the quarter we made progress by growing our executive team, signing key partnerships including those with NBC Sports and CBS Television, and launching terrific mobile experiences for Yahoo! Mail and Flickr. At the same time, we achieved tremendous internal transformation in the culture, energy and execution of the Company.”

    Here’s the release in its entirety:

    SUNNYVALE, Calif.–(BUSINESS WIRE)– Yahoo! Inc. (NASDAQ: YHOO) today reported results for the fourth quarter and full year endedDecember 31, 2012.

    Q4 2012 Full Year 2012
    GAAP revenue $1,346 million $4,987 million
    Revenue ex-TAC $1,221 million $4,468 million
    GAAP income from operations $190 million $566 million
    Non-GAAP income from operations $283 million $825 million
    GAAP net earnings per diluted share $0.23 $3.28
    Non-GAAP net earnings per diluted share $0.32 $1.17

    “I’m proud of Yahoo!’s 2012 and fourth quarter results. In 2012, Yahoo! exhibited revenue growth for the first time in 4 years, with revenue up 2 percent year-over-year,” said Yahoo! CEO Marissa Mayer. “During the quarter we made progress by growing our executive team, signing key partnerships including those with NBC Sports and CBS Television, and launching terrific mobile experiences for Yahoo! Mail and Flickr. At the same time, we achieved tremendous internal transformation in the culture, energy and execution of the Company.”

    GAAP revenue was $1,346 million for the fourth quarter of 2012, a 2 percent increase from the fourth quarter of 2011. Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,221 million for the fourth quarter of 2012, a 4 percent increase compared to the fourth quarter of 2011. GAAP revenue was $4,987 million for the full year of 2012, flat compared to the prior year. Revenue ex-TAC was $4,468 million for the full year of 2012, a 2 percent increase from the prior year.

    Adjusted EBITDA for the fourth quarter of 2012 was $509 million, an 8 percent increase from the same period of 2011. Adjusted EBITDA was$1,699 million for the full year of 2012, a 3 percent increase from the prior year.

    GAAP income from operations decreased 22 percent to $190 million in the fourth quarter of 2012, compared to $242 million in the fourth quarter of 2011. Non-GAAP income from operations was $283 million in the fourth quarter of 2012 compared to $259 million in the fourth quarter of 2011. GAAP income from operations for the full year of 2012 was $566 million, compared to $800 million for the prior year. Non-GAAP income from operations was $825 million in both years.

    GAAP net earnings for the fourth quarter of 2012 was $272 million, an 8 percent decrease from the same period of 2011. Non-GAAP net earnings for the fourth quarter of 2012 was $370 million, a 20 percent increase from the same period of 2011. GAAP net earnings for the full year of 2012 was $3,945 million, compared to $1,049 million for the prior year. For the full year of 2012, GAAP net earnings included a net gain of $2,755 million related to the sale of Alibaba shares. Non-GAAP net earnings for the full year of 2012 was $1,407 million, a 35 percent increase from the prior year.

    GAAP net earnings per diluted share was $0.23 in the fourth quarter of 2012, compared to $0.24 in the fourth quarter of 2011. Non-GAAP net earnings per diluted share was $0.32 in the fourth quarter of 2012, compared to $0.25 in the fourth quarter of 2011. GAAP net earnings per diluted share was $3.28 for the full year of 2012, compared to $0.82 for the prior year. For the full year of 2012, GAAP net earnings included a net gain of $2,755 million, or $2.29 per diluted share, related to the sale of Alibaba shares. Non-GAAP net earnings per diluted share was$1.17 for the full year of 2012, compared to $0.81 for the prior year.

    Business Highlights

    • Yahoo! further strengthened its board of directors, appointing Max Levchin, a computer scientist, serial entrepreneur and angel investor with extensive experience building enduring Internet companies.
    • The Company made significant improvements to two of its core products, Yahoo! Mail and Flickr. The new Yahoo! Mail is faster, easier to use and available across the Web and on Windows 8, iPhone/iPod touch and Android. Yahoo!’s redesigned Flickr app for iPhone and iPod touch makes it easier to capture, share and discover photos. The new app allows users to share photos by email, with the Flickr community or via Facebook, Twitter or Tumblr.
    • Yahoo! signed distribution and branding deals to strengthen two of its leading media properties.
      • Yahoo! Sports and NBC Sports announced a partnership to deliver news, fantasy games, and video coverage of sporting events — combining two of the most trusted names in sports.
      • Yahoo! and CBS Television Distribution launched omg! Insider, a multiplatform entertainment news series that combines the popularity of CBS Television Distribution’s The Insider with the online reach of omg!.
    • The Company also announced a deal with Wenner Media to further enhance the content and reach of omg! and Yahoo! Music by joining forces with the Us Weekly, Rolling Stone, and Men’s Journal franchises.
    • Yahoo! acquired mobile app developers Stamped and OnTheAir, accelerating the Company’s efforts to build a world-class team of mobile engineers, product managers and designers.
    • Yahoo! expanded its partnership with Samsung, enabling Samsung SmartTV users to engage more with their favorite shows and commercials. With the touch of a remote, connected tablet or phone, Samsung SmartTV viewers who use Yahoo!’s Connected TV technologies, can easily access content or offers related to their favorite TV shows or commercials.

    Fourth Quarter and Full Year 2012 Financial Highlights

    Display

    • GAAP display revenue was $591 million for the fourth quarter of 2012, a 3 percent decrease compared to $612 million for the fourth quarter of 2011. GAAP display revenue was $2,143 million for the full year of 2012, a 1 percent decrease compared to $2,160 millionfor the prior year.
    • Display revenue ex-TAC was $520 million for the fourth quarter of 2012, a 5 percent decrease compared to $546 million for the fourth quarter of 2011. Display revenue ex-TAC was $1,899 million for the full year of 2012, a 2 percent decrease compared to $1,932 millionfor the prior year.
    • The number of ads sold on core Yahoo! Properties decreased approximately 10 percent compared to the fourth quarter of 2011 and increased approximately 3 percent compared to the third quarter of 2012.
    • Price-per-ad on core Yahoo! Properties increased approximately 7 percent compared to the fourth quarter of 2011 and increased approximately 15 percent compared to the third quarter of 2012.

    Search

    • GAAP search revenue was $482 million for the fourth quarter of 2012, a 4 percent increase compared to $465 million for the fourth quarter of 2011. GAAP search revenue was $1,886 million for the full year of 2012, a 2 percent increase compared to $1,853 million for the prior year.
    • Search revenue ex-TAC was $427 million for the fourth quarter of 2012, a 14 percent increase compared to $376 million for the fourth quarter of 2011. Search revenue ex-TAC was $1,611 million for the full year of 2012, a 9 percent increase compared to $1,478 millionfor the prior year.
    • Paid clicks, or the number of clicks on sponsored listings on Yahoo! Properties and Affiliate sites, increased approximately 11 percent compared to the fourth quarter of 2011 and increased approximately 8 percent compared to the third quarter of 2012.
    • Price-per-click increased approximately 1 percent compared to the fourth quarter of 2011 and decreased approximately 2 percent compared to the third quarter of 2012.

    Cash Balance

    • Cash, cash equivalents, and investments in marketable debt securities were $6 billion at December 31, 2012 compared to $2.5 billionat December 31, 2011, an increase of $3.5 billion.
    • During the fourth quarter of 2012, Yahoo! repurchased 80 million shares for $1.5 billion. During the year ended December 31, 2012,Yahoo! repurchased 126 million shares for $2.2 billion.

    Conference Call

    Yahoo! will host a conference call to discuss fourth quarter and full year 2012 results at 5 p.m. Eastern Time today. On the conference call,Yahoo! will also provide its business outlook for the first 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 athttp://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 (888) 286-8010 or (617) 801-6888, reservation number: 30622830.

    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 diluted share; 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 earnings per diluted share exclude certain gains, losses, and expenses that we do not believe are indicative of ongoing results. Adjusted EBITDA also excludes taxes, depreciation, amortization of intangible assets, stock-based compensation expense, 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 (used in) 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 globe. In turn, we create value for advertisers by connecting them with the audiences that build their businesses. Yahoo! is headquartered in Sunnyvale, Calif., 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 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” means Alibaba Group Holding Limited.

    “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, the impact of changes to our management, organizational structure and strategic business plan;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; acceptance by users of new products and services; 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 January 28, 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, 2011, as amended, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which are 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 Annual Report on Form 10-K for the year ended December 31, 2012, which will be filed with the SEC in the first quarter of 2013.

    Yahoo!, the Yahoo! logos, omg! and Flickr 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, December 31,
    2011 2012
    ASSETS
    Current assets:
    Cash and cash equivalents $ 1,562,390 $ 2,667,778
    Short-term marketable debt securities 493,189 1,516,175
    Accounts receivable, net 1,037,474 1,008,448
    Prepaid expenses and other current assets 359,483 460,312
    Total current assets 3,452,536 5,652,713
    Long-term marketable debt securities 474,338 1,838,425
    Alibaba Group Preference Shares – 816,261
    Property and equipment, net 1,730,888 1,685,845
    Goodwill 3,900,752 3,826,749
    Intangible assets, net 254,600 153,973
    Other long-term assets 220,628 289,130
    Investments in equity interests 4,749,044 2,840,157
    Total assets $ 14,782,786 $ 17,103,253
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable $ 166,595 $ 184,831
    Accrued expenses and other current liabilities 846,044 808,475
    Deferred revenue 194,722 296,926
    Total current liabilities 1,207,361 1,290,232
    Long-term deferred revenue 43,639 407,560
    Capital lease and other long-term liabilities 134,905 124,587
    Deferred and other long-term tax liabilities, net 815,534 675,271
    Total liabilities 2,201,439 2,497,650
    Total Yahoo! Inc. stockholders’ equity 12,541,067 14,560,200
    Noncontrolling interests 40,280 45,403
    Total equity 12,581,347 14,605,603
    Total liabilities and equity $ 14,782,786 $ 17,103,253

     

    Yahoo! Inc.
    Unaudited Condensed Consolidated Statements of Income
    (in thousands, except per share amounts)
    Three Months Ended Year Ended
    December 31, December 31,
    2011 2012 2011 2012
    Revenue $ 1,324,153 $ 1,345,807 $ 4,984,199 $ 4,986,566
    Operating expenses:
    Cost of revenue – Traffic acquisition costs 155,453 124,961 603,371 518,906
    Cost of revenue – Other 263,609 287,147 983,626 1,101,660
    Sales and marketing 289,366 274,122 1,122,193 1,101,572
    Product development 235,810 240,417 919,368 885,824
    General and administrative 112,614 144,610 497,288 540,247
    Amortization of intangibles 8,525 7,926 33,592 35,819
    Restructuring charges, net 16,329 76,634 24,420 236,170
    Total operating expenses 1,081,706 1,155,817 4,183,858 4,420,198
    Income from operations 242,447 189,990 800,341 566,368
    Other income, net 9,768 17,730 27,175 4,647,839
    Income before income taxes and earnings in equity interests 252,215 207,720 827,516 5,214,207
    Provision for income taxes (78,287 ) (83,007 ) (241,767 ) (1,940,043 )
    Earnings in equity interests 127,063 148,939 476,920 676,438
    Net income 300,991 273,652 1,062,669 3,950,602
    Less: Net income attributable to noncontrolling interests (5,419 ) (1,385 ) (13,842 ) (5,123 )
    Net income attributable to Yahoo! Inc. $ 295,572 $ 272,267 $ 1,048,827 $ 3,945,479
    Net income attributable to Yahoo! Inc. common stockholders per share – diluted $ 0.24 $ 0.23 $ 0.82 $ 3.28
    Shares used in per share calculation – diluted 1,241,009 1,168,336 1,282,282 1,202,906
    Stock-based compensation expense by function:
    Cost of revenue – Other $ 1,010 $ 2,207 $ 3,489 $ 10,078
    Sales and marketing 22,291 22,161 65,120 82,115
    Product development 25,291 19,955 89,587 74,284
    General and administrative 10,255 13,139 45,762 57,888
    Restructuring expense accelerations (reversals), net 1,492 – 214 (3,429 )
    Supplemental Financial Data:
    Revenue ex-TAC $ 1,168,700 $ 1,220,846 $ 4,380,828 $ 4,467,660
    Adjusted EBITDA $ 469,453 $ 509,024 $ 1,654,583 $ 1,698,839
    Free cash flow(1)(2) $ 327,013 $ (2,044,502 ) $ 725,801 $ (834,865 )
    (1) The year ended December 31, 2012 includes a payment of $550 million from Alibaba in satisfaction of certain future royalty payments under the existing technology and intellectual property license agreement with Alibaba.
    (2) The three months and year ended December 31, 2012 include a cash tax payment of $2.3 billion which is related to the sale of Alibabashares.

     

    Yahoo! Inc.
    Unaudited Condensed Consolidated Statements of Cash Flows
    (in thousands)
    Three Months Ended Year Ended
    December 31, December 31,
    2011 2012 2011 2012
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income $ 300,991 $ 273,652 $ 1,062,669 $ 3,950,602
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation 125,693 148,213 530,516 549,235
    Amortization of intangible assets 29,939 21,279 117,723 105,366
    Stock-based compensation expense, net 60,339 57,462 204,172 220,936
    Non-cash restructuring charges 990 69,434 990 109,896
    Accrued dividend income related to Alibaba Group Preference Shares – (20,000 ) – (20,000 )
    Tax benefits (detriments) from stock-based awards 23,523 (21,969 ) 33,497 (31,440 )
    Excess tax benefits from stock-based awards (25,966 ) (5,093 ) (70,680 ) (35,844 )
    Deferred income taxes 1,652 121,968 70,392 (769,320 )
    Earnings in equity interests (127,063 ) (148,939 ) (476,920 ) (676,438 )
    Dividends received from Yahoo Japan – – 75,391 83,648
    Gain related to sale of Alibaba Group shares – – – (4,603,322 )
    Gain from sale of investments, assets, and other, net (8,416 ) 6,468 4,405 (11,840 )
    Changes in assets and liabilities, net of effects of acquisitions:
    Accounts receivable, net (117,992 ) (52,190 ) 38,100 34,752
    Prepaid expenses and other 87,441 37,470 97,849 78,529
    Accounts payable 27,000 35,204 (316 ) 12,747
    Accrued expenses and other liabilities 61,012 (2,373,163 ) (290,070 ) 255,799
    Deferred revenue (7,809 ) (49,671 ) (73,912 ) 465,140
    Net cash provided by (used in) operating activities (1)(2) 431,334 (1,899,875 ) 1,323,806 (281,554 )
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property and equipment, net (130,287 ) (149,720 ) (593,294 ) (505,507 )
    Purchases of marketable debt securities (95,232 ) (1,681,467 ) (1,708,530 ) (3,520,327 )
    Proceeds from sales of marketable debt securities 441,719 56,968 1,508,948 741,947
    Proceeds from maturities of marketable debt securities 89,305 130,750 1,316,197 381,403
    Proceeds related to sale of Alibaba shares, net – – – 6,247,728
    Purchases of intangible assets (799 ) (711 ) (11,819 ) (3,799 )
    Proceeds from the sale of investments – – 21,271 26,132
    Acquisitions, net of cash acquired (255,018 ) (5,716 ) (323,830 ) (5,716 )
    Other investing activities, net (818 ) 9,604 (6,581 ) 183
    Net cash provided by (used in) investing activities 48,870 (1,640,292 ) 202,362 3,362,044
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock, net 49,529 101,951 156,226 218,371
    Repurchases of common stock (416,237 ) (1,451,462 ) (1,618,741 ) (2,167,841 )
    Excess tax benefits from stock-based awards 25,966 5,093 70,680 35,844
    Tax withholdings related to net share settlements of restricted stock awards and restricted stock units (8,712 ) (12,842 ) (44,761 ) (60,939 )
    Other financing activities, net (11,029 ) (1,373 ) (19,362 ) (4,892 )
    Net cash used in financing activities (360,483 ) (1,358,633 ) (1,455,958 ) (1,979,457 )
    Effect of exchange rate changes on cash and cash equivalents (21,550 ) 6,178 (34,247 ) 4,355
    Net change in cash and cash equivalents 98,171 (4,892,622 ) 35,963 1,105,388
    Cash and cash equivalents, beginning of period 1,464,219 7,560,400 1,526,427 1,562,390
    Cash and cash equivalents, end of period $ 1,562,390 $ 2,667,778 $ 1,562,390 $ 2,667,778
    (1) The year ended December 31, 2012 includes a payment of $550 million from Alibaba in satisfaction of certain future royalty payments under the existing technology and intellectual property license agreement with Alibaba.
    (2) The three months and year ended December 31, 2012 include a cash tax payment of $2.3 billion which is related to the sale of Alibabashares.

     

    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 (used in) 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 (used in) 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. 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. 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 (used in) 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 Year Ended
    December 31, December 31,
    2011 2012 2011 2012
    Revenue for groups of similar services:
    Display $ 612,047 $ 590,627 $ 2,160,309 $ 2,142,818
    Search 464,530 481,957 1,853,110 1,885,860
    Other 247,576 273,223 970,780 957,888
    Total revenue $ 1,324,153 $ 1,345,807 $ 4,984,199 $ 4,986,566
    Revenue excluding traffic acquisition costs (“revenue ex-TAC”) for groups of similar services:
    GAAP display revenue $ 612,047 $ 590,627 $ 2,160,309 $ 2,142,818
    TAC associated with display revenue (66,426 ) (70,218 ) (227,822 ) (243,557 )
    Display revenue ex-TAC $ 545,621 $ 520,409 $ 1,932,487 $ 1,899,261
    GAAP search revenue $ 464,530 $ 481,957 $ 1,853,110 $ 1,885,860
    TAC associated with search revenue for non-transitioned markets (89,027 ) (54,743 ) (375,409 ) (275,349 )
    Search revenue ex-TAC $ 375,503 $ 427,214 $ 1,477,701 $ 1,610,511
    Other GAAP revenue $ 247,576 $ 273,223 $ 970,780 $ 957,888
    TAC associated with other GAAP revenue – – (140 ) –
    Other revenue ex-TAC $ 247,576 $ 273,223 $ 970,640 $ 957,888
    Revenue ex-TAC:
    GAAP revenue $ 1,324,153 $ 1,345,807 $ 4,984,199 $ 4,986,566
    TAC (155,453 ) (124,961 ) (603,371 ) (518,906 )
    Revenue ex-TAC $ 1,168,700 $ 1,220,846 $ 4,380,828 $ 4,467,660
    Revenue ex-TAC by segment:
    Americas:
    GAAP revenue $ 884,780 $ 960,118 $ 3,302,989 $ 3,461,633
    TAC (45,072 ) (52,357 ) (160,110 ) (182,511 )
    Revenue ex-TAC $ 839,708 $ 907,761 $ 3,142,879 $ 3,279,122
    EMEA:
    GAAP revenue $ 164,238 $ 113,527 $ 629,383 $ 472,061
    TAC (54,559 ) (16,982 ) (221,916 ) (114,230 )
    Revenue ex-TAC $ 109,679 $ 96,545 $ 407,467 $ 357,831
    Asia Pacific:
    GAAP revenue $ 275,135 $ 272,162 $ 1,051,827 $ 1,052,872
    TAC (55,822 ) (55,622 ) (221,345 ) (222,165 )
    Revenue ex-TAC $ 219,313 $ 216,540 $ 830,482 $ 830,707
    Total revenue ex-TAC $ 1,168,700 $ 1,220,846 $ 4,380,828 $ 4,467,660
    Direct costs by segment (3):
    Americas $ 187,467 $ 183,236 $ 696,103 $ 733,316
    EMEA 41,615 41,325 165,750 161,990
    Asia Pacific 55,361 60,046 225,417 224,114
    Global operating costs (4) 414,804 443,272 1,638,975 1,671,958
    Restructuring charges, net 16,329 76,634 24,420 236,170
    Depreciation and amortization 151,830 168,769 625,864 649,267
    Stock-based compensation expense 58,847 57,574 203,958 224,477
    Income from operations $ 242,447 $ 189,990 $ 800,341 $ 566,368
             
    Reconciliation of net income attributable to Yahoo! Inc. to adjusted EBITDA:
    Net income attributable to Yahoo! Inc. $ 295,572 $ 272,267 $ 1,048,827 $ 3,945,479
    Costs associated with the Korea business and its closure (5) – 99,485 – 99,485
    Deal-related costs related to the sale of Alibaba shares – – – 6,500
    Depreciation and amortization 151,830 168,769 625,864 649,267
    Stock-based compensation expense 58,847 57,574 203,958 224,477
    Restructuring charges, net (5) 16,329 (6,794 ) 24,420 152,742
    Other income, net  (9,768 )  (17,730 )  (27,175 )  (4,647,839 )
    Provision for income taxes  78,287  83,007  241,767  1,940,043
    Earnings in equity interests  (127,063 )  (148,939 )  (476,920 )  (676,438 )
    Net income attributable to noncontrolling interests  5,419  1,385  13,842  5,123
    Adjusted EBITDA $ 469,453 $ 509,024 $ 1,654,583 $ 1,698,839
    Reconciliation of net cash provided by (used in) operating activities to free cash flow:  
    Cash provided by (used in) operating activities $ 431,334 $ (1,899,875 ) $ 1,323,806 $ (281,554 )
    Acquisition of property and equipment, net (130,287 ) (149,720 ) (593,294 ) (505,507 )
    Dividends received from equity investees – – (75,391 ) (83,648 )
    Excess tax benefits from stock-based awards 25,966 5,093 70,680 35,844
    Free cash flow (1)(2) $ 327,013 $ (2,044,502 ) $ 725,801 $ (834,865 )
    (1) The year ended December 31, 2012 includes a payment of $550 million from Alibaba in satisfaction of certain future royalty payments under the existing technology and intellectual property license agreement with Alibaba.
    (2) The three months and year ended December 31, 2012 include a cash tax payment of $2.3 billion which is related to the sale of Alibabashares.
    (3) 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. Beginning in 2012, marketing and customer advocacy costs are managed locally and included as direct costs for each segment. Prior period amounts have been revised to conform to the current presentation.
    (4) 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. Prior to 2012, marketing and customer advocacy costs were managed on a global basis and included as global operating costs. Prior period amounts have been revised to conform to the current presentation.
    (5) For the three months and year ended December 31, 2012, costs associated with the Korea business and its closure include $83 million of restructuring charges.

     

    Yahoo! Inc.
    GAAP to Non-GAAP Reconciliations
    (in thousands, except per share amounts)
    Three Months Ended
    December 31,
    2011 2012
    GAAP Income from operations $ 242,447 $ 189,990
    (a) Costs associated with the Korea business and its closure – 99,485
    (b) Restructuring charges, net (6) 16,329 (6,794 )
    Non-GAAP Income from operations $ 258,776 $ 282,681
    GAAP Net income attributable to Yahoo! Inc. $ 295,572 $ 272,267
    (a) Costs associated with the Korea business and its closure – 99,485
    (b) Restructuring charges, net (6) 16,329 (6,794 )
    (c) To adjust the provision for income taxes to exclude the tax impact of items (a) and (b) above for the three months ended December 31, 2011 and 2012 (5,192 ) 4,626
    Non-GAAP Net earnings $ 306,709 $ 369,584
    GAAP Net income attributable to Yahoo! Inc. common stockholders per share – diluted $ 0.24 $ 0.23
    Non-GAAP Net earnings per share – diluted $ 0.25 $ 0.32
    Shares used in per share calculation – diluted 1,241,009 1,168,336
    Year Ended
    December 31,
    2011 2012
    GAAP Income from operations $ 800,341 $ 566,368
    (a) Costs associated with the Korea business and its closure – 99,485
    (b) Restructuring charges, net (6) 24,420 152,742
    (c) Deal-related costs related to the sale of Alibaba shares – 6,500
    Non-GAAP Income from operations $ 824,761 $ 825,095
    GAAP Net income attributable to Yahoo! Inc. $ 1,048,827 $ 3,945,479
    (a) Costs associated with the Korea business and its closure – 99,485
    (b) Restructuring charges, net (6) 24,420 152,742
    (c) Deal-related costs related to the sale of Alibaba shares – 6,500
    (d) Gain related to sale of Alibaba shares – (4,603,322 )
    (e) Non-cash gain related to the dilution of the Company’s ownership interest in Alibaba Group, which is included in earnings in equity interests (25,083 ) –
    (f) To adjust the provision for income taxes to exclude the tax impact of items (a) through (d) above for the year ended December 31, 2011 and 2012 (7,764 ) 1,805,940
    Non-GAAP Net earnings $ 1,040,400 $ 1,406,824
    GAAP Net income attributable to Yahoo! Inc. common stockholders per share – diluted $ 0.82 $ 3.28
    Non-GAAP Net earnings per share – diluted $ 0.81 $ 1.17
    Shares used in per share calculation – diluted 1,282,282 1,202,906
    (6) For the three months and year ended December 31, 2012, this amount excludes the restructuring charges related to the Korea business and its closure of $83 million, which is included in item (a) above.

     

    Yahoo! Inc.

  • Is The Future Of Marketing In Genetics?

    At risk of sounding like a total nutjob, I want to explore some interesting technologies that are developing that could one day have an impact on how marketers target their audiences, and how consumers are fed information by those who want to get their messages to us.

    As a consumer, what technologies with marketing potential are you most excited or worried about? How about as a marketer? Share your thoughts in the comments.

    MIT researchers have put out a paper, discussed in Science Magazine, looking at people who have volunteered to donate their personal genome sequence data, and how this data can be found using publicly available information. io9’s Robert Gonzalez talks about the study, saying that the days of “genomic anonymity” are over. Gonzalez spoke with lead researcher Yaniv Erlich:

    “We are living in a brave new world,” Erlich tells io9, “a world where more information than ever is readily available online.” What happens to this information depends on who’s making use of it. In the hands of a scientist, it can be used to study, treat and cure diseases. In the hands of Facebook, it can be used to create powerful new search engines. In the hands of a criminal, it can be used to commit identity theft.

    …

    “Basically, we show that you can take whole genome sequencing data that is posted online and cross-reference it with public genealogy data to infer the identity of [an ostensibly anonymous] donor.” And you can do it with Google searches.

    …

    “The combination of surname, age and state is a very strong identifier,” Erlich tells io9. “It’s rare that you find more than a dozen with the same combination, and all three are very searchable online.”

    The report is called Identifying Personal Genomes by Surname Inference. The abstract is as follows:

    Sharing sequencing data sets without identifiers has become a common practice in genomics. Here, we report that surnames can be recovered from personal genomes by profiling short tandem repeats on the Y chromosome (Y-STRs) and querying recreational genetic genealogy databases. We show that a combination of a surname with other types of metadata, such as age and state, can be used to triangulate the identity of the target. A key feature of this technique is that it entirely relies on free, publicly accessible Internet resources. We quantitatively analyze the probability of identification for U.S. males. We further demonstrate the feasibility of this technique by tracing back with high probability the identities of multiple participants in public sequencing projects.

    If you want to get into the technical stuff, take a look at the report itself. It’s free to read with a registration.

    Gonzalez takes the angle, “Your Biggest Genetic Secrets Can Now Be Hacked, Stolen, and Used for Targeted Marketing”. Also worth a read. Essentially, the researchers were able to identify anonymous DNA donors and members of their family, using the method described in both reports. Erlich basically tells io9 research like this is designed to bring about a public discussion about what’s possible, what people’s rights are, and about what kinds of policies and legislation should accompany all of this. Gonzalez quotes Erlich specifically on the marketing angle:

    Imagine receiving an email that says “you have very desirable traits, would you like to be a sperm donor?” or “You are a rare blood type, please consider donating blood.” Do we want to restrict that kind of communication with people?

    What about companies that purchase other companies’ databases? Let’s say I participated in some genetic testing with one company and then another company purchases it. What are my rights?

    So, that’s some pretty interesting stuff. Now, think about some of the big players in enabling marketing. The article already mentioned Facebook and Google, but consider how much we’re already sharing.

    I don’t want to make any suggestions about the possibilities of companies like Google or Facebook using genomes to serve us ads, but think about how much these companies already know about us from the products we use every day. Think about that and combine it with what these researchers are talking about, and you have to wonder where we’re going in the (perhaps not too distant) future.

    Google has reportedly even worked with Craig Venter, one of the first to sequence the human genome, in the past, on cataloging genes. Here’s an excerpt from the David A. Vise and Mark Malseed book The Google Story, which was picked up by The Washington Post, and then the Bioinformatics Organization:

    “We need to use the largest computers in the world,’ Venter said. ‘Larry and Sergey have been excited about our work and about giving us access to their computers and their algorithm guys and scientists to improve the process of analyzing data. It shows the broadness of their thinking. Genetic information is going to be the leading edge of information that is going to change the world. Working with Google, we are trying to generate a gene catalogue to characterize all the genes on the planet and understand their evolutionary development. Geneticists have wanted to do this for generations.’

    “Over time, Venter said, Google will build up a genetic database, analyze it, and find meaningful correlations for individuals and populations. It is utilizing the 30,000 genes discovered by Venter and scientists from the National Institutes of Health when they were racing to beat one another to map the human genome. On June 26, 2000, federal researchers and those from the private sector came together at the White House to announce that their race to map the human genome had ended in a tie. Shortly thereafter, Venter and scientists from NIH made the genetic information they had gathered publicly available on the Internet, a stark contrast to the days when scientists hoarded data. Google went on to post a double helix doodle on its Web site to mark the fiftieth anniversary of the discovery of the structure of DNA, the material inside cells that carries genetic information.

    “Google’s data-mining techniques appear well-suited to the formidable challenges posed by analyzing the genetic sequence. It has begun work on this project, but has not been required to disclose any information about it publicly since the work has no impact on its current revenue and profits.”

    One can’t help but wonder in the back of their mind if that last statement (from a book released 8 years ago) really still holds true.

    Again, to be clear, I’m not trying to suggest anything here, but like Erlich says, it’s about having a discussion.

    I’d like to return to that point from the io9 article about Facebook (“…’a world where more information than ever is readily available online…’ What happens to this information depends on who’s making use of it…In the hands of Facebook, it can be used to create powerful new search engines…”).

    Genetic information aside, Facebook does have tons and tons of data about over a billion people. That alone, makes the potential of its new Graph Search a very big deal. Facebook is giving us a way to search data that Google simply can’t give us.

    Now, rewind to 2010, about a year before Google launched Google+. Consider some words by then Google CEO (now Executive Chairman) Eric Schmidt:

    “The best thing that would happen is for Facebook to open up its data. Failing that, there are other ways to get that information.”

    The company, of course went on to launch Google+, which many of us ultimately assumed was what Schmidt meant by this, and perhaps it was. Still, though it has grown significantly since launch, it’s hard to imagine Google+ really being able to grab the kind of social networking market share Facebook has amassed. Social is important, but in the end, as I’ve discussed in numerous other articles, it really comes down to identity, and even if this genetic stuff doesn’t have any bearing whatsoever on Google’s plans, Google is already getting very up close and personal with us in ways that aren’t always social anyway.

    Consider Google Now, which might even be coming to Chrome, in addition to Android where it currently resides. Consider Google Glass, which will be coming to market before long, with plenty of use cases realized by app developers, along with voice commands, head gestures and phone calls. Consider this instant upload video feature Google co-founder Sergey Brin recently showed off, which pretty much equates to Google seeing the world through your eyes. Consider the targeting of ads Google is already able to do in search, and in Gmail, based on the content of your emails (which is quite social itself, by the way). Consider Ingress, Google’s augmented reality game (which should work nicely with Google Glass), which Google is said to be harvesting all kinds of personal location-based data from. PandoDaily called it a “potential data exploitation disaster“. Consider that it’s the very early days for most of these things.

    Everyone (including myself) has been talking about what Facebook Graph Search means for Google this week, and it will certainly be interesting to watch how things develop. Facebook even indicated it would “love” to work with Google before Google CEO Larry Page said in an interview that Facebook is “doing a really bad job on their products”. I’ve always said that Google really needed Facebook data to make a complete search experience, and I still believe that, but I’m not so sure Google needs Facebook at all when it comes to data that it can ultimately use to monetize us users. Obviously, they’re getting by pretty well so far, and some of this stuff on the horizon may just be able to push Google even further.

    Despite all the social data Facebook has about us, Google has data about us all over the board, and the future (along with Google’s recently revamped privacy policy that allows it to smoothly use that data from product to product) looks like it will be getting more up close and personal than ever.

    Oh, by the way, did I mention that engineers are already working on Google Glass-like contact lenses, and that one of the Google Glass engineers has spoken extensively on Google Glass-like technology being implemented in contact lens form?

    Do you like where all of this is headed? What are your thoughts about genomic privacy? How about the general up close and personal technology that is emerging? Share your thoughts in the comments.

  • What Does Facebook Graph Search Mean For SEO?

    Facebook has dominated the conversation in the tech world this week (for several reasons), but especially because of its unveiling of Graph Search. We’ve been waiting for years for Facebook to “get into search” and “take on Google,” and we appear to have the company’s first real attempt at doing so.

    Do you think Facebook has a legitimate shot at cutting into Google’s share of the search market? Let us know in the comments.

    It is very clear that Graph Search is not going to instantly come out and reduce Google’s piece of the search pie very significantly. It’s in very early beta and limited preview. Facebook says it is rolling out slowly, and many who have already signed up to be part of the preview are still waiting for a chance to actually use it. The company knows it has a whole lot of work to do on this product. It’s starting off by focusing on four main areas of search: people, photos, places and interests. These are four major things, but there is so much more that Facebook could (and will) do. Facebook posts and open graph actions will be added in the coming months, according to Mark Zuckerberg. Mobile will eventually be added as well. So will Instagram, and probably plenty of other things in time.

    In other words, it’s not so much about what Facebook has unveiled, as what Graph Search could evolve into. Could it evolve into a Google killer? Probably not, but who can say for sure? The reality is that it doesn’t have to be a Google killer to be successful, and a useful tool for Facebook users. More time spent on Facebook (especially time spent using search on Facebook) has the potential to draw away some amount of ad spend from Google to Facebook, which really could hurt Google to some extent.

    Facebook has a legitimate shot at being a real player in search because, for one, it has over a billion users already, and for two, because it can provide answers that Google can’t. There is plenty of room for Facebook Graph Search to flourish with or without Google dominating traditional web search, because Graph Search is not traditional web search. In fact, one of the first things Zuckerberg said when he introduced the product on Tuesday, was that it is “not web search”.

    Facebook does utilize its partnership with Bing to add the web search element, and as Liz Gannes at All Things De writes, Graph Search should only help Google’s case for increased competition in search when it comes to antitrust scrutiny.

    Some have dismissed the offering as “not a big deal”. I’m not so sure I agree with that. Either way, we at least owe it to Facebook to let the product show us what it can do before rushing to snap judgments. Give users a chance to figure out what they can do with it. Give Facebook a chance to move it forward out of beta, and add the stuff it really wants to add.

    Privacy

    Privacy concerns generally come attached to any major Facebook product launch. The controversy the company has drawn in the past with regards to privacy doesn’t help perception. Still, privacy was a major point of discussion by Facebook as it unveiled Graph Search. In fact, they released a video with some privacy tips just as they announced the product.

    The fact of the matter is (at least this is what Facebook is telling us), is that users will only be able to see things on Facebook that they already could. The only thing that changes is that users have a new way to discover these things. Still, that could be enough to make some users feel uneasy, which is why Facebook recommends checking out how you’re already sharing your data. Indeed, if you haven’t perused your privacy settings lately, you might want to take a look and make sure you’re comfortable with them.

    Facebook SEO

    Okay, now let’s get to the business side of things. Graph Search may just present businesses with some great new opportunities to get in front of users on Facebook, a feat that has become increasingly challenging as Facebook has tinkered with the way it displays updates from Pages in the News Feed. With Graph Search comes a whole new area of search engine optimization. Whereas optimizing for Bing might be pretty similar to optimizing for Google, optimizing for Facebook’s Graph Search is bound to be an entirely different beast.

    For one, optimizing for Graph Search is not about optimizing a web page (although it might make your Bing rankings of greater concern).

    Facebook has already shared some optimization tips for businesses. “The search bar first returns the top search suggestions, including people, Pages, apps, places, groups, and suggested searches,” the company explains. “People can search for things like restaurants near them, hotels in places they want to travel to, photos posted by Pages they like, or games that their friends like to play.”

    “These search suggestions take people to a unique results page,” it adds. “The results returned are based on factors that include information that has been shared by your business and the connections of the person searching.”

    Facebook will also make suggestions in the search bar, and will display Bing results (and ads) for web searches. Pages and apps will continue to be able to use sponsored results. These will continue to appear whether or not the user has Graph Search yet.

    Here are the specific tips Facebook offered for “making sure your Page is complete and up-to-date”.

    • The name, category, vanity URL, and information you share in the “About” section all help people find your business and should be shared on Facebook.
    • If you have a location or a local place Page, update your address to make sure you can appear as a result when someone is searching for a specific location.
    • Focus on attracting the right fans to your Page and on giving your fans a reason to interact with your content on an ongoing basis.
    • You can learn more about fan acquisition and Page publishing best practices here.

    You may also want to consider going through Facebook’s “Managing A Page” help section, which covers: getting started, accessing your page, settings/general administration (editing, notifications, managing admins, usernames/page addresses, claiming/merging duplicate pages), customizing how it looks, growing your audience (best practices/reaching more people), private messages, apps, using your page on mobile, policy questions, page insights (analytics), page admin privacy, bugs/known issues, and posting/moderating posts by others (page posts, offers for page admins, translating page posts, moderating what people post on your page, and photos/events/links).

    It’s hard to know this early in the game how businesses will best be able to use Graph Search for increased visibility, but you can rest assured, people will be trying to take advantage. It will be interesting to see just how gameable the system is. Facebook is likely going to have to take on this issue with its own set of “quality guidelines” the way Google does, which will enable it to manually (and algorithmically) penalize Pages that are in violation.

    Facebook does already have a business resource site here.

    Facebook also notes that app developers have a lot to gain from Graph Search. The company says, “Apps are now more discoverable on Facebook with Graph Search. In addition to showing up in search results based on your app’s name, they can show up in search results based on criteria like ‘strategy games my friends play’ or ‘apps my friends who live in San Francisco use.’ To optimize your app for Graph Search, please make sure your app details are up-to-date and that your app is properly categorized.”

    Potential Relevancy Problems

    You know how paid links is a problem for Google optimization? It will be interesting to see how “like buying” fits into the Facebook picture as it pertains to ranking in Graph Search.

    Steve Cheney has an interesting blog post on how businesses may be able to influence the results based on how much of their marketing budgets they put toward fan acquisition.

    “For the past several years big advertisers on FB have actually been directing massive amounts of paid media to acquire fans. They quite literally bought likes,” he writes. Why? Early on FB made the case to brands that they must have fans… together with the ad agencies they convinced the Cokes of the world to spend money to be competitive (hey Pepsi is here too). Then, FB promised, something miraculous would happen. Your friends would see in their news feed you liked Coke!”

    “So… FB convinced big advertisers to spend huge sums on CPA-like ad units whose sole purpose was to acquire fans. Ad agencies dedicated creative, planning and strategy resources to get the Cokes and American Expresses of the world to pay to have users click—almost 100% of the time because the user was promised some sweepstake or contest,” he continues. “Recall back to all the past campaigns you’ve ignored where you could ‘like to enter’ or ‘like to qualify’. They are literally everywhere and are always tied to fan acquisition.”

    He goes on to note that over the past several years, American Express, for example, has spent about half of its ad spend on buying likes, which he says equates to tens of millions of dollars, and that “across the board, big advertisers were told to spend 50% of their ad buy solely on fan acquisition.”

    Of course outside of these massive marketing budgets, pages give users deals for “liking” them on Facebook all the time. These are not necessarily genuine liking of a business, and this could dilute the relevancy of search results for users actually looking for some useful information to help them make decisions.

    Another potential relevancy problem is that people change their minds. Just because you liked something two years ago (or longer) does not mean it represents your current opinion. People get older and grow up. They have bad experiences with businesses that they used to like. They’re not always going to go back and unlike things. It’s simply not going to occur to everyone. For that matter, Facebook has already buried so many updates from pages in the news feed, users are no doubt forgetting that they ever even liked some pages to begin with, since they never see updates from them.

    Then there’s the fact that a lot of Facebook users aren’t taking the time to “like” everything they actually like.

    “Consider me,” writes Danny Sullivan at Search Engine Land. “Not only have I not liked my electrician, my plumber, my dentist, my doctor or my tax person on Facebook, but I don’t even know if they have Facebook pages. I have nothing to offer to my Facebook friends in this regard. Similarly, despite the huge number of books I read through my Kindle, I never go to like those books on Facebook, so books I love are more or less invisible on Facebook.”

    Social Signals

    Despite all of this, there’s no question that Facebook has the strongest social signals of any service on the web. It has the volume, and has the close, personal connections. It has your family and the people you have known all your life. it has your co-workers, your old friends from all levels of school, and it has the people in your town. It also has the people on the other side of the world. If social signals are ever to be important to the relevance of search results on a mass scale, wouldn’t it have to be Facebook’s?

    We had a conversation with blekko CEO Rich Skrenta about Graph Search and social signals. He tells us social signals are “critical” for search relevance.

    “PageRank originally measured the web’s primary social signal — links,” he says. “Facebook has even better social data which would be great for ranking recommendations. And they could be personalized to you, based on your friends.”

    “Facebook Graph Search addresses a completely new class of searches that you can’t do today on Google,” he says.

    “Another difference is the layers of searching or refinement that Facebook Search offers compared to Google,” writes Sullivan. “For example, a Google search can show you restaurants in San Francisco, a pretty much single dimensional view.

    “A Facebook search can show you restaurants in San Francisco liked by your friends,” he adds. “Or further, those liked by your friends who actually live in San Francisco, as opposed to those who live elsewhere. Or those liked by your single friends, your straight friends, your gay friends, your friends who work for a particular company.”

    Wrapping Up

    Clearly Facebook has a lot of challenges ahead of itself if it wishes to be a serious player in search, and while Graph Search could pose some threat to Google, not just a search destination, but as a more complete web experience, it has a long way to go. Even still, the amount of data that Facebook has at is disposal, along with the engineering talent behind the offering, led by former Googlers, it’s hard to imagine this offering won’t be at leas an important too for Facebook itself, if not a bigger deal for the web itself.

    Do you think Graph Search is a big deal? A threat to Google? A useful Facebook tool? An important tool for businesses? Let us know in the comments.