Yahoo Reports Q2 Earnings As Marissa Mayer Takes Charge

Revenue excluding traffic acquisition costs (“Revenue ex-TAC”) was $1,081 million for the second quarter of 2012, flat compared to the second quarter of 2011. GAAP revenue was $1,218 million for the second quarter of 2012, a 1 percent decrease from the second quarter of 2011.

Non-GAAP income from operations of $190 million in the second quarter of 2012 was flat compared to $191 million in the second quarter of 2011. Non-GAAP income from operations excludes restructuring charges and deal-related expenses of less than $1 million in the second quarter of 2011 and $136 million in the second quarter of 2012. On a GAAP basis, income from operations decreased 71 percent to $55 million in the second quarter of 2012, compared to $191 million in the second quarter of 2011.

In the second quarter of 2012, non-GAAP net earnings per diluted share increased 47 percent year over year to $0.27. Non-GAAP net earnings per diluted share excludes restructuring charges and deal-related expenses of less than $1 million in the second quarter of 2011 and $136 million, as well as the related tax impact of $36 million, in the second quarter of 2012. On a GAAP basis, net earnings per diluted share was $0.18 in the second quarter of 2012.

Financials at a Glance

Quarterly Results (in millions, except percentages and per share amounts)
Q2 2011 Q2 2012 Percent Change
Revenue ex-TAC $1,076 $1,081 0%
GAAP revenue $1,229 $1,218 (1)%
Non-GAAP income from operations $191 $190 0%
Income from operations $191 $55 (71)%
Non-GAAP net earnings per diluted share$0.18 $0.27 47%
Net earnings per diluted share $0.18 $0.18 2%

“In the second quarter, non-GAAP earnings per share exceeded consensus and both display and search revenue ex-TAC showed modest growth,” said Tim Morse, chief financial officer. “We also moved aggressively with new strategic agreements with Alibaba and Facebook and announced several new partnerships including CNBC, Clear Channel and Spotify.”

Business Highlights

• Yahoo! named Marissa Mayer chief executive officer.
• Fred Amoroso was named chairman of Yahoo!’s board of directors and Daniel S. Loeb, Harry J. Wilson, and Michael J. Wolf joined the Yahoo! board.
• Yahoo! and Alibaba Group Holding Limited (“Alibaba”) announced a definitive agreement for a staged and comprehensive value realization plan for Yahoo!’s stake in Alibaba. The first step is the repurchase by Alibaba of up to one-half of Yahoo!’s stake, or approximately 20 percent of Alibaba’s fully-diluted shares.
• In July 2012, Yahoo! and Facebook announced definitive agreements that launch a new advertising partnership, extend and expand distribution arrangements, and settle all pending patent claims between the companies.
• Yahoo! launched Axis, a new experience that re-imagines how consumers search and browse on the web. Axis offers the only search experience that allows consumers to enter their search, see and interact with visual results, all without ever leaving the page they are on. Axis seamlessly integrates with consumers’ favorite desktop browser and automatically connects the online experiences across multiple devices.
• Yahoo! launched Genome from Yahoo!, an online advertising solution that combines Yahoo! data with interclick’s third party data and advertisers’ first party data along with a premium media footprint to provide marketers with one of the most complete, custom audience solutions in the industry.
• Yahoo! and CNBC announced a strategic content, programming and distribution alliance that will dramatically expand CNBC’s online reach and presence and provide a broadcast platform for Yahoo! Finance’s original content and contributors. CNBC becomes the premier content source for Yahoo! Finance in the U.S. and later this year, the two companies plan to co-create a new slate of co-branded, original videos which will appear on Yahoo! Finance and CNBC.com.
• Yahoo! and Clear Channel announced a cross-platform content distribution and promotion agreement. The multi-faceted relationship involves the distribution and cross-promotion of premium content in addition to a live concert series to the unparalleled combined audience of the Yahoo! Media Network and Clear Channel Media and Entertainment U.S. listeners across 150 markets, plus their websites and the audience of iHeartRadio, Clear Channel’s industry-leading digital radio service.
• Yahoo! and Spotify announced a global content distribution and promotion agreement that will enable Yahoo! to integrate and promote Spotify’s on demand music service on Yahoo!’s Media Network. Yahoo! will also create an app for Spotify’s platform featuring Yahoo! original entertainment content.
• Yahoo! extended its exclusive online agreement with Eurosport to host and operate the co-branded Yahoo! Eurosport site in key markets. By partnering with the #1 pan-European television sports network, Yahoo! will continue to bring exclusive, high quality sports content online to drive user engagement and provide premium content.

Cash Flow and Cash Balance

• Cash flow from operating activities for the second quarter of 2012 was $275 million, a 17 percent decrease compared to $331 million for the same period of 2011. Cash flow from operating activities was $572 million for the six months ended June 30, 2012, a 7 percent increase compared to $536 million for the same period of 2011.
• Free cash flow was $93 million for the second quarter of 2012, a 2 percent decrease compared to $96 million for the same period of 2011. Free cash flow was $289 million for the six months ended June 30, 2012, a 90 percent increase compared to $152 million for the same period of 2011.
• Cash, cash equivalents, and investments in marketable debt securities were $2,401 million at June 30, 2012 compared to $2,530 million at December 31, 2011, a decrease of $129 million.