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  • Yelp Documentary: The Plot Thickens [Updated]

    Yelp Documentary: The Plot Thickens [Updated]

    As previously reported, last week, Prost Productions announced a new documentary project called Billion Dollar Bully, which dives into the infamous Yelp “extortion” allegations that have persisted for at least six years.

    The basic story that we’ve seen brought up in numerous press reports and internet comments over the years is that Yelp salespeople call businesses who are listed on Yelp and try to get them to advertise. The business declines to advertise, and Yelp responds by burying positive reviews and letting negative ones rise to the top. There are variations on the story, but that’s general gist.

    Billion Dollar Bully is already half shot, but Prost Productions is raising funds on Kickstarter to get it finished. This was announced last week, and Yelp now finds itself in the media spotlight once again, defending itself against familiar claims. It will probably be doing so again in the future as the film has already met nearly two-third of its funding goal with 26 days to go. So far it has raised nearly $40,000 from 340 backers. The campaign even earned “staff pick” status on Kickstarter.

    After news of the project came out, Yelp tried to discredit filmmaker Kaylie Milliken. The company said in a statement:

    The director has a conflict of interest, as she has a history of trying to mislead consumers on Yelp. There is no merit to the claims they appear to highlight, which have been repeatedly dismissed by courts of law, investigated by government regulators, including the FTC, and disproven by academic study.

    We asked Yelp to elaborate on these claims of Milliken’s “conflict of interest” and her “history of trying to mislead consumers on Yelp,” but the company would offer no further comment. They did, however, point us to links to its corporate blog posts about the court dismissals, FTC investigation, and academic study (which is from Harvard Business School Professor Michael Luca and Professor Giorgos Zervas of Boston University).

    We interviewed Milliken, and asker her what Yelp was referring to regarding her conflict of interest and whatnot, to which she responded, “I honestly have no idea what they are referring to, but I welcome any information they have.”

    We also asked her about the FTC investigation and study Yelp pointed to. She said the documentary would go more into the investigation.

    Regarding the study, she told us, “If you look at the Harvard Business Study, the very first line asks the question, ‘Do online consumer reviews affect restaurant demand?’ This is the focus of the study – whether or not reviews actually hurt the restaurants. Yelp points at it as though the study was done to show review manipulation does not happen. Next, if you look at the arguments the author of the study makes, his first point is this: each star rating attributes 5-9% increase in revenue. (Therefore, if negative reviews do drag down the star rating, the business is negatively affected.) Next point: it is only independent restaurants (not chain) that are harmed in this.”

    After our exchange with Milliken, both she and Yelp’s VP of Corporate Communications, Shannon Eis, appeared on CNBC to trade remarks.

    “We’re not here out of fear,” said Eis. “We’re here out of facts and making sure they transcend this conversation. Dismissing the FTC, dismissing five federal judges who all found no wrongdoing, dismissing an exhaustive Harvard Business School study and it’s actually not the one that she’s citing. There’s a different one that looks specifically at our recommendation software and draws no connections to advertising. So she’s citing an older, not Yelp-specific study. Though dismissing all of that seems a little weird when all of it has very exhaustively debunked the claims. But why we’re here is because it’s important that the facts speak, and that the value to consumers that we want to create and continue to drive really transcends all of this.”

    Milliken says she’s not dismissing what the FTC said, and reiterated that the documentary will go into it extensively, and that she’ll “let the experts speak for themselves.”

    And for the record, Yelp itself has dismissed something the FTC has found in the past. Here’s a statement from the company about Google’s antitrust settlement with the commission two years ago, as reported by CNET:

    Yelp, who has been among the company’s most vocal critics, called it “a missed opportunity to protect innovation in the Internet economy, and the consumers and businesses that rely upon it.”

    In the CNBC exchange we finally got some elaboration on Yelp’s part about what it deems a conflict of interest.

    Eis says, “We’re here today because she’s raising money on Kickstarter to fund her film, so we’re all part of a fundraising effort today, but I think what’s important to state is that we did discover through the recommended software that is largely being contested here, that Ms. Milliken herself created three sockpuppet accounts to create false five-star ratings of her huband’s law firm – her husband who is also listed as the CFO for this production that we’re fundraising for as a result of this media, so I think it’s important to say that the accusation that she’s making, she’s actually been a part of on the back end, and the software process that we’re talking about that helps protect consumers and present true and authentic reviews was something that triggered finding her false reviews on the site and suppressed them.”

    Milliken responded to that by saying, “I did create several different profiles, and I wanted to investigate and see what happened to the various reviews that I left. Not just on my husband’s site…on many websites to see what happened to those reviews, and I think it’s shocking and very telling that this billion dollar corporation has come after this grassroots, very small production company, where there are only two of us – myself and my associate producer Melissa Wood – creating a documentary that we are still in production over, and we released a two-minute video online, and Yelp has fired back with all of that. This billion dollar company versus this grassroots organization. I think it does clearly show that they are concerned about what will be coming out in the documentary.”

    To which Eis responded: “I think that’s an unfair statement. This has been going on for weeks. We released one two-sentence statement, and we let it go. But it gets to the point where the same misleading activity is now trying to fundraise to further this conversation, we have to step in and really make sure facts and gravity are at the center of this, which is what’s the right thing to do for users.”

    I’m not so sure that “furthering the conversation” is such a bad thing regardless of who’s right here. The thing is that despite anything Yelp has pointed to in its own defense, accusations have persisted. Whenever these studies and investigations supposedly “debunk” claims, they don’t seem to do so without questions remaining. If the documentary can truly “further” the conversation (as opposed to rehash it), isn’t it worth watching? The same would go for Yelp’s side of the story. When Yelp has some new study or investigation to point to, we pay attention. When the FTC closes an investigation, we report on it. Shouldn’t small businesses be able to have their voices heard as well? As long as the conversation is indeed being furthered, I don’t see how it can be a bad thing.

    That is the supposed point of the documentary, and maybe it shouldn’t be dismissed until its materials are presented. It might be different if the whole thing wasn’t such a common story. Look around at articles about Yelp all over the web, and you’ll likely see numerous comments talking about the types of things the documentary is looking at. We’ve gotten about 30 comments on our coverage over the past few days, and they’re almost all against Yelp. That doesn’t mean they’re all credible, but the fact remains, the conversation isn’t going away. People care.

    I think a lot of people are just interested to see if Milliken’s film will produce any hard hitting evidence we haven’t seen. Milliken told us in our interview that it will include some “material that very few have seen”.

    Asked if Yelp is going to sue Milliken, Eis said she can’t speak to legal proceedings but that it’s “absolutely not on the table right now.”

    We’ve reached out to both Yelp and Milliken for additional information in light of what was discussed on CNBC. There are two different Harvard Business School studies regarding Yelp, but both deal with restaurants:

    Reviews, Reputation, and Revenue: The Case of Yelp.com (2011)

    Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud

    The one Milliken quoted from in our interview is the former. We’ve inquired about that, and we’ve sought to learn more from both parties about how Milliken used the fake Yelp accounts. We also inquired about her husband’s role in the production of the film. We’ll update accordingly.

    Update: Regarding Eis’ comments about the Harvard study, Milliken tells us, “I have no idea what she is talking about. She also said that they aren’t Yelp specific, which they are. This really will be investigated in the documentary.”

    Here is her response regarding the Yelp accounts she created:

    “Before my husband and I were married, he represented me in a legal matter. He did an incredible job, and I left him a legitimate review. That was filtered out. At the time, I did not understand how the filtered system worked, so when I went on his site and saw my review wasn’t there, I thought my account didn’t work. I made another account to leave him another review, which again was filtered out.”

    “I definitely see the need for a filtering system. You don’t want people going on and creating ‘sock puppet’ accounts.”

    “Once I became interested in doing this documentary, I wanted to see how the filtered system worked. I started leaving comments at various businesses. To my knowledge, all of my reviews (which were at legitimate businesses that I had attended) were placed in the filtered reviews. I think one was left.”

    Asked if her husband’s business has been penalized on Yelp (the company often issues “Consumer Alerts” for businesses it says engage in “shady” practices), Milliken said, “No. He does have reviews from legitimate clients filtered out, but I wouldn’t necessarily call that ‘penalized’.”

    On Yelp’s comments about her “conflict of interest,” she tells us, “I think it just goes to show that Yelp truly is concerned about what will be exposed in Billion Dollar Bully. We are a small production company – it’s Mellissa [Wood – associate producer] and myself, working together on this project. We had an idea of a compelling story that we passionately believe should be told, and all of a sudden Yelp was coming after us. I think that speaks volumes above anything I could say at this point.”

    Milliken has said that the film comes from just her and Wood . On Eis’ comments about her husband being the CFO for the production, she says, “My husband is a contract CFO for the production company. Mellissa Wood and I are working on this project together (There are other contract employees; ie, videographer, editor.).”

    As previously reported, Milliken has cited a conversation with her physician as being the inspiration for the documentary. Asked if the physician will be speaking in the film, Milliken says, “No, she is one of many who are concerned with retaliation.”

    Update 2: International Business Times shares screenshots of Yelp’s backend that the company provided, which shows what is apparently MIlliken’s “questionable” activity, though she has already addressed this in the comments above.

    From the Prost Productions Facebook account, she also commented on that article, saying, “I want to address this article that was just released. Yelp is trying to create an environment where Billion Dollar Bully is about myself. It is not. It sticks to evidence, facts, and personal experiences of business owners throughout the United States. Like I’ve said before, I think Yelp’s continued reaction to Billion Dollar Bully speaks volumes and is much more illuminating than anything I could ever say.”

    At the time of writing, the project has raised over $48K of its $60K goal with 24 days to go. It has nearly 400 backers so far.

  • Google’s New CFO is the ‘Most Powerful Woman on Wall Street’

    Google’s New CFO is the ‘Most Powerful Woman on Wall Street’

    Google has found its new CFO.

    Ruth Porat, who currently serves as Chief Financial Officer for Morgan Stanley, will be joining Google on May 26. She’ll replace outgoing CFO Patrick Pichette, who announced his retirement earlier this month.

    “We’re tremendously fortunate to have found such a creative, experienced and operationally strong executive,” said Larry Page. “I look forward to learning from Ruth as we continue to innovate in our core–from search and ads, to Android, Chrome and YouTube–as well as invest in a thoughtful, disciplined way in our next generation of big bets. Finally, huge thanks to Patrick Pichette for his seven super successful years as CFO”.

    Porat has been with Morgan Stanley since 1987, and “has played several key roles at the company, including Vice Chairman of Investment Banking, Global Head of the Financial Institutions Group and and co-Head of Technology Investment Banking.” She once placed on Forbes’ list of the top 100 Power Women, and is considered one of if not the most powerful woman on Wall Street.

    “I’m delighted to be returning to my California roots and joining Google,” said Ruth Porat. “Growing up in Silicon Valley, during my time at Morgan Stanley and as a member of Stanford’s Board, I’ve had the opportunity to experience first hand how tech companies can help people in their daily lives. I can’t wait to roll up my sleeves and get started.”

    Image via Brookings Institution, YouTube

  • Uber CFO Brent Callinicos Steps Down

    Uber CFO Brent Callinicos Steps Down

    On-demand car service Uber is saying goodbye to its Chief Financial Officer.

    Brent Callinicos, who served as CFO of the startup since 2013, is stepping down to spend more time with his family.

    “For me, this ride is coming to an end. After 26 years of nonstop work since MBA School, I am going to step back and spend some time with my family and let someone else take this amazing company to the next level as CFO. My daughter is in middle school; my wife has been supportively waiting to spend time with me for 28 years. I made a promise to both of them that I would be taking a long break at this stage of life. And as the great philosopher put it, everything has conspired to give me this opportunity to acknowledge my heart’s desire. Right now, the happiest thing I can think of is driving my daughter to school and swim practice. Time, now, for the heart’s desire,” he said in an email to Uber staff obtained by the Wall Street Journal.

    Uber has not yet named a replacement, and Gautam Gupta, whom Uber CEO Travis Kalanick describes as “Brent’s right hand on Strategic Finance,” will be the acting head.

    “Almost 2 years ago, I brought on one of the great financial operators in Silicon Valley as our CFO. Though two years sounds short, Uber was a much smaller startup then – about 1/10th the size we are today. Brent has provided critical leadership to take Uber to the next level as we matured as a company. We have financial systems in place overseeing operations in 53 countries. We have a deep bench of talent poised to help our finance organization grow with the business,” said Kalanick in a memo to investors.

    Kalanick says Callinicos will serve the company as an “advisor”.

    Under his watch, Uber has grown to a valuation of over $40 billion. Callinicos is stepping down just as an IPO seems imminent.

  • Is Google Looking Desperate in Firefox?

    Is Google Looking Desperate in Firefox?

    Google is getting louder about wanting Firefox users to switch their default browser back to its search engine.

    As you may know, Mozilla replaced Google with Yahoo as the default search provider in Firefox in the United States back in November. This led to Yahoo gaining some market share in the months after.

    Unfortunately for Yahoo, that growth seems to have stalled. Based on data from StatCounter, Google hit its lowest share in the U.S. in January, while Yahoo reached its highest in over five years. That Yahoo growth flatlined in February, however, though the search engine was mostly able to hang on to the additions it already made.

    search market in the u.s.

    Since Yahoo and Mozilla made the deal, Yahoo has been displaying a message at the top of its homepage and other properties, encouraging users to “upgrade to the new Firefox”.

    Google has also been displaying messages trying to get users to switch their default search experience back to Google Search for a while. In January, it put out this little video guide:

    Google also started telling Firefox users who visited its homepage to set the default experience back to Google with a message saying, “Get to Google faster. Make Google your default search engine.”

    Now, Google is taking things up a notch. It’s actually showing big ad-like messages at the top of unrelated search results pages, telling users to switch search engines:

    If you click “learn how,” you’re presented with this:

    If you click “no thanks,” it just disappears. If you ignore Google’s prompt, it goes away after two or three searches.

    Search Engine Land describes this strategy as “begging” and “desperate” on Google’s part.

    Outgoing Google CFO Patrick Pichette was asked about Yahoo’s partnership with Mozilla on Google’s recent earnings call. He said:

    You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

    And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them….partnerships matter. But at the core of it, you need partnership, because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company.

    It’s interesting to see how far Google is going to get Firefox users to switch back. Soon, it could be implementing a similar strategy in Apple’s Safari browser. Google’s deal with Apple to remain the default search experience there is set to expire soon. We don’t know exactly when, but we know it’s soon.

    It’s possible that Apple could go with Google again, but speculation that it will go with another search engine like Yahoo or Bing (at least in the U.S.) has been picking up. Yahoo and Microsoft have both been said to be ready to battle for the spot. On Yahoo’s earnings call, CEO Marissa Mayer was pretty clear about really wanting to have Yahoo as the default on Safari. She said:

    The Safari platform is basically one of the premiere search engine in the world, if not the premiere search engine in the world. We are definitely in the search distribution business. I think we stated that really clearly in the past and I think with Mozilla and also in addition we brought Amazon and eBay onboard with smaller distribution partnerships in Q4, we are in search distribution business and anyone who is in that business needs to be interested in the Safari deal.

    The Safari users are among the most engaged and lucrative users in the world and it’s something that we would really like to be able to provide. We work really closely with Mozilla to ultimately bring to their users an experience that they designed and that they feel really suit those users and we welcome the opportunity with any other partner to do the same, particularly one with Apple’s volume and end user base.

    As Kara Swisher, who was liveblogging the event, said, “Mayer appeared to practically salivate at the prospect if Apple throws over Google for someone else. Issue: Microsoft. Another issue: Yahoo search technology would have to be majorly upgraded.”

    Earlier this week, Search Engine Land’s Greg Sterling predicted that Apple will not renew its Google deal (again, at least in the U.S.), saying both parties have reasons not to renew. He wrote:

    In 2011, Macquarie Capital estimated that Google earned $1.3 billion in search-related revenue from its default position on Safari. Of that, Google was supposed to have paid Apple over a billion dollars. In 2013, Morgan Stanley also estimated that Google paid Apple over $1 billion annually for the privilege of being the Safari default.

    If these figures were correct at the time, they’re likely out-of-date today. If anything, there’s more mobile search volume and more revenue than in 2011 or 2013. Google’s net profit from Safari is substantially less than the $1 billion it probably pays Apple. Google is therefore probably willing to bet that its net will go up if it walks away from the deal.

    He also noted that Google probably assumes it will get users to switch back and/or get them using its search app. It most likely would get many users back, and it would also most likely implement an aggressive switchback campaign as it’s doing in Mozilla. Still, it’s going to be an interesting narrative to watch.

  • Twitter Talks Google Deal, Says User Growth Trend Already Turned Around This Year

    Twitter Talks Google Deal, Says User Growth Trend Already Turned Around This Year

    Twitter reported its Q4 and fiscal year 2014 financial results on Thursday, with 97% year-over-year revenue growth for the quarter at $479 million. Ad revenue per thousand timeline views reached $2.37 in the quarter, which was up 60% year-over-year. The company managed to impress with its business, but continued to disappoint in the user growth department, which is an area the company has been heavily criticized over since going public.

    Average Monthly Active Users (MAUs) were 288 million for the fourth quarter, which was an increase of 20% year-over-year. The company noted that this reflects a loss of about 4 million net Monthly Active Users in the quarter due to changes in third party integrations (specifically iOS 8). Users grew at a rate of just 1.4 for the quarter compared to 4.8% the prior quarter. Average Mobile MAUs were 80% of total MAUs. Timeline views reached 182 billion for the quarter (up 23% year-over-year). Twitter sees 6,000 tweets per minute every day, according to the company.

    All in all, Twitter added 4 million users during the quarter and 47 million throughout 2014. CEO Dick Costolo said on the earnings call that user numbers the company saw in January of this year indicate its MAU trend has already been turned around. He indicated that new Twitter features like native video, group messaging, and Instant Timeline (which populates the timelines of new users) should contribute to an upward trend. He also mentioned the company’s recent acquisition of ZipDial, which he said it will use to bring more content (like key moments and commentary from the Cricket World Cup) to a much larger audience on Twitter.

    Twitter is also doing a lot to build its developer ecosystem, as Costolo also brought up. This should lead to new apps and services that can contribute to user growth. Last fall, the company unveiled its new Fabric developer kits and Digits sign-in. This year, the company has already embarked on a developer tour called Flock, which will see the company helping developers build apps.

    Costolo said during the Q&A portion of Twitter’s earnings conference call that he could confirm that Twitter has entered into an agreement with Google, but declined to elaborate on any more details about it. In the past, the two companies have worked together to show tweets in real time in Google’s search results. From the sound of it this is what’s going to happen again, though it remains to be seen if it will function the same way. Either way, it’s going to get tweets in front of people more often, and that can’t hurt user growth.

    During the call, Costolo was asked why a Google deal didn’t make sense any longer when the two companies grew apart a few years ago, and why it makes more sense now. His answer (via Seeking Alpha) was as follows:

    We’ve obviously had a relationship with Google over the course of the years with all the bunch of the executives here and a bunch of the executives there obviously know each other quite well.

    I would say that the way we think about the Google deal now without again — without going into any of the details distinct from the kind of relationship we had in the past is that we’ve got the opportunity now to drive a lot of attention to an aggregate eye balls if you will to these logged out experiences, topics and events that we plan on delivering on the front page of Twitter. And that’s one of the reasons this makes a lot more sense for us now.

    He also made clear that we won’t see a launch from the deal for several months.

    As one analyst mentioned, the Google deal should have an impact on Twitter’s revenue in terms of licensing, but the company declined to discuss that for the time being.

    Regarding the iOS 8 changes that impacted Twitter’s user base, CFO Anthony Noto said:

    So we said we lost four million monthly active users due to the iOS8 integration. One million of those monthly active users were Twitter owned and operated monthly active users and three million were on Safari, what we call Auto point MAU’s and we lost those.

    We don’t expect to get the three million Autopoint MAU’s in Safari back and that’s a non-Twitter owned and operated Autopoint MAU. The one million that number was actually higher at a different point in the quarter when we were able to bring it back down to just one.

    Costolo added:

    We obviously have a great relationship with Apple. I’ve talked about that at length over the course of the last two years. On the second part of what Anthony talked about there, there was unforeseen bug in the release of iOS8 as it relates to the specific Twitter integration into iOS that’s why it was particular to us. Once we understood the issue, we move just quickly as we could on multiple fronts to minimize its impact, but it wasn’t — it wasn’t a one size fits off fix, which is why you’ve seen some of the complexity that we talked about here in brining those users back. The problem was a complex and affected different users differently.

    The Wall Street Journal reports that while hitting a record low, Twitter’s user growth fell below Facebook’s for the first time. According to Re/code, Twitter has revoked access to user growth numbers from its employees.

    Image via Twitter

  • Google, Uber Moving in on Each Other’s Turf?

    Google, Uber Moving in on Each Other’s Turf?

    It’s possible that Google and Uber, two companies which, at least historically, have been friendly, are developing a bit of a rivalry.

    Uber has announced a “strategic partnership” with Carnegie Mellon University that will see the creation of the “Uber Advanced Technologies Center” near the school’s campus.

    “The center will focus on the development of key long-term technologies that advance Uber’s mission of bringing safe, reliable transportation to everyone, everywhere,” says Uber. More specifically, “mapping and vehicle safety and autonomy technology”.

    In other words, Uber is jumping in the self-driving car ring – an arena currently dominated by the folks at Google.

    “We are excited to join the community of Pittsburgh and partner with the experts at CMU, whose breadth and depth of technical expertise, particularly in robotics, are unmatched. As a global leader in urban transportation, we have the unique opportunity to invest in leading edge technologies to enable the safe and efficient movement of people and things at giant scale. This collaboration and the creation of the Uber Advanced Technologies Center represent an important investment in building for the long term of Uber,” said Uber Chief Product Officer Jeff Holden.

    So, it appears that adding autonomous vehicles to its fleet is part of Uber’s “long-term” goal.

    Around the same time Uber was making this announcement, Bloomberg published an exclusive report citing Google’s intentions to take a direct shot at Uber with the formation of its own on-demand car service.

    From Bloomberg:

    Google is preparing to offer its own ride-hailing service, most likely in conjunction with its long-in-development driverless car project. [Google CFO David] Drummond has informed Uber’s board of this possibility, according to a person close to the Uber board, and Uber executives have seen screenshots of what appears to be a Google ride-sharing app that is currently being used by Google employees. This person, who requested not to be named because the talks are private, said the Uber board is now weighing whether to ask Drummond to resign his position as an Uber board member.

    Drummond currently sits on Uber’s board, and Google Ventures has invested hundreds of millions of dollars into Uber in the past. Uber relies on Google Maps. The two are definitely intertwined, and Bloomberg points out that most feel that Google and Uber are obvious partners for a wide range of future endeavors. At least, until now.

    Google did provide this somewhat cryptic statement on Twitter, pointed directly at Bloomberg.

    The Wall Street Journal has put a bit of a wrinkle in the story, however. According to multiple sources cited by the paper, Google’s not really working on an Uber competitor and the whole thing has been “blown out of proportion”.

    From the WSJ:

    But a person familiar with the matter said news that Google is developing an app to rival Uber has been blown out of proportion. The person said a Google engineer has been testing an internal app that helps Google employees carpool to work, and the app isn’t associated with the company’s driverless cars program.

    Two people familiar with the matter said they weren’t aware that Drummond had been asked by anyone to step down and believe he would do so of his own volition if he sees a potential conflict.

    Google recently unveiled what it called the “first real build” of its self-driving vehicle prototype.

    Image via Google+

  • Firefox Deal Continues To Help Yahoo, Hurt Google

    Firefox Deal Continues To Help Yahoo, Hurt Google

    In November, Yahoo and Mozilla entered a partnership that made Yahoo the default search experience on Firefox, replacing Google, which had held the spot for the past decade. The deal showed some great early results for Yahoo in terms of search market share, but the question about whether or not people would switch back to Google remained. So far, it seems that many are choosing to stick with Yahoo.

    StatCounter just put out its latest report on the subject, and found that Google is at its lowest share in the US since it’s been recording the data.

    This is the first time Google has fallen below 75%, the firm says. Yahoo, on the other hand, reached its highest US search share in over five years. They’ve been tracking these stats since July 2008.

    “Some analysts expected Yahoo to fall in January as a result of Firefox users switching back to Google. In fact Yahoo has increased US search share by half a percentage point,” said StatCounter CEO Aodhan Cullen. “It will be fascinating to see if these gains continue.”

    StatCounter also looked specifically at U.S. search share by Firefox users finding that Yahoo-on-Firefox usage nearly tripled from November to January going from 9.9% to 28.3%. During that timeframe, Google fell from 81.9% to 63.9%.

    “When we removed Firefox usage from the US search data, Yahoo’s gains and Google’s losses were erased,” said Cullen. “This highlights the importance of the default search option and the significance of the upcoming Safari search deal for the major players.”

    And Yahoo is hungry for that Safari deal. Last week, Yahoo reported its Q4 earnings, and CEO Marissa Mayer talked about the Firefox deal and the coveted Safari spot.

    “The Safari platform is basically one of the premiere search engines in the world, if not the premiere search engine in the world,” she said during a Q&A session. “We are definitely in the search distribution business. I think we stated that really clearly in the past and I think with Mozilla and also in addition we brought Amazon and eBay onboard with smaller distribution partnerships in Q4, we are in search distribution business and anyone who is in that business needs to be interested in the Safari deal.”

    “The Safari users are among the most engaged and lucrative users in the world and it’s something that we would really like to be able to provide,” she added. “We work really closely with Mozilla to ultimately bring to their users an experience that they designed and that they feel really suit those users and we welcome the opportunity with any other partner to do the same, particularly one with Apple’s volume and end user base.”

    As far as Firefox goes, it’s going to be interesting to see the market share changes for this month after more people presumably upgrade to the latest version of the browser. Yahoo is still encouraging users to do so from its homepage. Meanwhile, Google is encouraging Firefox users to switch back.

    Google also reported its earnings last week, and vaguely commented on the Yahoo Firefox deal.

    CFO Patrick Pichette said:

    You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

    And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them.

    And so that’s the strategy that we’re using and we just don’t comment on any of our – we’ve never commented on any of our deals, so we want comment on Mozilla either.

    Firefox users generated 14% of US internet usage in January according to StatCounter.

    Images via StatCounter

  • Netflix To Offer $1 Billion In Senior Notes As It Continues Content Expansion

    Netflix To Offer $1 Billion In Senior Notes As It Continues Content Expansion

    Netflix just announced that it will offer a billion dollars in senior notes through an offering to qualified institutional buyers. Proceeds will be used for content acquisition, among other things.

    “The interest rate, redemption provisions, maturity date and other terms of the Notes will be determined by negotiations between Netflix and the initial purchasers,” the company said in a note to shareholders. “Netflix intends to use the net proceeds from this offering for general corporate purposes, which may include content acquisitions, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

    “This announcement does not constitute an offer to sell or a solicitation of an offer to buy the Notes, nor shall there be any offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful,” it added. “The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.”

    Netflix intends to complete its global expansion into 200 countries by 2017. This is a goal that CEO Reed Hastings and CFO David Wells outlined in the company’s letter to shareholders as it reported its Q4 earnings. In 2014, Netflix launched in France, Germany, Austria, Switzerland, and Belgium. Australia and New Zealand are set for March.

    Netflix plans to premiere 20 new shows and seasons of existing original shows a year.

    The company posted a record 13 million new members and $1.305 billion in revenue from its streaming service.

    Image via Netflix

  • Google Responds To Yahoo’s Firefox Deal On Earnings Call

    Google Responds To Yahoo’s Firefox Deal On Earnings Call

    Google released its Q4 and fiscal year 2014 financial results on Thursday with full year revenue up 19% year-over-year at $66 billion and revenue of $18.1 billion for the quarter, which was a 15% year-over-year increase.

    During the company’s conference call, CFO and Senior Vice President Patrick Pichette was asked about the impact of Yahoo’s deal with Mozilla to replace Google as the default search experience in the Firefox browser. here’s what he had to say (via Seeking Alpha’s transcript):

    You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

    And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them.

    And so that’s the strategy that we’re using and we just don’t comment on any of our – we’ve never commented on any of our deals, so we want comment on Mozilla either.

    The subject came up again a bit later in the call, and Pichette had a little more to say:

    So on the issue of partnerships, Google has a lot of partnerships, right, it’s got – it’s an anchor of our strategy, because that actually gives us distribution, distribution is good. And so we also we look for partnerships in many spaces.

    Partnerships have to be win-wins, and in that sense, right, we’ll always look for those combinations. But also at the end of the day, there’s a second piece of the strategy, which is, as I said earlier, building amazing product, because if you build the amazing products then people want to distribute you product.

    And so that’s why, we have a meet in the whole search team that actually do this amazing job through the knowledge graph and all of the other elements of search, and no matter what the device, no matter the location, no matter the time of day. If we give you the answer as you’re looking for and 10 clicks less than it was before and then even faster and better all the time, that’s what wins, and that’s the core of what we’re focused on, and then people will find the way to get the Google.

    So, yes, partnerships matter. But at the core of it, you need partnership, because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company.

    Google has already been showing concern about losing Mozilla. It definitely matters. Google has been trying to get people to switch back with messages like this:

    And one on the Google homepage in the Firefox browser, which says, “Get to Google faster. Make Google your default engine.”

    Yahoo also reported its earnings this week, and Mayer talked more about her company’s deal with Mozilla. She appears to be quite excited about it, and is clearly thirsty for a similar partnership with Apple to replace Google as the default experience in Safari. Whether or not that happens remains to be seen. Microsoft and Google both want that too.

    Last week, Merkle | RKG released its Digital Marketing Report for Q4 2014, which looked at the impact of the Yahoo/Mozilla deal on paid search.

    “We’re now able to assess the impact of the deal on Yahoo’s share of Firefox paid search traffic, which grew from 12% at the beginning of December to 30% by the end of the year,” the report said. “However, digging deeper reveals that Yahoo’s share of Firefox 34 paid clicks has been in decline ever since the first big wave of updates in the second week of December. While the initial rollout saw Yahoo’s share rise to a peak of 43% on December 10th, that figure was just 36% by December’s end.”

    “This is primarily the result of users switching the default search engine of their browsers back to Google, as shown by the corresponding increase in Google’s share of Firefox 34 paid clicks throughout the month of December,” it added. “All in all, it appears the deal will move about 2% or less of total paid search traffic from Google to Yahoo. This is far less than the 10%+ of paid traffic that stands to be on the table if Safari default search were to change hands, which news outlets have reported is a possibility in 2015.”

    According to that report, Bing and Yahoo outpaced Google in paid search growth, not only because of the Yahoo Firefox deal, but also rapid growth from Bing Product Ads.

    Here’s Google’s full earnings release:

    MOUNTAIN VIEW, Calif. – January 29, 2015 –  Google Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter and fiscal year ended December 31, 2014.

    “Google’s full year revenue for 2014 was $66 billion, up 19% year on year,” said Patrick Pichette, CFO of Google, “and this quarter, our revenue was $18.1 billion, despite strong currency headwinds.”

    Q4 Financial Summary

    Google Inc. reported consolidated revenues of $18.10 billion for the quarter ended December 31, 2014, an increase of 15% compared to the fourth quarter of 2013. Google Inc. reports advertising revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the fourth quarter of 2014, TAC totaled $3.62 billion, or 22% of advertising revenues.

    Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.

    • GAAP operating income in the fourth quarter of 2014 was $4.40 billion, or 24% of revenues. This compares to GAAP operating income of $4.43 billion, or 28% of revenues, in the fourth quarter of 2013. Non-GAAP operating income in the fourth quarter of 2014 was $5.60 billion, or 31% of revenues. This compares to non-GAAP operating income of $5.30 billion, or 34% of revenues, in the fourth quarter of 2013.
    • GAAP net income (including net income (loss) from discontinued operations) in the fourth quarter of 2014 was $4.76 billion, compared to $3.38 billion in the fourth quarter of 2013. Non-GAAP net income in the fourth quarter of 2014 was $4.74 billion, compared to $4.57 billion in the fourth quarter of 2013.
    • GAAP EPS (including impact from net income (loss) from discontinued operations) in the fourth quarter of 2014 was $6.91 on 688 million diluted shares outstanding, compared to $4.95 in the fourth quarter of 2013 on 682 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2014 was $6.88, compared to $6.70 in the fourth quarter of 2013.
    • Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense from continuing operations. Non-GAAP net income and non-GAAP EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as net income (loss) from discontinued operations.
    • In the fourth quarter of 2014, the expense related to SBC from continuing operations and the related tax benefits were $1,201 million and $255 million compared to $873 million and $184 million in the fourth quarter of 2013. In addition, net income from discontinued operations in the fourth quarter of 2014 was $967 million, compared to a net loss of $506 million in the fourth quarter of 2013.

    On October 29, 2014, we closed the sale of Motorola Mobile business. Financial results of Motorola Mobile are presented as Net income (loss) from discontinued operations on the Consolidated Statements of Income for the three and twelve months ended December 31, 2013 and 2014 through the date of sale.  The sale resulted in a gain of $740 million, net of tax, which was included in Net income (loss) from discontinued operations on the Consolidated Statements of Income for the three and twelve months ended December 31, 2014.  All references to results of our operations have been retroactively restated for all prior periods to exclude the results from Motorola Mobile.

    On April 2, 2014, we issued shares of Class C capital stock as a dividend to our stockholders. Except for the number of authorized shares and par value, all references to share and per share amounts have been retroactively restated for all prior periods shown to reflect the stock split, which was effected in the form of a stock dividend.

    Q4 Financial Highlights

    Revenues and Monetization – Google Inc. revenues for the quarter ended December 31, 2014 were $18.10 billion, representing a 15% increase over fourth quarter of 2013 revenues of $15.71 billion.

    Sites Revenues – Our sites generated revenues of $12.43 billion, or 69% of total revenues, in the fourth quarter of 2014. This represents an 18% increase over fourth quarter 2013 sites revenues of $10.54 billion.

    Network Revenues – Our partner sites generated revenues of $3.72 billion, or 20% of total revenues, in the fourth quarter of 2014.   This represents a 6% increase over fourth quarter 2013 network revenues of $3.52 billion.

    Other Revenues – Other revenues were $1.95 billion, or 11% of total revenues, in the fourth quarter of 2014.  This represents a 19% increase over fourth quarter 2013 other revenues of $1.65 billion.

    International Revenues – Our revenues from outside of the United States totaled $10.23 billion, representing 56% of total revenues in the fourth quarter of 2014, compared to 58% in the third quarter of 2014 and 56% in the fourth quarter of 2013. Our revenues from the United Kingdom totaled $1.66 billion, representing 9% of total revenues in the fourth quarter of 2014, compared to 10% in the fourth quarter of 2013.

    Foreign Exchange Impact on Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2014 through the fourth quarter of 2014, our revenues in the fourth quarter of 2014 would have been $541 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2013 through the fourth quarter of 2014, our revenues in the fourth quarter of 2014 would have been $616 million higher. In the fourth quarter of 2014, we recognized a benefit of $148 million to revenues through our foreign exchange risk management program, compared to $3 million in the fourth quarter of 2013.

    Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release.

    Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 14% over the fourth quarter of 2013 and increased approximately 11% over the third quarter of 2014. Sites paid clicks, which include clicks related to ads we serve on Google owned and operated properties across different geographies and devices including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance, increased approximately 25% over the fourth quarter of 2013 and increased approximately 18% over the third quarter of 2014. Network paid clicks, which include clicks related to ads served on non-Google properties participating in our AdSense for Search, AdSense for Content, and AdMob businesses, decreased approximately 11% over the fourth quarter of 2013 and decreased approximately 7% over the third quarter of 2014.

    Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 3% over the fourth quarter of 2013 and decreased approximately 3% over the third quarter of 2014. Cost-per-click for Google sites decreased approximately 8% over the fourth quarter of 2013 and decreased approximately 8% over the third quarter of 2014. Network cost-per-click increased approximately 6% over the fourth quarter of 2013 and increased approximately 10% over the third quarter of 2014.

    Traffic Acquisition Costs – Traffic acquisition costs (TAC), the portion of revenues shared with Google’s partners, increased to $3.62 billion in the fourth quarter of 2014, compared to $3.31 billion in the fourth quarter of 2013. TAC as a percentage of advertising revenues was 22% in the fourth quarter of 2014, compared to 24% in the fourth quarter of 2013.

    The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.66 billion in the fourth quarter of 2014. TAC also includes amounts paid to our distribution partners who distribute our browser or otherwise direct search queries to our website, which totaled $968 million in the fourth quarter of 2014.

    Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, content acquisition costs,  revenue share payments to mobile carriers and original equipment manufacturers, and hardware inventory costs, increased to $3.30 billion, or 18% of revenues, in the fourth quarter of 2014, compared to $2.94 billion, or 19% of revenues, in the fourth quarter of 2013.

    Operating Expenses – Operating expenses, other than cost of revenues, were $6.78 billion in the fourth quarter of 2014, or 37% of revenues, compared to $5.03 billion in the fourth quarter of 2013, or 32% of revenues.

    Depreciation and Loss on Disposal of Property and Equipment and Amortization Expenses – Depreciation and loss on disposal of property and equipment and amortization and impairment of intangibles and other assets were $1.27 billion for the fourth quarter of 2014, compared to $1.04 billion for the fourth quarter of 2013.

    Stock-Based Compensation (SBC) – In the fourth quarter of 2014, the total charge related to SBC from continuing operations was $1,201 million, compared to $873 million in the fourth quarter of 2013. We currently estimate SBC charges for grants made to employees prior to December 31, 2014 to be approximately $4.30 billion for 2015. This estimate does not include expenses to be recognized related to employee stock awards that are granted after December 31, 2014.

    Operating Income – GAAP operating income in the fourth quarter of 2014 was $4.40 billion, or 24% of revenues. This compares to GAAP operating income of $4.43 billion, or 28% of revenues, in the fourth quarter of 2013. Non-GAAP operating income in the fourth quarter of 2014 was $5.60 billion, or 31% of revenues. This compares to non-GAAP operating income of $5.30 billion, or 34% of revenues, in the fourth quarter of 2013.

    Interest and Other Income, Net – Interest and other income, net, was $128 million in the fourth quarter of 2014, compared to $112 million in the fourth quarter of 2013.

    Income Taxes – Our effective tax rate was 16% for the fourth quarter of 2014.

    Net Income (Loss) from Discontinued Operations – Net income from discontinued operations in the fourth quarter of 2014 was $967 million, compared to a net loss of $506 million in the fourth quarter of 2013. Net income from discontinued operations in the fourth quarter of 2014 includes a gain of $740 million, net of tax, from the sale of Motorola Mobile business.

    Net Income – GAAP consolidated net income in the fourth quarter of 2014 was $4.76 billion, compared to $3.38 billion in the fourth quarter of 2013. Non-GAAP consolidated net income was $4.74 billion in the fourth quarter of 2014, compared to $4.57 billion in the fourth quarter of 2013. GAAP EPS in the fourth quarter of 2014 was $6.91 on 688 million diluted shares outstanding, compared to $4.95 in the fourth quarter of 2013 on 682 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2014 was $6.88, compared to $6.70 in the fourth quarter of 2013.

    Cash Flow and Capital Expenditures – Net cash provided by operating activities in the fourth quarter of 2014 totaled $6.36 billion, compared to $5.24 billion in the fourth quarter of 2013. In the fourth quarter of 2014, capital expenditures were $3.55 billion, the majority of which was for real estate purchases, production equipment, and data center construction. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the fourth quarter of 2014, free cash flow was $2.81 billion compared to $2.98 billion in the fourth quarter of 2013.

    We expect to continue to make significant capital expenditures.

    A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

    Cash – As of December 31, 2014, cash, cash equivalents, and marketable securities were $64.40 billion.

    Headcount – On a worldwide basis, we employed 53,600 full-time employees as of December 31, 2014, compared to 51,564 full-time employees as of September 30, 2014.

    WEBCAST AND CONFERENCE CALL INFORMATION

    A live audio webcast of Google’s fourth quarter and fiscal year 2014 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

    We also announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, on our investor relations website (http://investor.google.com) and our investor relations Google+ page (https://plus.google.com/+GoogleInvestorRelations/posts).

    FORWARD-LOOKING STATEMENTS

    This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our investments in areas of strategic focus, our expected SBC charges, and our plans to make significant capital expenditures. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, unforeseen changes in our hiring patterns and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2013  and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, which are on file with the SEC and are available on our investor relations website at investor.google.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2014.  All information provided in this release and in the attachments is as of January 29, 2015, and we undertake no duty to update this information unless required by law.

    ABOUT NON-GAAP FINANCIAL MEASURES

    To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP EPS, free cash flow, and non-GAAP international revenues. The presentation of this 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 “Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP international revenues to non-GAAP international revenues” included at the end of this release.

    We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, meaning our operating performance excluding not only non-cash charges, such as SBC, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these 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) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

    Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income excluding expenses related to SBC, and, as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. Google considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of SBC, and as applicable, other special items so that Google’s management and investors can compare Google’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Google’s management believes that providing a non-GAAP financial measure that excludes SBC allows investors to make meaningful comparisons between Google’s recurring core business operating results and those of other companies, as well as providing Google’s management with an important tool for financial and operational decision making and for evaluating Google’s own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, SBC, that are recurring. SBC has been and will continue to be for the foreseeable future a significant recurring expense in Google’s business. Second, SBC is an important part of our employees’ compensation. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

    Non-GAAP net income and EPS. We define non-GAAP net income as net income excluding expenses related to SBC and, as applicable, other special items less the related tax effects, as well as net income (loss) from discontinued operations. The tax effects of SBC and, as applicable, other special items are calculated using the tax-deductible portion of SBC, and, as applicable, other special items, and applying the entity-specific, U.S. federal and blended state tax rates.  We define non-GAAP EPS as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that Google uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with SBC and, as applicable, other special items. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Google’s use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.

    Free cash flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the statement of cash flows and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Google has computed free cash flow using the same consistent method from quarter to quarter and year to year.

    Non-GAAP international revenues. We define non-GAAP international revenues as international revenues excluding the impact of foreign exchange rate movements and hedging activities. Non-GAAP international revenues are calculated by translating current quarter revenues using prior quarter and prior year exchange rates, as well as excluding any hedging gains realized in the current quarter. We consider non-GAAP international revenues as a useful metric as it facilitates management’s internal comparison to our historical performance.

    The accompanying tables have more details on the non-GAAP financial measures that are most directly comparable to GAAP financial measures and the related reconciliations between these financial measures.

    Image via Google

  • Facebook Just Said A Lot Of Things About Its Video Growth

    Facebook Just Said A Lot Of Things About Its Video Growth

    Facebook has been touting its major growth in video this month, and that continued on Wednesday afternoon as the company reported its earnings for the fourth quarter and full year 2014. On the company’s earnings call, CEO Mark Zuckerberg revealed that Facebook is, on average, seeing more than 3 billion video views per day. Zuck also shared this nice little graphic on Facebook:

    COO Sheryl Sandberg said on the call (via SeekingAlpha’s transcript):

    Today, over 50% of people in the U.S. who come to Facebook daily watching at least one video per day and globally over 65% of Facebook video views occur on mobile. Marketers have followed this trend and are using video to help people discover and learn about their brands. In Q4, we expanded autoplay video ads internationally. During the holiday season, we saw many clients telling their stories creatively through video.

    CFO Dave Wehner noted that Facebook will be investing more in infrastructure, including data centers, network, and servers to help support video and the company’s Internet.org initiative.

    During the Q&A session, Sandberg was asked about the degree she thinks premium video content is or isn’t necessary to opt into when budgets might have otherwise gone to TV. She responded:

    So on video ads what really matters is that consumers are using video on Facebook, because that gives us an opportunity, one, to provide a great consumer experience, but two, to have ads in ad-tech consumer experience. If the other consumer video on Facebook, video ads and new feed will be very joined, as a percentages of the video you’re seeing, video ads gets nicely into that experience. I think it matters as much what the video content is and so well we are certainly exploring some premium content as he said, we have an Annabelle Verizon test out there in the public ad. We’re already seeing pretty exclusive growth without that kind of premium content in the system in large numbers and so we’ll continue to figure out. We’re certainly open to increasing video content either way. But we haven’t quite figured out what the mix needs to be and right now the growth is very strong.

    Because it provides the kind of sharing people want, people come to Facebook to share with their friends and family but they also come to Facebook to connect with everyone from politicians to journalist to celebrities they want to connect with and get news and we definitely seeing public content grow as a percentage of what people get. We also had some nice wins with the Golden Globe this year other things we are doing to get people doing some partnership we did [indiscernible] with CNBC to show how we can help content creators increased their distribution and reach people directly on Facebook.

    One analyst asked about Facebook’s native videos versus those shared from other third-party players (such as YouTube). Wehner responded:

    This thought that we shared of 3 billion a day is all made on Facebook. So there are probably other shares from other video services as well. But the way that there was looking our services or as if there is links to other sites, and the reason why I think made a video is so valuable for people using our service is that when someone uploads a video to Facebook directly we can optimize how it delivers right. So we can make it autoplay. We can find the right quality and bit rate to send down to the person based on their connection overtime. And optimize all kinds of different things. So what I think people are finding from public figures to everyday videos that people are uploading is that the best experience that you can get is by uploading content native to Facebook, which is, I think the big part of the growth that we seeing there.

    This is all pretty significant to marketers and worth considering in their video strategies. Brands on Facebook are already making more Facebook video posts than YouTube posts now, and these optimization additions Facebook offers will likely contribute to further growth in that trend, which is bad news for YouTube.

    “Since YouTube relies heavily on the traffic Facebook sends to it, Facebook is now keeping that traffic on its own site,” says a spokesperson for SocialBakers, which recently released a report on this subject.

    CNBC shared an interview with Sandberg, in which she talked about video even more. The relevant quotes are as follows:

    Consumer use of video is exploding. From the advertising side, that gives us an opportunity to do more monetization because our ad products always follow our consumer products. When consumers do more video, we have the ability to show more video ads. Video ads are really exciting for marketers because it is a format they are used to and they are very emotionally resonant. So we are seeing pretty broad adoption of video. We are still going to move slowly going forward, but we think there is a lot more we can do to bring video ads to people all over the world…

    We are excited about what video does in terms of its conversion. Conversion for marketers. We also think the format itself really works. You know, if you think back even a year ago on Facebook, most people didn’t see videos on Facebook. And now, video is an increasingly accepted and I think fun part of News Feed. And the same thing is happening with video ads. And I think we are seeing marketers bring real creativity and story telling to the Facebook experience with video ads.

    Read this for some thoughts from a marketing consultant on how Facebook’s video growth should affect your own video strategy.

    Images via Facebook, SocialBakers

  • Yahoo Really Wants That Apple Deal

    Yahoo Really Wants That Apple Deal

    Yahoo made some big waves in late 2014 when it partnered with Mozilla to replace Google as the default search experience in Firefox. Apple’s similar deal with Google is near its expiration, and Yahoo CEO Marissa Mayer seems really interested in that.

    Do you think Apple should drop Google and go with a different search provider like Yahoo or Microsoft? Share your thoughts in the comments.

    Yahoo reported its Q4 earnings on Tuesday. During the conference call, Mayer said this about the Mozilla partnership in her prepared remarks (via SeekingAlpha’s transcript):

    External sources estimate that Mozilla has 3% to 5% of the North American search market. So this is a significant opportunity. We began serving Mozilla partly through December, so we’ve not yet had a complete calendar month of data on the deal but we are already impressed with the volume Mozilla search has brought to our marketplace and the insightfulness and agility of the Mozilla team…Our new partnership with Mozilla gives us reason to be optimistic that search will continue to be a growth story.

    During the question-and-answer session, Mayer was asked about Yahoo’s ongoing search partnership with Microsoft (which she reportedly hates) as well as the company’s new deal with Mozilla to become the default search experience in the Firefox browser. She said the “search alliance” hits the halfway point later in Q1, and that the deal has provisions that allow them to consider adjustments to its relationship with Microsoft. They’re actively exploring options and different models, she said.

    She said:

    On Mozilla overall we haven’t disclosed the financial arrangement between the two companies…it’s about 3% to 5% of the North America search market and overall, the volume’s been fantastic and the teams are just terrific to work with. That said it’s a really significant partnership and will always take time to equilibrate and tune our performance with the Mozilla traffic. And so we are very hopeful about it but at this point really too early to tell.

    There have been reports that Yahoo is also interested in taking Google’s place as the default search experience in Apple’s Safari browser, which would be huge for the company in terms of gaining more significant market share. Apple has in recent years been distancing itself more and more from Google. Mayer was asked about this during the Q&A as well. She said:

    The Safari platform is basically one of the premiere search engine in the world, if not the premiere search engine in the world. We are definitely in the search distribution business. I think we stated that really clearly in the past and I think with Mozilla and also in addition we brought Amazon and eBay onboard with smaller distribution partnerships in Q4, we are in search distribution business and anyone who is in that business needs to be interested in the Safari deal.

    The Safari users are among the most engaged and lucrative users in the world and it’s something that we would really like to be able to provide. We work really closely with Mozilla to ultimately bring to their users an experience that they designed and that they feel really suit those users and we welcome the opportunity with any other partner to do the same, particularly one with Apple’s volume and end user base.

    In other words, yeah, she really wants that deal. Kara Swisher who has covered Yahoo for years probably better than anyone else in the industry, liveblogged the earnings call, and commented, “Mayer appeared to practically salivate at the prospect if Apple throws over Google for someone else. Issue: Microsoft. Another issue: Yahoo search technology would have to be majorly upgraded.”

    In response to another question, Mayer went on to say more about Yahoo as a search partner in response to another question:

    Well certainly on search and across the board we pride ourselves on being the best partner in Silicon Valley. We work across the board with Google, Microsoft, Apple, Facebook, Twitter, we have different Samsung, we have different partnerships with all of these different providers and it’s not easy, they can’t look at each other but we work well with them.

    She said the reason they work so well is because of how flexible Yahoo is.

    In 2014, things started to get really interesting for Yahoo’s search business for the first time in a long time. 2015 may just shape up to be a major comeback year for the company on that front.

    Google is already showing concern about Yahoo’s place in Firefox. If Yahoo scores the Safari deal, it’s going to be a whole new ballgame.

    Google has been trying to get people to switch back with messages like this:

    And one on the Google homepage in the Firefox browser, which says, “Get to Google faster. Make Google your default engine.”

    Google also reported its earnings this week, and also discussed Yahoo’s deal with Mozilla a little. CFO Patrick Pichette said (via Seeking Alpha’s transcript):

    You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

    And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them….partnerships matter. But at the core of it, you need partnership, because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company.

    Last week, Merkle | RKG released its Digital Marketing Report for Q4 2014, which looked at the impact of the Yahoo/Mozilla deal on paid search.

    “We’re now able to assess the impact of the deal on Yahoo’s share of Firefox paid search traffic, which grew from 12% at the beginning of December to 30% by the end of the year,” the report said. “However, digging deeper reveals that Yahoo’s share of Firefox 34 paid clicks has been in decline ever since the first big wave of updates in the second week of December. While the initial rollout saw Yahoo’s share rise to a peak of 43% on December 10th, that figure was just 36% by December’s end.”

    “This is primarily the result of users switching the default search engine of their browsers back to Google, as shown by the corresponding increase in Google’s share of Firefox 34 paid clicks throughout the month of December,” it added. “All in all, it appears the deal will move about 2% or less of total paid search traffic from Google to Yahoo. This is far less than the 10%+ of paid traffic that stands to be on the table if Safari default search were to change hands, which news outlets have reported is a possibility in 2015.”

    According to that report, Bing and Yahoo outpaced Google in paid search growth, not only because of the Yahoo Firefox deal, but also rapid growth from Bing Product Ads.

    Do you think Google is in danger of losing any significant amount of market share? Do you think Apple will drop Google? Would it go with Yahoo? Tell us what you think.

    Note: This article has been updated from a previous version to include additional information.

    Image via Wikimedia Commons

  • Netflix Wants to Take Over the World by 2017

    Netflix Wants to Take Over the World by 2017

    By 2017, Netflix thinks it can complete its global expansion and be in 200 countries around the world.

    That’s the lofty goal outlined by CEO Reed Hastings and CFO David Wells in the company’s latest letter to shareholders. The company just reported its Q4 2014 earnings, posting a record 13 million new members (up to 57.4 million total) and $1.305 billion in revenue from its streaming service. Of that, Netflix was able to net $83 million, an increase from $48 million year-over-year.

    “Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected. We then intend to generate material global profits from 2017 onwards,” says Hastings.

    “We already offer Netflix in about 50 countries and have learned a great deal about the content people prefer, the marketing they respond to and how to best organize ourselves for steady improvement. Acceleration to 200 countries is largely made possible by the tremendous growth of the Internet in general, including on phones, tablets and smart TVs. We intend to stick to our core ad-free subscription model. As with our initial round of international expansion, we’ll get some things wrong and do our best to fix them quickly.”

    In 2014, Netflix launched in France, Germany, Austria, Switzerland, and Belgium. Soon it’ll finally come to Australia and New Zealand.

    Netflix knows that expansion into some countries will be much easier than to others, but the company is ambitious – even discussing how and to what degree it could find itself operating in China.

    “For most countries we have a good idea of the best approach for Netflix to take. For China, we are still exploring options — all of them modest. We’ll learn a great deal if we can successfully operate a small service in China centered on our original and other globally-licensed content. That is our preference, for the next few years, if we are able to acquire the necessary permissions,” says the letter.

    For Netflix, the benefit of rapid global expansion is threefold.

    “It is advantageous for Netflix to become global in many ways. The big one is absolute size (faster to $10B in revenue) because that revenue allows us to develop and license more content for our members and improve our service. A second is being able to source great stories from around the world and deliver them to the world. A third is the efficiency and influence of being a unique global licensor that provides worldwide distribution.”

    Speaking of content, Netflix says it plans to debut 320 hours of its own content this year. Over the next few years, Netflix says it’ll continue to spend more and more on original content.

  • Google’s Susan Wojcicki Joins Salesforce Board

    Google’s Susan Wojcicki Joins Salesforce Board

    Salesforce announced it has appointed YouTube CEO Susan Wojcicki to its Board of Directors. Her role went into effect on December 5, and increases the board size to 11 members.

    “We are delighted that Susan has joined our Board of Directors,” said Salesforce CEO Marc Benioff. “Susan is an extraordinary executive who has been instrumental in helping to build the world’s largest consumer cloud company, where scale, reliability and security are of critical importance. Her experience will make her an outstanding addition to our board.”

    “Salesforce has revolutionized enterprise software and has an amazing culture of innovation,” said Wojcicki. “I’m very excited to be joining the Salesforce Board of Directors.”

    The full board is now as follows: Marc Benioff, Salesforce chairman and CEO; Keith Block, Salesforce vice chairman and president; Craig Conway, former CEO of PeopleSoft; Alan Hassenfeld, former chairman and CEO of Hasbro; General Colin Powell, retired four star general in the U.S. Army and former U.S. Secretary of State, U.S. National Security Advisor and Chairman of the Joint Chiefs of Staff; Sanford Robertson, principal of Francisco Partners; John Roos, former U.S. Ambassador to Japan; Lawrence Tomlinson, former senior vice president and treasurer of Hewlett-Packard; Robin Washington, CFO of Gilead Sciences; Maynard Webb, chairman of Yahoo! Inc.; and Susan Wojcicki, CEO of YouTube.

    General Powell was named to the board in March. More on that here.

    Wojcicki took the YouTube CEO role earlier this year. Before that, she was senior vice president of Advertising & Commerce at Google, where she oversaw the design and engineering of AdWords, AdSense, DoubleClick, and Google Analytics. She’s been with the company since 1999.

    Image via Google+

  • Twitter Regretting Not Getting That Google Deal Done?

    Twitter Regretting Not Getting That Google Deal Done?

    Remember the days when you could search for something that was in the news on Google and get a set of realtime search results comprised mainly (but not solely) of updates from Twitter? It was a helpful feature that let you get a glance at what people were saying about a given topic at that moment, and in some cases, provided the absolute most relevant results Google could possibly deliver.

    The realtime search feature went away after Google and Twitter failed to reach an agreement that would have extended the partnership. Twitter continued a similar partnership with Bing, but that just doesn’t get the usage Google does, and it appears now that Twitter may have some regrets about letting that Google deal fall apart.

    This week, Twitter held its Analyst Day event, where it discussed some things it is doing to help promote user growth. One thing it didn’t really go into in its blog post about various projects it’s working on to accomplish that, is trying to get more search traffic. This is something that would obviously come if that deal were still in place. Marketing Land reports:

    During the event this morning, Twitter’s CFO Anthony Noto suggested that Twitter would do more to generate search engine optimization traffic, free traffic from Google and other search engines. It’s something Noto said Twitter hadn’t really done in the past.

    Trevor O’Brien, Twitter’s director of product management, expanded on this later to say that Twitter made a change earlier this year to allow Google and other search engines to crawl its top 50,000 hashtagged search pages, which has generated a 10-fold increase in the number of logged-out people coming to Twitter — helping that figure rise to 75 million per month.

    It’s unclear whether Twitter has approached Google about starting up that deal again, which would actually benefit users to some extent, though it’s hard to say if Google would be interested at this point.

    Truth be told, Google’s feature was never really as helpful for realtime searches as a search directly on Twitter anyway, but again, there are a lot more people using Google in the first place.

    It’s worth noting that Twitter wasn’t a public company that had to worry so much about pleasing investors concerned about user growth when it didn’t renew its deal with Google.

    Image via Twitter

  • Cisco Earnings Released, CFO Out

    Cisco Earnings Released, CFO Out

    Cisco just reported its Q1 earnings for the quarter ended October 25. In a return to growth, the company reported its strongest Q1 revenue ever at $12.2 billion, which is up 1% year-over-year. Earnings per share were $0.35 GAAP and $0.54 non-GAAP.

    Cisco also announced that executive vice president and CFO Frank Calderoni is stepping down at the beginning of the new year, and that it will appoint senior vice president, Business Technology and Operations Finance Kelly A. Kramer to succeed him.

    “We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS,” said Cisco chairman and CEO John Chambers. “We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers’ businesses.”

    Here’s the release in its entirety:

    SAN JOSE, CA — Nov 12, 2014 – Cisco (NASDAQ: CSCO)

    • Q1 Revenue: $12.2 billion (increase of 1% year over year)
    • Q1 Earnings per Share: $0.35 GAAP; $0.54 non-GAAP

    Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 25, 2014. Cisco reported first quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.35 per share, and non-GAAP net income of $2.8 billion or $0.54 per share.

    “We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS,” stated Cisco chairman and CEO John Chambers. “We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers’ businesses.”

    GAAP Results
    Q1 2015 Q1 2014 Vs. Q1 2014
    Revenue $ 12.2 billion $ 12.1 billion 1.3 %
    Net Income $ 1.8 billion $ 2.0 billion (8.4 )%
    Earnings per Share $ 0.35 $ 0.37 (5.4 )%
    Non-GAAP Results
    Q1 2015 Q1 2014 Vs. Q1 2014
    Net Income $ 2.8 billion $ 2.9 billion (2.3 )%
    Earnings per Share $ 0.54 $ 0.53 1.9 %

    A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table following the Consolidated Statements of Operations.

    Cisco will discuss first quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

    CFO Transition
    Frank Calderoni recently notified Cisco of his decision to step down as executive vice president and chief financial officer of Cisco, effective January 1, 2015. Cisco plans to appoint Kelly A. Kramer to succeed Mr. Calderoni. She is currently senior vice president, Business Technology and Operations Finance of Cisco.

    Cash and Cash Equivalents and Investments

    • Cash flows from operations were $2.5 billion for the first quarter of fiscal 2015, compared with $3.6 billion for the fourth quarter of fiscal 2014, and compared with $2.6 billion for the first quarter of fiscal 2014.
    • Cash and cash equivalents and investments were $52.1 billion at the end of the first quarter of fiscal 2015, compared with $52.1 billion at the end of the fourth quarter of fiscal 2014, and compared with $48.2 billion at the end of the first quarter of fiscal 2014.

    Dividends and Stock Repurchase Program

    • During the first quarter of fiscal 2015, Cisco paid a cash dividend of $0.19 per common share, or $973 million.
    • Cisco repurchased approximately 41 million shares of common stock under the stock repurchase program at an average price of $24.58 per share for an aggregate purchase price of $1.0 billion during the first quarter of fiscal 2015. As of October 25, 2014, Cisco had repurchased and retired 4.3 billion shares of Cisco common stock at an average price of $20.66 per share for an aggregate purchase price of approximately $89.5 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.5 billion with no termination date.

    “We had a solid quarter delivering results for Q1 consistent with our expectations,” stated Frank Calderoni, Cisco executive vice president and chief financial officer. “Our strong cash flow, balance sheet, and ongoing commitment to return capital to shareholders demonstrates the strength of our financial strategy.”

    Internet of Everything

    • Cisco unveiled new Cisco® Connected Transportation Solutions designed to offer a safer and more productive commuter experience via the Internet of Everything (IoE).
    • Cisco and the City of Berlin announced an IoE Innovation Center, to be located in Berlin, which will focus on manufacturing, transport and logistics.
    • Marking the next phase of its expansion in India, Cisco unveiled the “Cisco Smart City” as a blueprint for the future of smart and connected communities in India.
    • Cisco announced new Connected Safety and Security solutions that add intelligence and analytics from the core to the edge to help protect cities and businesses.
    • Cisco outlined an expansion of its fog computing strategy with the second phase of its IOx platform for industrial scale Internet of Things (IoT) deployments.
    • Addressing the growing demand for IoE skills, the Cisco Networking Academy announced the first global IoE curriculum.

    Fast IT

    • Cisco broadened its storage networking portfolio to address the massive data growth across small-to cloud-scale storage networks.
    • Cisco introduced innovations to its Unified Computing System™ business, delivering a broader and more powerful portfolio of technologies to help customers capitalize on rapidly changing landscapes in business and IT.
    • Cisco introduced ASA with FirePOWER — the industry’s first threat-focused next-generation firewall.
    • Cisco announced that it has added the support of more than 30 additional companies to its Intercloud ecosystem, expanding the reach of the global Intercloud by 250 additional data centers in 50 countries.
    • Cisco announced that Shell has deployed the Cisco Secure Ops Solution to increase security maturity level by improving its cyber security and risk management while lowering costs of delivery and operations.
    • Cisco expanded its Videoscape™ Virtualized Video Processing solution, the industry’s first fully orchestrated and virtualized solution, to enable faster, cost-effective scaling for multi-screen video workers.

    Innovation

    • Cisco and Red Hat announced a new integrated infrastructure solution for OpenStack-based cloud deployments.
    • Cisco completed the acquisition of Metacloud, Inc. Metacloud’s OpenStack-based cloud platform is expected to help accelerate Cisco’s strategy to build the world’s largest global Intercloud.
    • Cisco completed the acquisition of Memoir Systems enabling the proliferation of affordable, fast memory for existing Cisco switch ASICs and helping advance Cisco’s ASIC innovations necessary to meet next-generation IT requirements.

    Editor’s Notes:

    • Q1 fiscal year 2015 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, November 12, 2014 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
    • Conference call replay will be available from 4:00 p.m. Pacific Time, November 12, 2014 to 11:59 p.m. Pacific Time, on November 19, 2014 at 1-800-835-3804 (United States) or 1-402-280-1654 (international). The replay will also be available via webcast from November 12, 2014 through January 16, 2015 on the Cisco Investor Relations website at http://investor.cisco.com.
    • Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 12, 2014. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

    About Cisco
    Cisco (NASDAQ: CSCO) is the worldwide leader in IT that helps companies seize the opportunities of tomorrow by proving that amazing things can happen when you connect the previously unconnected. For ongoing news, please go to http://thenetwork.cisco.com.

    This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our strategy, our goal to become the #1 IT company, return of capital to shareholders and the ability of our solutions to drive positive outcomes and enable productivity in our customers’ businesses) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including our foundational priorities, and in certain geographical locations; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent report on Form 10-K filed on September 9, 2014. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 25, 2014 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

    This release includes non-GAAP net income, non-GAAP effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow.

    These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

    Cisco believes that the presentation of non-GAAP net income, non-GAAP effective tax rates, and non-GAAP net income per share data, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

    For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, the income tax effects of the foregoing, and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

    Copyright © 2014 Cisco and/or its affiliates. All rights reserved. Cisco, the Cisco logo, Unified Computing System, and Videoscape are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

    CONSOLIDATED STATEMENTS OF OPERATIONS
    (In millions, except per-share amounts)
    (Unaudited)
    Three Months Ended
    October 25,
    2014    		 October 26,
    2013
    REVENUE:
    Product $ 9,435 $ 9,397
    Service 2,810 2,688
    Total revenue 12,245 12,085
    COST OF SALES:
    Product 3,919 3,747
    Service 993 931
    Total cost of sales 4,912 4,678
    GROSS MARGIN 7,333 7,407
    OPERATING EXPENSES:
    Research and development 1,583 1,724
    Sales and marketing 2,515 2,411
    General and administrative 504 515
    Amortization of purchased intangible assets 71 65
    Restructuring and other charges 318 237
    Total operating expenses 4,991 4,952
    OPERATING INCOME 2,342 2,455
    Interest income 179 169
    Interest expense (139 ) (140 )
    Other income (loss), net (22 ) 56
    Interest and other income (loss), net 18 85
    INCOME BEFORE PROVISION FOR INCOME TAXES 2,360 2,540
    Provision for income taxes 532 544
    NET INCOME $ 1,828 $ 1,996
    Net income per share:
    Basic $ 0.36 $ 0.37
    Diluted $ 0.35 $ 0.37
    Shares used in per-share calculation:
    Basic 5,112 5,378
    Diluted 5,156 5,430
    Cash dividends declared per common share $ 0.19 $ 0.17
    RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
    (In millions, except per-share amounts)
    Three Months Ended
    October 25,
    2014    		 October 26,
    2013
    GAAP net income $ 1,828 $ 1,996
    Adjustments to cost of sales:
    Share-based compensation expense 48 43
    Amortization of acquisition-related intangible assets 181 167
    Patent portfolio charge 188 —
    Total adjustments to GAAP cost of sales 417 210
    Adjustments to operating expenses:
    Share-based compensation expense 325 269
    Amortization of acquisition-related intangible assets 71 65
    Acquisition-related/divestiture costs 101 308
    Significant asset impairments and restructurings 318 237
    Total adjustments to GAAP operating expenses 815 879
    Total adjustments to GAAP income before provision for income taxes 1,232 1,089
    Income tax effect of non-GAAP adjustments (258 ) (218 )
    Non-GAAP net income $ 2,802 $ 2,867
    Diluted net income per share:
    GAAP $ 0.35 $ 0.37
    Non-GAAP $ 0.54 $ 0.53
    RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE
    Three Months Ended
    October 25,
    2014    		 October 26,
    2013
    GAAP effective tax rate 22.5 % 21.4 %
    Tax effect of non-GAAP adjustments to net income (0.5 )% (0.4 )%
    Non-GAAP effective tax rate 22.0 % 21.0 %
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In millions)
    (Unaudited)
    October 25,
    2014    		 July 26,
    2014
    ASSETS
    Current assets:
    Cash and cash equivalents $ 4,387 $ 6,726
    Investments 47,720 45,348
    Accounts receivable, net of allowance for doubtful accounts of $276 at October 25, 2014 and $265 at July 26, 2014 4,375 5,157
    Inventories 1,676 1,591
    Financing receivables, net 4,265 4,153
    Deferred tax assets 2,689 2,808
    Other current assets 1,284 1,331
    Total current assets 66,396 67,114
    Property and equipment, net 3,233 3,252
    Financing receivables, net 3,691 3,918
    Goodwill 24,364 24,239
    Purchased intangible assets, net 3,066 3,280
    Other assets 3,228 3,331
    TOTAL ASSETS $ 103,978 $ 105,134
    LIABILITIES AND EQUITY
    Current liabilities:
    Short-term debt $ 1,357 $ 508
    Accounts payable 1,022 1,032
    Income taxes payable 94 159
    Accrued compensation 2,638 3,181
    Deferred revenue 9,449 9,478
    Other current liabilities 5,496 5,451
    Total current liabilities 20,056 19,809
    Long-term debt 19,615 20,401
    Income taxes payable 1,504 1,851
    Deferred revenue 4,295 4,664
    Other long-term liabilities 1,793 1,748
    Total liabilities 47,263 48,473
    Total equity 56,715 56,661
    TOTAL LIABILITIES AND EQUITY $ 103,978 $ 105,134
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In millions)
    (Unaudited)
    Three Months Ended
    October 25,
    2014    		 October 26,
    2013
    Cash flows from operating activities:
    Net income $ 1,828 $ 1,996
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation, amortization, and other 596 591
    Share-based compensation expense 369 309
    Provision for receivables 43 23
    Deferred income taxes 236 130
    Excess tax benefits from share-based compensation (71 ) (55 )
    (Gains) losses on investments and other, net 29 (108 )
    Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
    Accounts receivable 723 361
    Inventories (107 ) 22
    Financing receivables (2 ) (37 )
    Other assets 5 28
    Accounts payable (5 ) (29 )
    Income taxes, net (398 ) (389 )
    Accrued compensation (495 ) (460 )
    Deferred revenue (328 ) (307 )
    Other liabilities 68 574
    Net cash provided by operating activities 2,491 2,649
    Cash flows from investing activities:
    Purchases of investments (9,761 ) (8,835 )
    Proceeds from sales of investments 3,450 4,733
    Proceeds from maturities of investments 3,906 4,058
    Acquisition of businesses, net of cash and cash equivalents acquired (184 ) (2,447 )
    Purchases of investments in privately held companies (50 ) (134 )
    Return of investments in privately held companies 42 33
    Acquisition of property and equipment (285 ) (315 )
    Proceeds from sales of property and equipment 3 156
    Other 2 (4 )
    Net cash used in investing activities (2,877 ) (2,755 )
    Cash flows from financing activities:
    Issuances of common stock 353 444
    Repurchases of common stock – repurchase program (1,088 ) (1,898 )
    Shares repurchased for tax withholdings on vesting of restricted stock units (342 ) (286 )
    Short-term borrowings, original maturities less than 90 days, net (4 ) (2 )
    Issuances of debt — 4
    Repayments of debt (3 ) —
    Excess tax benefits from share-based compensation 71 55
    Dividends paid (973 ) (914 )
    Other 33 32
    Net cash used in financing activities (1,953 ) (2,565 )
    Net decrease in cash and cash equivalents (2,339 ) (2,671 )
    Cash and cash equivalents, beginning of period 6,726 7,925
    Cash and cash equivalents, end of period $ 4,387 $ 5,254
    Supplemental cash flow information:
    Cash paid for interest $ 263 $ 221
    Cash paid for income taxes, net $ 694 $ 803
    CASH AND CASH EQUIVALENTS AND INVESTMENTS
    (In millions)
    October 25,
    2014    		 July 26,
    2014
    Cash and cash equivalents and investments:
    Cash and cash equivalents $ 4,387 $ 6,726
    Fixed income securities 45,923 43,396
    Publicly traded equity securities 1,797 1,952
    Total $ 52,107 $ 52,074
    RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
    TO FREE CASH FLOW (NON-GAAP)
    (In millions)
    Three Months Ended
    October 25,
    2014    		 July 26,
    2014    		 October 26,
    2013
    Net cash provided by operating activities $ 2,491 $ 3,612 $ 2,649
    Acquisition of property and equipment (285 ) (325 ) (315 )
    Free cash flow $ 2,206 $ 3,287 $ 2,334
    DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK
    (In millions, except per-share amounts)
    DIVIDENDS STOCK REPURCHASE PROGRAM TOTAL
    Quarter Ended Per Share Amount Shares Weighted-Average Price per Share Amount Amount
    Fiscal 2015
    October 25, 2014 $ 0.19 $ 973 41 $ 24.58 $ 1,013 $ 1,986
    Fiscal 2014
    July 26, 2014 $ 0.19 $ 974 61 $ 25.11 $ 1,514 $ 2,488
    April 26, 2014 0.19 974 90 $ 22.24 2,005 2,979
    January 25, 2014 0.17 896 185 $ 21.73 4,020 4,916
    October 26, 2013 0.17 914 84 $ 23.65 2,000 2,914
    Total $ 0.72 $ 3,758 420 $ 22.71 $ 9,539 $ 13,297
    ACCOUNTS RECEIVABLE AND DSO
    (In millions, except DSO)
    October 25,
    2014    		 July 26,
    2014    		 October 26,
    2013
    Accounts receivable, net $ 4,375 $ 5,157 $ 5,188
    Days sales outstanding in accounts receivable (DSO) 33 38 39
    INVENTORIES
    (In millions)
    October 25,
    2014    		 July 26,
    2014    		 October 26,
    2013
    Inventories:
    Raw materials $ 173 $ 77 $ 80
    Work in process 3 5 7
    Finished goods:
    Distributor inventory and deferred cost of sales 654 595 619
    Manufactured finished goods 535 606 464
    Total finished goods 1,189 1,201 1,083
    Service-related spares 275 273 257
    Demonstration systems 36 35 39
    Total $ 1,676 $ 1,591 $ 1,466
    INVENTORY TURNS AND RECONCILIATION OF GAAP TO NON-GAAP
    COST OF SALES USED IN INVENTORY TURNS
    (In millions, except annualized inventory turns)
    Three Months Ended
    October 25,
    2014    		 July 26,
    2014    		 October 26,
    2013
    Annualized inventory turns – GAAP 12.0 12.7 12.7
    Cost of sales adjustments (1.0 ) (0.6 ) (0.6 )
    Annualized inventory turns – non-GAAP 11.0 12.1 12.1
    GAAP cost of sales $ 4,912 $ 4,952 $ 4,678
    Cost of sales adjustments:
    Share-based compensation expense (48 ) (49 ) (43 )
    Amortization of acquisition-related intangible assets (181 ) (180 ) (167 )
    Acquisition-related/divestiture costs — (1 ) —
    Patent portfolio charge (188 ) — —
    Non-GAAP cost of sales $ 4,495 $ 4,722 $ 4,468
    DEFERRED REVENUE
    (In millions)
    October 25,
    2014    		 July 26,
    2014    		 October 26,
    2013
    Deferred revenue:
    Service $ 9,029 $ 9,640 $ 8,896
    Product:
    Unrecognized revenue on product shipments and other deferred revenue 4,056 3,924 3,628
    Cash receipts related to unrecognized revenue from two-tier distributors 659 578 683
    Total product deferred revenue 4,715 4,502 4,311
    Total $ 13,744 $ 14,142 $ 13,207
    Reported as:
    Current $ 9,449 $ 9,478 $ 9,212
    Noncurrent 4,295 4,664 3,995
    Total $ 13,744 $ 14,142 $ 13,207
    SUMMARY OF SHARE-BASED COMPENSATION EXPENSE
    (In millions)
    Three Months Ended
    October 25,
    2014    		 October 26,
    2013
    Cost of sales – product $ 11 $ 10
    Cost of sales – service 37 33
    Share-based compensation expense in cost of sales 48 43
    Research and development 119 92
    Sales and marketing 147 123
    General and administrative 59 54
    Restructuring and other charges (4 ) (3 )
    Share-based compensation expense in operating expenses 321 266
    Total share-based compensation expense $ 369 $ 309
    Income tax benefit for share-based compensation $ 94 $ 78


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  • LinkedIn Earnings Released, Revenue Up 45%

    LinkedIn Earnings Released, Revenue Up 45%

    LinkedIn just released its earnings report for the third quarter, posting revenue of $568 million, up 45% year-over-year. Revenue from the U.S. totaled $343 million, and represented 60% of total revenue

    Net loss was $4.3 million, compared to $3.4 million for the third quarter of 2013.

    The company beat analysts’ expectations on EPS of $0.52.

    CEO Jeff Weiner said, “LinkedIn made significant progress against several long-term strategic investments we began this year. During the third quarter, we took meaningful steps in increasing the scale and relevance of job listings, growing the professional publishing platform, and expanding our member network in new geographies and demographics.”

    Here’s the release in its entirety:

    MOUNTAIN VIEW, Calif., Oct. 30, 2014 (GLOBE NEWSWIRE) — LinkedIn Corporation (NYSE:LNKD), the world’s largest professional network on the Internet, with more than 300 million members, reported its quarterly results for the third quarter of 2014:

    • Revenue for the third quarter was $568 million, an increase of 45% compared to $393 million in the third quarter of 2013.
    • Net loss attributable to common stockholders for the third quarter was $(4.3) million, compared to net loss of $(3.4) million for the third quarter of 2013. Non-GAAP net income for the third quarter was $66 million, compared to $47 million for the third quarter of 2013. Non-GAAP measures exclude tax-affected stock-based compensation expense and tax-affected amortization of acquired intangible assets.
    • Adjusted EBITDA for the third quarter was $151 million, or 27% of revenue, compared to $93 million for the third quarter of 2013, or 24% of revenue.
    • GAAP diluted EPS for the third quarter was $(0.03), compared to GAAP diluted EPS of $(0.03) for the third quarter 2013; non-GAAP diluted EPS for the third quarter was $0.52, compared to non-GAAP diluted EPS of $0.39 for the third quarter of 2013.

    “LinkedIn made significant progress against several long-term strategic investments we began this year,” said Jeff Weiner, CEO of LinkedIn. “During the third quarter, we took meaningful steps in increasing the scale and relevance of job listings, growing the professional publishing platform, and expanding our member network in new geographies and demographics.”

    Third Quarter Operating Summary

    • Talent Solutions: Revenue from Talent Solutions products totaled $345 million, an increase of 45% compared to the third quarter of 2013. Talent Solutions revenue represented 61% of total revenue in the third quarter of 2014, compared to 60% of total revenue in the third quarter of 2013.
    • Marketing Solutions: Revenue from Marketing Solutions products totaled $109 million, an increase of 45% compared to the third quarter of 2013. Marketing Solutions revenue represented 19% of total revenue in the third quarter of 2014 and 2013.
    • Premium Subscriptions: Revenue from Premium Subscriptions products totaled $114 million, an increase of 43% compared to the third quarter of 2013. Premium Subscriptions represented 20% of total revenue in the third quarter of 2014 and 2013.

    Revenue from the U.S. totaled $343 million, and represented 60% of total revenue in the third quarter of 2014. Revenue from international markets totaled $225 million, and represented 40% of total revenue in the third quarter of 2014.

    Revenue from the field sales channel totaled $342 million, and represented 60% of total revenue in the third quarter of 2014. Revenue from the online, direct sales channel totaled $227 million, and represented 40% of total revenue in the third quarter of 2014.

    Third Quarter Highlights and Strategic Announcements

    In the third quarter of 2014:

    • LinkedIn increased the scale and relevance of job listings by expanding “Limited Listings” offerings to a broad base of US and global companies. Jobs seekers now have access to nearly two million job listings on LinkedIn, driving strong momentum for the Job Search mobile app.
    • LinkedIn officially launched the all new Sales Navigator to empower sales professionals to establish and grow relationships with prospects and customers. This new stand-alone product experience allows sales professionals to stay updated about key accounts, focus on the right people, and build trusted relationships.
    • LinkedIn announced the acquisition of Bizo, accelerating the ability to develop an end-to-end B2B marketing platform. Building on the success of Sponsored Updates, Bizo’s team and technology will expand LinkedIn’s ability to leverage current content marketing products and offer a wider range of solutions to meet our customers’ marketing objectives.

    “LinkedIn demonstrated strength in the third quarter, leveraging the scale created by our member network to deliver growth across all three product lines,” said Steve Sordello, CFO of LinkedIn. “We continue to make aggressive investments in our member and customer platforms in order to realize our long-term potential.”

    Business Outlook

    LinkedIn is providing guidance for the fourth quarter and full year of 2014:

    • Q4 2014 Guidance: Revenue is expected to range between $600 million and $605 million. Adjusted EBITDA is expected to range between $153 million and $155 million. Non-GAAP EPS is expected to be approximately $0.49. The company expects depreciation of approximately $59 million, amortization of approximately $12 million, stock-based compensation of approximately $96 million, and 127 million fully-diluted weighted shares.
    • Full Year 2014 Guidance: Revenue is expected to range between $2.175 billion and $2.180 billion. Adjusted EBITDA is expected to range between $566 and $568 million. Non-GAAP EPS is expected to be approximately $1.89. The company expects depreciation of approximately $203 million, amortization of approximately $34 million, stock-based compensation of approximately $321 million, and 126 million fully-diluted weighted shares.

    Quarterly Results Webcast and Conference Call

    LinkedIn will host a webcast and conference call to discuss its third quarter 2014 financial results and business outlook today at 2:00 p.m. Pacific Time. Jeff Weiner and Steve Sordello will host the webcast, which can be viewed on the investor relations section of the LinkedIn website at http://investors.linkedin.com/. This call will contain forward-looking statements and other material information regarding the company’s financial and operating results. Following completion of the call, a recorded replay of the webcast will be available on the website.

    Upcoming Events

    Management will participate in upcoming financial Q&A discussions at industry events on November 18th and December 2nd, 2014. LinkedIn will furnish a link to these events on its investor relations website, http://investors.linkedin.com/ for both the live and archived webcasts.

    About LinkedIn

    LinkedIn connects the world’s professionals to make them more productive and successful and transforms the ways companies hire, market and sell. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the world’s first Economic Graph. LinkedIn has more than 300 million members and has offices around the world.

    Non-GAAP Financial Measures

    To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the company uses the following non-GAAP financial measures: adjusted EBITDA, non-GAAP net income, and non-GAAP diluted EPS (collectively the “non-GAAP financial measures”). The presentation of this 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. The company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

    The company excludes the following items from one or more of its non-GAAP measures:

    Stock-based compensation. The company excludes stock-based compensation because it is non-cash in nature and because the company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance and liquidity. The company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements and facilitates comparisons to peer operating results.

    Amortization of acquired intangible assets. The company excludes amortization of acquired intangible assets because it is non-cash in nature and because the company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance and liquidity. In addition, excluding this item from the non-GAAP measures facilitates comparisons to historical operating results and comparisons to peer operating results.

    Accretion of redeemable noncontrolling interest. The accretion of redeemable noncontrolling interest represents the accretion of the company’s redeemable noncontrolling interest to its redemption value. The company excludes the accretion because it is non-cash in nature and because the company believes that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operating performance. In addition, excluding this item from the non-GAAP financial measures facilitates comparisons to historical operating results and comparisons to peer operating results.

    Income tax effects and adjustments. The company adjusts non-GAAP net income by considering the income tax effects of excluding stock-based compensation and the amortization of acquired intangible assets. Beginning in the first quarter of 2014, the company has implemented a non-GAAP tax rate for evaluating its operating performance as well as for planning and forecasting purposes. This projected non-GAAP tax rate eliminates the effects of non-recurring and period specific items, which can vary in size and frequency and does not necessarily reflect our long-term operations. Historically, the company computed a non-GAAP tax rate based on non-GAAP pre-tax income on a quarterly basis. Based on our current forecast, a non-GAAP tax rate of 35% has been applied to our non-GAAP financial results for the current period. The company believes that adjusting for these income tax effects and adjustments provides additional transparency to the overall or “after tax” effects of excluding these items from non-GAAP net income.

    Dilutive shares under the treasury stock method. During periods with a net loss, the company excluded certain potential common shares from its GAAP diluted shares because their effect would have been anti-dilutive. On a non-GAAP basis, these shares would have been dilutive. As a result, the company has included the impact of these shares in the calculation of its non-GAAP diluted net income per share under the treasury stock method.

    For more information on the non-GAAP financial measures, please see the “Reconciliation of GAAP to Non-GAAP Financial Measures” table in this press release. This accompanying table has more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures. Additionally, the company has not reconciled adjusted EBITDA or non-GAAP EPS guidance to net income (loss) or GAAP EPS guidance because it does not provide guidance for either other income (expense), net, or GAAP provision for income taxes, which are reconciling items between net income (loss) and adjusted EBITDA and non-GAAP EPS. As items that impact net income (loss) are out of the company’s control and/or cannot be reasonably predicted, the company is unable to provide such guidance. Accordingly, a reconciliation to net income (loss) is not available without unreasonable effort.

    Safe Harbor Statement

    “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release and the accompanying conference call contain forward-looking statements about our products, including our investments in products, technology and other key strategic areas, certain non-financial metrics, such as customer and member growth and engagement, and our expected financial metrics such as revenue, adjusted EBITDA, non-GAAP EPS, depreciation and amortization, stock-based compensation and fully-diluted weighted shares for the fourth quarter of 2014 and the full fiscal year 2014. The achievement of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any of these risks or uncertainties materialize or if any of the assumptions prove incorrect, the company’s results could differ materially from the results expressed or implied by the forward-looking statements the company makes.

    The risks and uncertainties referred to above include – but are not limited to – risks associated with: our limited operating history in a new and unproven market; engagement of our members; the price volatility of our Class A common stock; general economic conditions; expectations regarding the return on our strategic investments; execution of our plans and strategies, including with respect to mobile products and features; security measures and the risk that they may not be sufficient to secure our member data adequately or that we are subject to attacks that degrade or deny the ability of members to access our solutions; expectations regarding our ability to timely and effectively scale and adapt existing technology and network infrastructure to ensure that our solutions are accessible at all times with short or no perceptible load times; our ability to maintain our rate of revenue growth and manage our expenses and investment plans; our ability to accurately track our key metrics internally; members and customers curtailing or ceasing to use our solutions; our core value of putting members first, which may conflict with the short-term interests of the business; privacy and changes in regulations, which could impact our ability to serve our members or curtail our monetization efforts; litigation and regulatory issues; increasing competition; our ability to manage our growth; our international operations; our ability to recruit and retain our employees; the application of U.S. and international tax laws on our tax structure and any changes to such tax laws; acquisitions we have made or may make in the future; and the dual class structure of our common stock.

    Further information on these and other factors that could affect the company’s financial results is included in filings it makes with the Securities and Exchange Commission from time to time, including the section entitled “Risk Factors” in the company’s Annual Report on Form 10-K for the year ended December 31, 2013, and additional information will also be set forth in our Form 10-Q that will be filed for the quarter ended September 30, 2014, which should be read in conjunction with these financial results. These documents are or will be available on the SEC Filings section of the Investor Relations page of the company’s website athttp://investors.linkedin.com/. All information provided in this release and in the attachments is as of October 30, 2014, and LinkedIn undertakes no duty to update this information.

    LINKEDIN CORPORATION
    TRENDED CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands)
    (Unaudited)
    As of
    September 30,
    2013    		 December 31,
    2013    		 March 31,
    2014    		 June 30,
    2014    		 September 30,
    2014
    ASSETS
    CURRENT ASSETS:
    Cash and cash equivalents  $ 1,396,292  $ 803,089  $ 508,850  $ 645,092  $ 526,837
    Marketable securities 875,993 1,526,212 1,797,373 1,721,847 1,736,958
    Accounts receivable 208,956 302,168 328,661 347,152 344,773
    Deferred commissions 28,507 47,496 46,575 45,941 40,810
    Prepaid expenses 33,831 32,114 47,513 49,503 55,571
    Other current assets 28,259 44,391 50,933 61,042 79,795
    Total current assets 2,571,838 2,755,470 2,779,905 2,870,577 2,784,744
    Property and equipment, net 336,656 361,741 406,543 476,058 557,017
    Goodwill 150,831 150,871 228,893 228,943 356,369
    Intangible assets, net 43,209 43,046 101,597 99,175 140,802
    Other assets 41,744 41,665 44,931 46,133 67,080
    TOTAL ASSETS  $ 3,144,278  $ 3,352,793  $ 3,561,869  $ 3,720,886  $ 3,906,012
    LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
    CURRENT LIABILITIES:
    Accounts payable  $ 70,340  $ 66,744  $ 79,711  $ 90,728  $ 106,658
    Accrued liabilities 139,898 183,004 142,141 164,051 188,983
    Deferred revenue 335,700 392,243 479,576 481,450 463,576
    Total current liabilities 545,938 641,991 701,428 736,229 759,217
    DEFERRED TAX LIABILITIES 15,861 14,879 23,900 24,088 41,327
    OTHER LONG TERM LIABILITIES 51,347 61,529 70,226 80,298 105,043
    Total liabilities 613,146 718,399 795,554 840,615 905,587
    COMMITMENTS AND CONTINGENCIES
    REDEEMABLE NONCONTROLLING INTEREST — 5,000 5,126 5,226 5,327
    STOCKHOLDERS’ EQUITY:
    Class A and Class B common stock 12 12 12 12 12
    Additional paid-in capital 2,478,813 2,573,449 2,718,321 2,833,030 2,957,524
    Accumulated other comprehensive income (loss) 470 314 682 863 685
    Accumulated earnings 51,837 55,619 42,174 41,140 36,877
    Total stockholders’ equity 2,531,132 2,629,394 2,761,189 2,875,045 2,995,098
    TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY  $ 3,144,278  $ 3,352,793  $ 3,561,869  $ 3,720,886  $ 3,906,012
    LINKEDIN CORPORATION
    TRENDED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share data)
    (Unaudited)
    Three Months Ended
    September 30,
    2013    		 December 31,
    2013    		 March 31,
    2014    		 June 30,
    2014    		 September 30,
    2014
    Net revenue  $ 392,960  $ 447,219  $ 473,193  $ 533,877  $ 568,265
    Costs and expenses:
    Cost of revenue (exclusive of depreciation and amortization shown separately below) 53,395 57,865 62,455 69,536 74,904
    Sales and marketing 133,172 157,235 166,522 184,494 199,168
    Product development 106,223 113,140 120,622 128,731 136,542
    General and administrative 61,767 64,790 74,618 80,688 89,266
    Depreciation and amortization 33,767 42,750 49,740 56,306 59,782
    Total costs and expenses 388,324 435,780 473,957 519,755 559,662
    Income (loss) from operations 4,636 11,439 (764) 14,122 8,603
    Other income, net 156 1,820 1,026 1,197 152
    Income before income taxes 4,792 13,259 262 15,319 8,755
    Provision for income taxes 8,155 9,477 13,581 16,253 12,917
    Net income (loss) (3,363) 3,782 (13,319) (934) (4,162)
    Accretion of redeemable noncontrolling interest — — (126) (100) (101)
    Net income (loss) attributable to common stockholders (3,363) 3,782 (13,445) (1,034) (4,263)
    Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
    Basic  $ (0.03)  $ 0.03  $ (0.11)  $ (0.01)  $ (0.03)
    Diluted  $ (0.03)  $ 0.03  $ (0.11)  $ (0.01)  $ (0.03)
    Net income (loss) per share attributable to common stockholders:
    Basic 113,940 119,849 120,967 122,170 123,427
    Diluted 113,940 124,438 120,967 122,170 123,427
    LINKEDIN CORPORATION
    TRENDED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In thousands)
    (Unaudited)
    Three Months Ended
    September 30,
    2013    		 December 31,
    2013    		 March 31,
    2014    		 June 30,
    2014    		 September 30,
    2014
    OPERATING ACTIVITIES:
    Net income (loss)  $ (3,363)  $ 3,782  $ (13,319)  $ (934)  $ (4,162)
    Adjustments to reconcile net income (loss) to net cash provided by operating activities:
    Depreciation and amortization 33,767 42,750 49,740 56,306 59,782
    Provision for doubtful accounts and sales returns 568 1,254 1,207 4,118 3,805
    Stock-based compensation 54,445 57,177 67,769 74,828 82,910
    Excess income tax benefit from stock-based compensation (10,188) (16,008) (15,982) (18,639) (13,114)
    Changes in operating assets and liabilities:
    Accounts receivable (7,719) (94,627) (26,764) (23,462) 15,657
    Deferred commissions 1,236 (20,028) 1,116 712 4,836
    Prepaid expenses and other assets 3,707 2,926 (11,742) (4,455) (12,148)
    Accounts payable and other liabilities 49,591 44,307 (18,428) 24,726 54,017
    Income taxes, net (531) 4,377 7,928 13,362 8,248
    Deferred revenue 4,513 56,543 87,333 1,874 (18,605)
    Net cash provided by operating activities 126,026 82,453 128,858 128,436 181,226
    INVESTING ACTIVITIES:
    Purchases of property and equipment (83,158) (57,394) (88,871) (96,430) (120,721)
    Purchases of investments (385,517) (851,312) (737,739) (649,803) (501,074)
    Sales of investments 34,937 68,547 72,239 117,359 53,511
    Maturities of investments 83,652 129,646 393,044 604,231 429,641
    Payments for intangible assets and acquisitions, net of cash acquired (8,756) (3,894) (85,061) (4,800) (160,894)
    Changes in deposits and restricted cash (1,355) (6) (1,404) (3,357) (20,504)
    Net cash used in investing activities (360,197) (714,413) (447,792) (32,800) (320,041)
    FINANCING ACTIVITIES:
    Proceeds from follow-on offering, net of issuance costs 1,348,419 (360) — — —
    Proceeds from issuance of preferred shares in joint venture — 4,600 — — —
    Proceeds from issuance of common stock from employee stock options 7,408 5,678 8,147 4,759 13,649
    Proceeds from issuance of common stock from employee stock purchase plan — 13,089 — 16,324 —
    Excess income tax benefit from stock-based compensation 10,188 16,008 15,982 18,639 13,114
    Other financing activities (2) (419) (7) 31 (1,899)
    Net cash provided by financing activities 1,366,013 38,596 24,122 39,753 24,864
    EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,780 161 573 853 (4,304)
    CHANGE IN CASH AND CASH EQUIVALENTS 1,133,622 (593,203) (294,239) 136,242 (118,255)
    CASH AND CASH EQUIVALENTS—Beginning of period 262,670 1,396,292 803,089 508,850 645,092
    CASH AND CASH EQUIVALENTS—End of period  $ 1,396,292  $ 803,089  $ 508,850  $ 645,092  $ 526,837
    LINKEDIN CORPORATION
    TRENDED SUPPLEMENTAL REVENUE INFORMATION
    (In thousands)
    (Unaudited)
    Three Months Ended
    September 30,
    2013    		 December 31,
    2013    		 March 31,
    2014    		 June 30,
    2014    		 September 30,
    2014
    Revenue by product:
    Talent Solutions  $ 237,668  $ 261,359  $ 291,594  $ 322,227  $ 344,568
    Marketing Solutions 75,510 97,732 86,064 106,476 109,231
    Premium Subscriptions 79,782 88,128 95,535 105,174 114,466
    Total  $ 392,960  $ 447,219  $ 473,193  $ 533,877  $ 568,265
    Revenue by geographic region:
    United States  $ 245,302  $ 271,140  $ 284,878  $ 317,774  $ 343,132
    International
    Other Americas (1) 27,027 31,612 31,904 35,527 36,538
    EMEA (2) 90,087 108,309 117,871 134,930 139,702
    APAC (3) 30,544 36,158 38,540 45,646 48,893
    Total International revenue 147,658 176,079 188,315 216,103 225,133
    Total revenue  $ 392,960  $ 447,219  $ 473,193  $ 533,877  $ 568,265
    Revenue by geography, by product:
    United States
    Talent Solutions  $ 152,371  $ 164,207  $ 180,403  $ 197,852  $ 208,635
    Marketing Solutions 45,789 55,269 49,038 59,383 68,767
    Premium Subscriptions 47,142 51,664 55,437 60,539 65,730
    Total United States revenue  $ 245,302  $ 271,140  $ 284,878  $ 317,774  $ 343,132
    International
    Talent Solutions 85,297 97,152 111,191 124,375 135,933
    Marketing Solutions 29,721 42,463 37,026 47,093 40,464
    Premium Subscriptions 32,640 36,464 40,098 44,635 48,736
    Total International revenue  $ 147,658  $ 176,079  $ 188,315  $ 216,103  $ 225,133
    Total revenue  $ 392,960  $ 447,219  $ 473,193  $ 533,877  $ 568,265
    Revenue by channel:
    Field sales  $ 227,588  $ 270,672  $ 275,262  $ 318,984  $ 341,691
    Online sales 165,372 176,547 197,931 214,893 226,574
    Total  $ 392,960  $ 447,219  $ 473,193  $ 533,877  $ 568,265
    ______________
    (1) Canada, Latin America and South America
    (2) Europe, the Middle East and Africa (“EMEA”)
    (3) Asia-Pacific (“APAC”)
    LINKEDIN CORPORATION
    TRENDED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
    (In thousands, except per share data)
    (Unaudited)
    Three Months Ended
    September 30,
    2013    		 December 31,
    2013    		 March 31,
    2014    		 June 30,
    2014    		 September 30,
    2014
    Non-GAAP net income and net income per share:
    GAAP net income (loss) attributable to common stockholders  $ (3,363)  $ 3,782  $ (13,445)  $ (1,034)  $ (4,263)
    Add back: accretion of redeemable noncontrolling interest — — 126 100 101
    Add back: stock-based compensation 54,445 57,177 67,769 74,828 82,910
    Add back: amortization of intangible assets 3,832 4,056 4,813 7,224 9,986
    Income tax effects and adjustments (1) (8,120) (16,776) (11,914) (17,827) (22,661)
    NON-GAAP NET INCOME  $ 46,794  $ 48,239  $ 47,349  $ 63,291  $ 66,073
    GAAP diluted shares 113,940 124,438 120,967 122,170 123,427
    Add back: dilutive shares under the treasury stock method 5,248 — 3,884 3,087 3,046
    NON-GAAP DILUTED SHARES 119,188 124,438 124,851 125,257 126,473
    NON-GAAP DILUTED NET INCOME PER SHARE  $ 0.39  $ 0.39  $ 0.38  $ 0.51  $ 0.52
    Adjusted EBITDA:
    Net income (loss)  $ (3,363)  $ 3,782  $ (13,319)  $ (934)  $ (4,162)
    Provision for income taxes 8,155 9,477 13,581 16,253 12,917
    Other (income) expense, net (156) (1,820) (1,026) (1,197) (152)
    Depreciation and amortization 33,767 42,750 49,740 56,306 59,782
    Stock-based compensation 54,445 57,177 67,769 74,828 82,910
    ADJUSTED EBITDA  $ 92,848  $ 111,366  $ 116,745  $ 145,256  $ 151,295
    ______________
    (1) Excludes accretion of redeemable noncontrolling interest

     
    Image via LinkedIn

  • Google Makes Some Changes To Its Corporate Structure

    Google Makes Some Changes To Its Corporate Structure

    Google is making changes to the way it functions internally from a corporate structure standpoint. At the end of the week last week, Re/code reported on an internal memo CEO Larry Page sent to staff detailing some of the changes.

    The biggest change is that Sundar Pichai, who has been heading Android and Chrome, is taking over leadership of the company’s core products, reporting to Page. He’s basically becoming Page’s right-hand man from the sound of it, and freeing Page up from having to directly deal with everything himself. Pichai will focus on product, while Page focuses on business.

    On Monday, The Wall Street Journal shared some actual excerpts form the memo. One says:

    “In terms of management meetings, we’re going to simplify things too, taking our current main management meeting and splitting it into more focused parts. Sundar will run… product-centric meetings with real focus on excellence. I will run a more business-centric meeting with our functional leaders and Sundar, drilling into sales, partnerships and deals as well as any important legal, finance, HR, government relations or PR issues.”

    Another:

    “Our previous structure with multiple different product areas all reporting to me is relatively unorthodox. In principle that’s good because we are not a conventional company and do not intend to become one. But it’s hard to scale as many decisions ended up coming through me. Our new approach is a more common corporate structure … scalable, focused and enables fast decision making. That’s what we need right now for Google to stay innovative, maintain our velocity and build truly excellent products.”

    Roles of co-founder Sergey Brin, CFO Patrick Pichette, and Chief Legal Officer David Drummond will reportedly remain unchanged. Executive chairman Eric Schmidt was not even mentioned in the report.

    Page will reportedly work on business issues with Chief Business Officer Omid Kordestani, who recently replaced Nikesh Arora. Page will also focus more of his time on Google’s access and energy initiatives.

    Image via YouTube

  • Yahoo Is Doing Better In Search Than Display

    Yahoo Is Doing Better In Search Than Display

    Yahoo came out swinging with its third quarter earnings report and conference call on Tuesday, posting solid results ahead of analysts’ estimates. One particularly noteworthy takeaway was that the company’s search advertising business brought in more money than its display business. This is the first time this has happened since Marissa Mayer took over as CEO.

    Search revenue excluding traffic acquisition costs was $450 million, up 6%. Paid clicks were flat year-over-year, but price per click increased about 17%.

    “This quarter represents our 11th quarter of search revenue growth year-over-year on a revenue ex-TAC basis,” Mayer said during the company’s earnings call. “Our price-per-click is up in almost all regions as 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.”

    Display revenue excluding traffic acquisition costs was $396 million, down 6%. The number of ads sold did increase about 24%, but price-per-ad decreased about 24% at the same time.

    Meanwhile, Yahoo’s native ads have experienced triple-digit year-over-year growth.

    During the Q&A portion of the call, Yahoo was asked how search compares to display specifically on mobile.

    CFO Kenneth Goldman responded, “The search is somewhat higher than display. We don’t give the exact breakout, maybe we’ll in the future. But in search it’s also growing a little bit faster as well than display year-over-year.”

    Mayer 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.

    Mayer was also asked about its relationship with MIicrosoft in terms of whether it’s wrong to think of Yahoo as a distributor of Microsoft search. She basically sidestepped that one. It’s no secret that she’d not a fan of the arrangement.

    The subject came up again later in the call, and she offered, “I think on a whole we’re very bullish on search. It’s always been part of the Yahoo! We like where it’s going in future of mobile. We think it’s a right area for innovation and is an area that we have been investing in. We are coming to the mid-point of the ten-year agreement and we may want to contemplate changes on both sides. So Microsoft has some right to that point so do we. And we are working through this with Microsoft.”

    Image via Tumblr

  • Kim Kardashian Turns 34, Having A Good Year So Far

    Kim Kardashian Turns 34, Having A Good Year So Far

    October 21 marked reality TV queen Kim Kardashian’s 34th birthday, and the star has much to celebrate for this year with her marriage to Kanye West, introducing baby North to the public, and the launch of a successful app. Different entertainment media are paying tribute to Kardashian with features about such topics as the milestones in her life and the best looks she wore.

    RadarOnline.com lists the highlights of this year for Kardashian. Since proposing to Kardashian on October 21, 2013 at AT&T Park, Kanye West and his wife have been a powerhouse, gracing the cover of Vogue earlier this year before getting married in February in Italy. West had never been married before, while West is Kardashian’s second husband, after her short-lived marriage to basketball player Kris Humphries.

    Kardashian has been bringing her daughter North out more this year, even to the front row of Paris Fashion Week. Kardashian has reportedly been making the most of her mother and daughter experiences by dressing North up in matching clothes with hers.

     

     

    Kardashian has also released a successful iPhone app for which she was reportedly paid $200 million. She is apparently planning to publish a book of her selfies as well.

    Meanwhile, E! Online is listing Kardashian’s best looks in fashion to celebrate the reality star’s birthday. Their list includes a monochromatic dress with geometric bodice that Kardashian wore in New York last month. Also included was a silk chiffon Marchesa with gold embroidered neckline that she donned in 2010.

    Kardashian again exercised her power as style icon at a party she attended on Monday night, October 20, for the Vogue fashion fund. She paired a white polo neck top with a white pencil skirt, an ensemble that accentuated her figure. Earlier that day, she wore another ribbed knitted pencil skirt with a clinging gray top on a trip to her family’s office in Los Angeles.

  • Yahoo Earnings Released, Revenue $1.09 Billion

    Yahoo Earnings Released, Revenue $1.09 Billion

    Yahoo just released its earnings report for the third quarter. Revenue was $1.09 billion with earnings per share at $0.52. The company’s results were well above Wall Street expectations.

    “We had a good, solid third quarter. We delivered $1.094 billion in revenue ex-TAC and $1.148 billion in GAAP revenue,” said CEO Marissa Mayer. “This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue. We achieved this revenue growth through strong growth in our new areas of investment – mobile, social, native and video – despite industry headwinds in some of our large, legacy businesses.”

    “I am also pleased to report today that our revenue in mobile is now material,” she added. “In Q3, we saw mobile revenues in excess of $200 million on a GAAP basis. Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year. We have invested deeply in mobile and we are seeing those investments pay off. Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo.”

    On the search front, GAAP revenue was $452 million, up 4% year-over-year. Search revenue excluding traffic acquisition costs was $450 million, up 6%. Paid clicks were flat year-over-year, but price per click increased about 17%.

    Display revenue (GAAP) dropped 5% to $477 million. Display revenue ex-TAC was $396 million, down 6%. Still the number of ads sold increased about 24%. Price-per-ad decreased about 24%.

    Some Tumblr numbers:

    Here’s the release in its entirety:

    SUNNYVALE, Calif.–(BUSINESS WIRE)– Yahoo! Inc. (NASDAQ: YHOO) today reported results for the quarter ended September 30, 2014.

    Q3 2013 Q3 2014 Percent
    Change
    GAAP revenue $1,139 million $1,148 million 1%
    Revenue ex-TAC $1,081 million $1,094 million 1%
    GAAP income from operations $93 million $42 million (55)%
    Non-GAAP income from operations $173 million $156 million (10)%
    GAAP net earnings per diluted share $0.28 $6.70 N/M
    Non-GAAP net earnings per diluted share $0.34 $0.52 52%

    N/M – Not meaningful

    “We had a good, solid third quarter. We delivered $1.094 billion in revenue ex-TAC and$1.148 billion in GAAP revenue. This represents 1% growth in revenue ex-TAC and 1% growth in GAAP revenue. We achieved this revenue growth through strong growth in our new areas of investment – mobile, social, native and video – despite industry headwinds in some of our large, legacy businesses,” said Marissa Mayer, CEO of Yahoo. “I am also pleased to report today that our revenue in mobile is now material. In Q3, we saw mobile revenues in excess of $200 million on a GAAP basis. Further, we estimate that our gross revenues in mobile will exceed $1.2 billion in revenue this year. We have invested deeply in mobile and we are seeing those investments pay off. Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo.”

    GAAP revenue was $1,148 million for the third quarter of 2014, a 1 percent increase from the third quarter of 2013. Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,094 million for the third quarter of 2014, a 1 percent increase compared to the third quarter of 2013.

    GAAP income from operations was $42 million for the third quarter of 2014, a 55 percent decrease from the third quarter of 2013. Non-GAAP income from operations was $156 million for the third quarter of 2014, a 10 percent decrease from the third quarter of 2013.

    Adjusted EBITDA for the third quarter of 2014 was $306 million, an 8 percent decrease compared to the third quarter of 2013.

    GAAP net earnings for the third quarter of 2014 was $6.8 billion (which included a gain from sale of Alibaba Group Holding Limited (“Alibaba Group”) shares of $6.3 billion, net of tax), compared to $297 million in the third quarter of 2013. Non-GAAP net earnings for the third quarter of 2014 was $543 million, compared to $358 million in the third quarter of 2013.

    GAAP net earnings per diluted share was $6.70 in the third quarter of 2014 (which included the gain from sale of Alibaba Group shares of $6.27 per diluted share), compared to $0.28 in the third quarter of 2013. Non-GAAP net earnings per diluted share was $0.52 for the third quarter of 2014, compared to $0.34 in the third quarter of 2013.

    Business Highlights

    • Yahoo completed the acquisition of Flurry, a mobile data analytics company that optimizes mobile experiences for developers, marketers, and consumers. Yahoo and Flurry’s combined scale is expected to create more personalized and inspiring app experiences for users, and enable more effective mobile advertising solutions for brands seeking to reach audiences and gain unique cross-device insights.
    • Yahoo continued to launch new products and improve on existing ones in the third quarter, innovating for the daily habits of users around the world. The Company launched the new Yahoo Finance app, Yahoo News Digest app and Yahoo Mail app for iPad, support for Digital Magazines for Android and iOS, and new navigation for Yahoo Answers, and also made Aviate available in eight languages on Android devices.
    • As football season kicked off this quarter, Yahoo announced a partnership with Samsung Smart TV to provide viewers with the Yahoo Fantasy Football TV experience, and launched NFL Now on Yahoo across devices including desktop, iPhone and iPad.
    • Top names in music, fashion, entertainment and finance continued to partner withYahoo in the third quarter of 2014. Taylor Swift and Prince both provided exclusive content to Yahoo in advance of their album releases. Yahoo Digital Magazines launched Yahoo Style with editor-in-chief Joe Zee, previously from ELLE Magazine. The Company also announced four additional new well-known editors-in-chief:Michelle Promaulayko for Yahoo Health, Kerry Diamond for Yahoo Food, Kristen Baldwin for Yahoo TV and Katie Brown for the recently launched Yahoo DIY. Yahoo Finance also launched Yahoo Finance Contributors with a roster of new high-profile industry experts including the Najarian brothers.
    • Yahoo launched new ways for the Company to work with publishing partners. Yahooannounced Yahoo Recommends which brings Yahoo’s content personalization technology and native ads to publishers across the web, launching on high-quality publisher sites CBSi, VOX Media and Hearst.
    • Yahoo added important technical talent to the team with Mike Kail joining as CIO and SVP, Infrastructure to lead IT and data center operations for the Company.

    Third Quarter 2014 Financial Highlights

    Display:

    • GAAP display revenue was $447 million for the third quarter of 2014, a 5 percent decrease compared to $470 million for the third quarter of 2013.
    • Display revenue ex-TAC was $396 million for the third quarter of 2014, a 6 percent decrease compared to $421 million for the third quarter of 2013.
    • The number of Ads Sold increased approximately 24 percent compared to the third quarter of 2013.
    • Price-per-Ad decreased approximately 24 percent compared to the third quarter of 2013.

    Search:

    • GAAP search revenue was $452 million for the third quarter of 2014, a 4 percent increase compared to $435 million for the third quarter of 2013.
    • Search revenue ex-TAC was $450 million for the third quarter of 2014, a 6 percent increase compared to $426 million for the third quarter of 2013.
    • The number of Paid Clicks was flat compared to the third quarter of 2013.
    • Price-per-Click increased approximately 17 percent compared to the third quarter of 2013.

    Cash, Cash Equivalents, and Marketable Securities:

    • Cash, cash equivalents, and marketable securities (excluding Investment in Alibaba Group equity securities) were $12 billion as of September 30, 2014 compared to $5 billion as of December 31, 2013, an increase of $7 billion. Yahoo estimates that it will pay approximately $3.3 billion in cash taxes in the first quarter of 2015 related to the sale of Alibaba Group shares.
    • During the third quarter of 2014, Yahoo repurchased approximately 8 million shares of its common stock for $282 million.
    • In September 2014, the Company also entered into an accelerated share repurchase agreement with a financial institution to repurchase shares of its common stock. Under the agreement, the Company prepaid $1.1 billion and approximately 15 million shares were initially delivered to the Company on September 30, 2014 and are included in treasury stock. Final settlement occurred on October 17, 2014 resulting in a total of approximately 23.5 million shares repurchased for $933 million. The Company received a return of cash for the remaining amount not settled in shares of$167 million. The accelerated share repurchase agreement was entered into pursuant to the Company’s existing share repurchase program.
    • As of September 30, 2014, the Company had 979 million shares outstanding.

    “We are pleased with our performance this quarter, demonstrating results that met or exceeded guidance on key metrics. We ended the quarter with over $12 billion in cash and marketable securities following the sale of 140 million shares of Alibaba stock in the IPO, which resulted in $9.4 billion in pre-tax proceeds,” said Ken Goldman, CFO ofYahoo. “In Q3 and Q4 to date, we have bought back approximately $1.6 billion of our stock. Of this amount, we have returned $1.4 billion to shareholders as a part of our commitment to return at least half of the after-tax IPO proceeds. We are hopeful that we will finish the year strong, and we believe that the Company is well positioned for improved performance in 2015.”

    Live Stream

    Yahoo will live stream a video broadcast of the Company’s third quarter 2014 financial results at 2 p.m. Pacific Time/5 p.m. Eastern Time today. The live stream will be broadcast from Yahoo’s Sunnyvale studio and will be available exclusively on Yahoo Finance at finance.yahoo.com. The Company will provide its business outlook for the fourth quarter during the presentation. Supplemental financial information can be accessed through the Company’s Investor Relations website at investor.yahoo.net. The video will be archived after the event at investor.yahoo.net and will be available for 90 days following the broadcast.

    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 theAmericas, 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 (yahoo.tumblr.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”).

    “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.

    “Ads Sold” consist of display ad impressions for paying advertisers on Yahoo Properties.

    “Paid Clicks” are clicks by end-users on sponsored search listings (excluding native ads) on Yahoo Properties and Affiliate sites.

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

    “Price-per-Click” is defined as Search click-driven revenue divided by our total number of Paid Clicks.

    We periodically review, refine and update our methodologies for monitoring, gathering, and counting numbers of Ads Sold and Paid Clicks, and for calculating Price-per-Ad and Price-per-Click.

    Additional information about how “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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which is on file with the SEC and available on the SEC’s website at www.sec.gov.

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

    “Search click-driven revenue” is gross search revenue (before TAC) excluding the Microsoft RPS guarantee.

    “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 quotations 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 acquiring or developing compelling content; risks related to joint ventures and the integration of acquisitions; risks relating to possible impairment of goodwill or other assets; risks related to fluctuations in foreign currency exchange rates; risks related to Yahoo’s regulatory environment; Yahoo’s ability to protect its intellectual property and the value of its brands; adverse results in litigation; security breaches; interruptions or delays in the provision of Yahoo’s services; risks related to Yahoo’sinternational operations; risks related to the calculation of our key operational metrics; 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 October 21, 2014. 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, 2013, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which are on file with the SECand 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 September 30, 2014, which will be filed with the SEC in the fourth quarter of 2014.

    Yahoo!, Flurry, Yahoo Finance, Yahoo News Digest, Yahoo Mail, Yahoo Answers, Aviate,Yahoo Sports, Yahoo Fantasy, Yahoo Style, Yahoo Health, Yahoo TV, Yahoo Food, Yahoo DIY, Yahoo Recommends and the Yahoo logos are trademarks and/or registered trademarks of Yahoo! Inc. Tumblr is a registered trademark of Tumblr, Inc. All other marks are trademarks and/or registered trademarks of their respective owners.

    Image via Wikimedia Commons

  • Apple Earnings Released, Revenue $42.1 Billion

    Apple Earnings Released, Revenue $42.1 Billion

    Apple just announced its earnings for its fiscal 2014 Q4. This includes revenue of $42.1 billion and quarterly net profit of $8.5 billion, or $1.42 per diluted share. That’s compared to revenue of $37.5 billion and net profit of $7.5 billion, or $1.18 per diluted share, last year.

    Gross margin was 38% compared to 37% last year. International sales made up 60% of the quarter’s revenue.

    CEO Tim Cook said, “Our fiscal 2014 was one for the record books, including the biggest iPhone launch ever with iPhone 6 and iPhone 6 Plus. With amazing innovations in our new iPhones, iPads and Macs, as well as iOS 8 and OS X Yosemite, we are heading into the holidays with Apple’s strongest product lineup ever. We are also incredibly excited about Apple Watch and other great products and services in the pipeline for 2015.”

    “Our strong business performance drove EPS growth of 20 percent and a record $13.3 billion in cash flow from operations in the September quarter,” said CFO Luca Maestri. “We continued to execute aggressively against our capital return program, spending over $20 billion in the quarter and bringing cumulative returns to $94 billion.”

    The company’s board declared a cash dividend of $.47 per share of the Company’s common stock. This is payable on November 13th to shareholders or record as of closing on November 10th.

    Apple is projecting revenue between $63.5 billion and $66.5 billion in the coming quarter with gross margin between 37.5% and 38.5% and operating expenses between $5.4 billion and $5.5 billion.

    Image via Apple