Yahoo! Inc. (NASDAQ:YHOO) finally released its highly anticipated earnings today after the market closed. The company announced big plans including layoffs of 15% of workforce, new initiatives, cuts and more. Investors had a muted reaction and shares closed down 1.17% in after hours trading to $29.06.
On the Yahoo! conference call CEO Marissa Mayer stated:
The next decision you have to make in a turnaround is do you completely cut deteriorating revenue lines, so you can show significant growth faster, or do you try and stem the declines so you have the stability, but know that the headwinds will last longer, as the legacy revenue continues to deteriorate? We chose the latter. Given the size of our revenue and user base, we really didn’t have a choice.
Our product strategies are designed to foster growth in these areas. Let’s start with the first leg of the stool, search. Search is key to Yahoo!’s user proposition of discovery. As the mobile search market continues to expand, and as user behavior shifts more towards contextual search queries, we see mobile search as the biggest opportunity.
As a result, we’re shifting our focus toward forward-leaning mobile search investments, and thinking through how search should change. In Q4, we launched an initial update to our Yahoo! search application, the beginning of a complete reimagination of mobile search. Given our strategic relationships with carriers and OEMs, and the wealth of data within Yahoo! Mail that can help us personalize our results better, we’re positioned to succeed here. Overall, while this shift has and will continue to require great prioritization internally, we believe the mobile search opportunity will help drive sustainable, long-term growth and differentiation.
So did Mayer deliver? Let us first take a look at what investors were expecting.
Cantor had opined earlier this week:
More important than what management will say about 4Q:15 results and the potential restructuring, will be what it will say about the proposed reverse spin of core Yahoo! and YJ, or the potential sale of core. We believe 4Q:15 results will be in line with muted expectations. Within core Yahoo!, focus should be on the severity of declines in display revenue and search, as desktop declines continue to outweigh relative strength from Mavens (mobile, video, native, social). We expect management to unveil restructuring plans that could impact 10+% of Yahoo!’s workforce, as reported by several news outlets in early January. Despite CEO Mayer’s best efforts over the last 3+ years, Yahoo! remains challenged for growth in an industry that’s innovating at breakneck pace.
Reacting to the earnings, UBS stated:
Yahoo reported Q4 2015 GAAP revenues of $1.27b (vs our est. of $1.20b & Street est. of $1.19b) for growth of 1.6% YoY. Net revenue came in at $1.002b vs our ests of $956mm. Display: Net revenue was $472mm (vs. our est. of $445mm) for growth of 1.7% YoY. Ads Sold increased +8% YoY (vs. the +8% growth in Q3), while the priceper- ad increased +6% YoY – below the +8% increase reported in Q3. Search: Net revenue was $381mm (vs. our est. of $362mm) a decrease of 17.5% YoY. Paid clicks were down -10% YoY (a decline vs. +5% reported in Q3), while the price-per-click increased +3% YoY (vs. +2% in Q3). Management also disclosed that 24% of Q4 traffic driven revs were from mobile (vs. 24% in Q3), up 15% on a YoY basis.
Yahoo! reported a quarter with many familiar trends. For over two years now, Yahoo provided a major quarterly step down in its core EBITDA guidance, with $110mm (midpoint) a 52% decrease from the prior year, a 39% drop from the prior quarter, and a 50% miss vs. our forecast. This is in spite of a 15% headcount reduction that will mostly take place within the first quarter in the hopes of cutting operating spending by $400mm by end of year. Full year adj. EBITDA guidance of $750mm (midpoint) was modestly better than the 1Q guide, at just 13% below our prior forecast, but this does appear to hinge on not only the announced layoffs but on the notion of stabilization and growth reacceleration within the back-half, something we tend to view as unlikely. Nevertheless, CEO Mayer did layout a Strategic Plan articulating the company’s plans for a better user and advertiser experience, a continued commitment to Mavens (despite some notable deceleration), and a focus on streamlining its sprawling Core business.
For now it looks like there is no answer to the question (yet).