Press Release
Yahoo Reports Third Quarter 2016 Results
"I am pleased with our Q3 results. This quarter, we launched several new
products and showed solid financial performance across the board; both
are a testimony to the tremendous teamwork, focus, and resilience of our
employees," said
Q3 2015 | Q3 2016 | ||||
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Loss from operations |
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Non-GAAP income from operations |
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Net earnings |
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Adjusted EBITDA |
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GAAP net earnings per diluted share |
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Non-GAAP net earnings per diluted share |
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As previously announced, beginning in the second quarter of 2016, GAAP
revenue and cost of revenue - TAC are impacted by a required change in
revenue presentation related to the Eleventh Amendment to the Microsoft
Search Agreement ("Change in Revenue Presentation," as discussed below).
For the third quarter of 2016, the Change in Revenue Presentation
contributed
Business Updates
-
Launched new mobile experiences for sports fans, including the ability
to search and stream
Major League Baseball games directly from within theYahoo Sports app, and an updated Yahoo Fantasy app for iOS that makes it easier for users to navigate and manage multiple teams. - Introduced Yahoo View, a new community TV-watching experience on desktop and iPhone, providing users with access to thousands of episodes through our partnership with Hulu.
- Launched Yahoo Newsroom for iOS and Android, creating a vibrant community around news by making it easier to discover relevant content and participate in conversations.
- Launched a fast and easy way for users to send and unsend messages, photos, and gifs on their computers with the new Yahoo Messenger desktop app for Windows and Mac, and gave iOS and Android users the ability to send video in one-on-one and group conversations in the Yahoo Messenger mobile app.
-
Launched new and enhanced features on
Tumblr to deliver a more immersive and easily accessible experience for users to create, discover and share content that they love, including the redesigned mobile "explore" feature, support for live photos on the web, and a quick send-a-post feature on Android phones. -
Streamed live events and shows, including the 2016 First Presidential
Debate, NBA Free Agency Show, MLB Game of the Day, and the 2016
Concordia Summit withWarren Buffett . - Announced that Yahoo Finance has been chosen again to exclusively host the livestream of Berkshire Hathaway's Annual Shareholders Meeting.
-
Continued to invest in and grow Yahoo Esports by launching two new
live shows, a partnership with Riot Games to reach student
League of Legend gamers, and a streaming and content partnership with ESL. -
Partnered to host Twitter's live stream of the Thursday night NFL
games on
Yahoo Sports with a Twitter feed accompanying the live stream. - Introduced new capabilities for advertisers through Yahoo Gemini, including search retargeting for native ads and expanded features for Gemini's custom audience targeting solution that make it easier for marketers to integrate their own data and increase effectiveness on search and native ad spend.
-
Launched program to monetize unaffiliated links on
Tumblr to create new revenue opportunities for the platform.
Third Quarter 2016 Financial Highlights
Mavens Revenue*:
Q3 2015 | Q3 2016 | ||||
Mavens revenue |
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Non-Mavens revenue | 693 million | 726 million | |||
Total traffic-driven revenue |
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Non-traffic-driven revenue | 111 million | 55 million | |||
GAAP revenue |
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* The Change in Revenue Presentation contributed
Mavens revenue represented 38 percent and 42 percent of traffic-driven
revenue in the third quarter of 2015 and 2016, respectively. Excluding
the impact of the Change in Revenue Presentation, Mavens revenue would
have been
Mobile Revenue*:
Q3 2015 | Q3 2016 | ||||
Mobile revenue |
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Desktop revenue | 844 million | 854 million | |||
Total traffic-driven revenue |
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Non-traffic-driven revenue | 111 million | 55 million | |||
GAAP revenue |
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* The Change in Revenue Presentation contributed
GAAP mobile revenue for the third quarter of 2015 and 2016 was
Mobile revenue represented 24 percent and 32 percent of traffic-driven
revenue in the third quarter of 2015 and 2016, respectively. Excluding
the impact of the Change in Revenue Presentation, mobile revenue would
have been
Gross mobile revenue for the third quarter of 2015 and 2016 was
Search Revenue:
-
GAAP search revenue was
$703 million for the third quarter of 2016 compared to$516 million for the third quarter of 2015. Excluding the impact of the Change in Revenue Presentation, which contributed$258 million to search revenue in the third quarter of 2016, search revenue decreased by 14 percent compared to the third quarter of 2015. -
Gross search revenue was
$752 million for the third quarter of 2016, a decrease of 14 percent compared to the third quarter of 2015. The Change in Revenue Presentation does not impact gross search revenue. -
Cost of revenue - TAC associated with search revenue was
$384 million for the third quarter of 2016. Excluding the impact of the Change in Revenue Presentation, which contributed$258 million to cost of revenue - TAC in the third quarter of 2016, cost of revenue - TAC associated with search revenue increased by 6 percent compared to the third quarter of 2015. - The number of Paid Clicks decreased 22 percent compared to the third quarter of 2015.
- Price-per-Click increased 9 percent compared to the third quarter of 2015.
Display Revenue:
-
GAAP display revenue was
$476 million for the third quarter of 2016, a 7 percent decrease compared to the third quarter of 2015. -
Cost of revenue - TAC associated with display revenue was
$63 million for the third quarter of 2016, a 39 percent decrease compared to the third quarter of 2015. - The number of Ads Sold decreased 5 percent compared to the third quarter of 2015.
- Price-per-Ad increased 1 percent compared to the third quarter of 2015.
Cash, Cash Equivalents, and
-
Cash, cash equivalents, and marketable securities were
$7,771 million as ofSeptember 30, 2016 compared to$6,833 million as ofDecember 31, 2015 , an increase of$938 million . The increase is primarily attributable to$994 million of cash from operating activities, which includes$157 million in cash dividends received from an equity investee during the second quarter of 2016 and a cash tax refund of$190 million received during the first quarter of 2016. The Company also received net cash proceeds of$246 million from the sale of land inSanta Clara during the second quarter of 2016 and incurred capital expenditures of$194 million during the nine-month period endedSeptember 30, 2016 .
"As we continue to plan for integration, we delivered solid Q3 results
with net earnings of
Change in Revenue Presentation
As previously announced, pursuant to the Eleventh Amendment to the
Microsoft Search Agreement, the Company completed the transition of its
exclusive sales responsibilities to Microsoft for Microsoft's paid
search services to premium advertisers in
Business Outlook
For the fourth quarter of 2016, we expect:
-
GAAP revenue to be in the range of
$1,360 million to$1,400 million ; -
Cost of revenue - TAC to be
$480 million ; -
Revenue ex-TAC to be in the range of
$880 million to$920 million ; -
Adjusted EBITDA to be in the range of
$260 million to$300 million ; and -
Non-GAAP income from operations to be in the range of
$140 million to$180 million .
For the full year of 2016, we expect:
-
GAAP revenue to be in the range of
$5,060 million to$5,100 million ; -
Cost of revenue - TAC to be
$1,620 million ; -
Revenue ex-TAC to be in the range of
$3,440 million to$3,480 million ; -
Adjusted EBITDA to be in the range of
$810 million to$850 million ; and -
Non-GAAP income from operations to be in the range of
$300 million to$340 million .
Adjusted EBITDA and non-GAAP income from operations included in our Business Outlook are forward-looking non-GAAP financial measures. A reconciliation to the comparable forward-looking GAAP financial measures, net earnings and GAAP income (loss) from operations, respectively, cannot be provided without unreasonable effort. See "Non-GAAP Financial Measures" below for additional information.
Non-GAAP Financial Measures
This press release includes adjusted GAAP revenue and cost of revenue - TAC amounts that exclude the effect of the Change in Revenue Presentation during the third quarter of 2016. We believe providing this additional information to investors is useful because it provides investors with comparable revenue and cost of revenue - TAC measures for comparison to our historical reported financial information.
This press release and its attachments also include the
following additional financial measures defined as non-GAAP financial
measures by the
Gross mobile revenue is GAAP mobile revenue plus the related revenue share with third parties. Gross search revenue is GAAP search revenue plus the related revenue share with third parties. Revenue ex-TAC is GAAP revenue less cost of revenue - TAC. 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 (expense) income, net (which includes interest, among other items), 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 (i.e., acquisition of property and equipment less proceeds received from disposition of property and equipment) 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 Supplemental Financial Data and GAAP to Non-GAAP Reconciliations," "Supplemental Financial Data and GAAP to Non-GAAP Reconciliations," "GAAP to Non-GAAP Reconciliations," and "Business Outlook."
Supplemental Financial and Other Information
Supplemental financial and other information, including user engagement
trends before and after the
About
"Ads Sold" consist of display ad impressions for paying advertisers
on
"Affiliates" are third-party entities that have integrated Yahoo's advertising offerings into their websites or other offerings (those websites and other offerings, "Affiliate sites").
"Alibaba Group" means Alibaba Group Holding Limited. In
"Desktop computer" means a desktop or laptop computer, and "desktop revenue" is revenue generated from search and display ads served on Desktop computers and also includes leads, listings, and fees revenue and ecommerce revenue allocated to user activity on Desktop computers.
"Gross mobile revenue," a non-GAAP measure, is GAAP mobile revenue plus the related revenue share with third parties.
"Gross search revenue," a non-GAAP measure, is GAAP search revenue plus the related revenue share with third parties.
"Mavens revenue" is revenue generated from, without duplication: (i)
mobile (as defined below), (ii) video ads and video ad packages, (iii)
native ads, and (iv)
"Microsoft Search Agreement" refers to the Search and Advertising
Services and Sales Agreement between
"Mobile revenue" is revenue generated in connection with user activity on mobile devices, including smartphones and tablets, regardless of whether the device is accessing a mobile-optimized service. Mobile revenue is generated primarily from search and display ads. Mobile revenue also includes leads, listings, and fees revenue and ecommerce revenue allocated to user activity on mobile devices.
"Native revenue" is revenue generated from native ads (search
and display) on
"Net earnings" means net income (loss) attributable to
"Non-Mavens revenue" is revenue generated from search ads and
traditional (i.e., non-native, non-video, non-
"Non-traffic-driven revenue" is revenue not arising from user
activity on
"Paid Clicks" are clicks by end-users on sponsored search listings
(excluding native ads) on
"Price-per-Ad" is defined as display revenue 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.
"Search click-driven revenue" is gross search revenue excluding search revenue from Yahoo Japan.
"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," "Company," and "we" refer to
"Yahoo Properties" refers to the online properties and services that
We periodically review, refine, and update our methodologies for monitoring, gathering, and counting number of Ads Sold and Paid Clicks, and for calculating Search click-driven revenue, Price-per-Ad, and Price-per-Click. Methodology changes are applied consistently to all periods presented. No changes were made in the currently reported period.
Additional information about how "Ads Sold," "Paid Clicks,"
"Price-per-Ad," "Price-per-Click," and "Search click-driven revenue" are
defined and calculated is included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year
ended
This press release (including, without limitation, the quotations
from management and business outlook section) contains forward-looking
statements concerning
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Unaudited Condensed Consolidated Balance Sheets | ||||||
(in thousands) | ||||||
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December 31, |
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2015 |
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2016 |
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ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 1,631,911 | $ | 1,411,308 | ||
Short-term marketable securities | 4,225,112 | 5,189,207 | ||||
Accounts receivable, net | 1,047,504 | 945,659 | ||||
Prepaid expenses and other current assets | 602,792 | 244,782 | ||||
Total current assets | 7,507,319 | 7,790,956 | ||||
Long-term marketable securities | 975,961 | 1,170,962 | ||||
Property and equipment, net | 1,547,323 | 1,273,327 | ||||
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808,114 | 437,609 | ||||
Intangible assets, net | 347,269 | 181,998 | ||||
Other long-term assets and investments | 342,390 | 218,585 | ||||
Investments in Alibaba Group | 31,172,361 | 40,577,385 | ||||
Investments in equity interests | 2,503,229 | 3,020,804 | ||||
Total assets | $ | 45,203,966 | $ | 54,671,626 | ||
LIABILITIES AND EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 208,691 | $ | 168,148 | ||
Other accrued expenses and current liabilities | 934,658 | 984,301 | ||||
Deferred revenue | 134,031 | 115,991 | ||||
Total current liabilities | 1,277,380 | 1,268,440 | ||||
Convertible notes | 1,233,485 | 1,283,002 | ||||
Long-term deferred revenue | 27,801 | 36,609 | ||||
Other long-term liabilities | 118,689 | 102,283 | ||||
Deferred tax liabilities related to investment in Alibaba Group | 12,611,867 | 16,444,038 | ||||
Deferred and other long-term tax liabilities | 855,324 | 668,098 | ||||
Total liabilities | 16,124,546 | 19,802,470 | ||||
Total |
29,043,537 | 34,836,272 | ||||
Noncontrolling interests | 35,883 | 32,884 | ||||
Total equity | 29,079,420 | 34,869,156 | ||||
Total liabilities and equity | $ | 45,203,966 | $ | 54,671,626 |
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Unaudited Condensed Consolidated Statements of Operations | ||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||
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Three Months Ended |
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Nine Months Ended |
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2015 |
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2016 |
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2015 |
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2016 |
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Revenue (1) | $ |
1,225,673 |
$ |
1,305,206 |
$ | 3,694,908 | $ |
3,699,995 |
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Operating expenses: | ||||||||||||||||||||||
Cost of revenue - traffic acquisition costs (1) | 223,229 | 447,537 | 606,598 | 1,141,786 | ||||||||||||||||||
Cost of revenue - other | 302,846 | 255,421 | 884,041 | 806,491 | ||||||||||||||||||
Sales and marketing | 274,329 | 212,654 | 823,990 | 674,711 | ||||||||||||||||||
Product development | 272,285 | 243,644 | 905,460 | 801,708 | ||||||||||||||||||
General and administrative | 151,963 | 176,713 | 506,071 | 490,519 | ||||||||||||||||||
Amortization of intangibles | 19,622 | 11,594 | 59,677 | 46,736 | ||||||||||||||||||
Asset impairment charge | 41,699 | - | 41,699 | - | ||||||||||||||||||
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- | - | - | 394,901 | ||||||||||||||||||
Intangible assets impairment charge | - | - | - | 87,335 | ||||||||||||||||||
Gain on sale of patents and land | - | - | (11,100 | ) | (121,559 | ) | ||||||||||||||||
Restructuring charges, net | 26,012 | 9,962 | 96,932 | 86,576 | ||||||||||||||||||
Total operating expenses | 1,311,985 | 1,357,525 | 3,913,368 | 4,409,204 | ||||||||||||||||||
Loss from operations | (86,312 | ) | (52,319 | ) | (218,460 | ) | (709,209 | ) | ||||||||||||||
Other expense, net | (23,955 | ) | (6,122 | ) | (66,759 | ) | (38,476 | ) | ||||||||||||||
Loss before income taxes and earnings in equity interests | (110,267 | ) | (58,441 | ) | (285,219 | ) | (747,685 | ) | ||||||||||||||
Benefit for income taxes | 93,208 | 105,513 | 75,613 | 124,736 | ||||||||||||||||||
Earnings in equity interests, net of tax |
95,195 | 116,228 | 290,726 | 249,579 | ||||||||||||||||||
Net income (loss) | 78,136 | 163,300 | 81,120 | (373,370 | ) | |||||||||||||||||
Less: Net income attributable to noncontrolling interests | (1,875 | ) | (474 | ) | (5,215 | ) | (2,949 | ) | ||||||||||||||
Net income (loss) attributable to |
$ | 76,261 | $ | 162,826 | $ | 75,905 | $ | (376,319 | ) | |||||||||||||
Net income (loss) attributable to |
$ | 0.08 | $ | 0.17 | $ | 0.08 | $ | (0.40 | ) | |||||||||||||
Shares used in per share calculation - diluted | 946,934 | 957,304 | 944,160 | 948,524 | ||||||||||||||||||
Stock-based compensation expense by function: | ||||||||||||||||||||||
Cost of revenue - other | $ | 9,748 | $ | 9,440 | $ | 22,957 | $ | 25,876 | ||||||||||||||
Sales and marketing | 33,317 | 36,428 | 111,416 | 108,259 | ||||||||||||||||||
Product development | 46,461 | 54,720 | 145,444 | 161,182 | ||||||||||||||||||
General and administrative | 20,900 | 28,304 | 71,435 | 73,946 | ||||||||||||||||||
Restructuring charges, net | - | - | 2,705 | 7,374 | ||||||||||||||||||
Supplemental Financial Data: |
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Revenue ex-TAC | $ | 1,002,444 | $ | 857,669 | $ | 3,088,310 | $ | 2,558,209 | ||||||||||||||
Adjusted EBITDA | $ | 244,237 | $ | 229,153 | $ | 737,053 | $ | 548,594 | ||||||||||||||
Free cash flow(2)(3) | $ | 18,028 | $ | 167,119 |
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$ | (3,041,674 | ) | $ | 889,960 |
(1) | Commencing in the second quarter of 2016, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as a cost of revenue due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. | |||||
(2) |
During the nine months ended |
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(3) |
During the nine months ended |
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Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
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2015 | 2016 | 2015 | 2016 | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||
Net income (loss) | $ | 78,136 | $ | 163,300 | $ | 81,120 | $ | (373,370 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation | 118,846 | 95,270 | 355,540 | 308,324 | ||||||||||||||||||
Amortization of intangible assets | 33,566 | 20,198 | 102,090 | 80,036 | ||||||||||||||||||
Accretion of convertible notes discount | 15,867 | 16,723 | 46,984 | 49,517 | ||||||||||||||||||
Stock-based compensation expense | 110,426 | 128,892 | 353,957 | 376,637 | ||||||||||||||||||
Non-cash asset impairment charge | 41,699 | - | 41,699 | - | ||||||||||||||||||
Non-cash goodwill impairment charge | - | - | - | 394,901 | ||||||||||||||||||
Non-cash intangible assets impairment charge | - | - | - | 87,335 | ||||||||||||||||||
Non-cash restructuring charges (reversals) | 902 | (149 | ) | (31 | ) | 1,227 | ||||||||||||||||
Non-cash accretion on marketable debt securities | 14,771 | 4,566 | 38,328 | 23,060 | ||||||||||||||||||
Foreign exchange (gain) loss | (10,981 | ) | (9,613 | ) | 10,337 | (46,046 | ) | |||||||||||||||
Gain on sale of assets and other | (3,030 | ) | (888 | ) | (3,058 | ) | (2,719 | ) | ||||||||||||||
Gain on sale of patents and land | - | - | (11,100 | ) | (121,559 | ) | ||||||||||||||||
Loss on Hortonworks warrants | 12,781 | 8,493 | 19,241 | 49,930 | ||||||||||||||||||
Earnings in equity interests | (95,195 | ) | (116,228 | ) | (290,726 | ) | (249,579 | ) | ||||||||||||||
Tax benefits (detriments) from stock-based awards | 26,607 | (10,414 | ) | 22,990 | (8,598 | ) | ||||||||||||||||
Excess tax benefits from stock-based awards | (31,509 | ) | 8,817 | (33,359 | ) | (1,743 | ) | |||||||||||||||
Deferred income taxes | (39,387 | ) | (82,441 | ) | (52,605 | ) | (175,984 | ) | ||||||||||||||
Dividends received from equity investee | 375 | - | 142,045 | 156,968 | ||||||||||||||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||||||||||||
Accounts receivable | 1,422 | 48,062 | 34,303 | 106,261 | ||||||||||||||||||
Prepaid expenses and other | 25,966 | 2,681 | (64,112 | ) | 346,103 | |||||||||||||||||
Accounts payable | (67,147 | ) | (8,979 | ) | (29,642 | ) | (10,083 | ) | ||||||||||||||
Accrued expenses and other liabilities | (37,641 | ) | (46,873 | ) | 194,569 | 12,974 | ||||||||||||||||
Income taxes payable related to sale of Alibaba Group ADSs | - | - | (3,282,293 | ) | - | |||||||||||||||||
Deferred revenue | (59,199 | ) | (3,511 | ) | (191,989 | ) | (9,988 | ) | ||||||||||||||
Net cash provided by (used in) operating activities | 137,275 | 217,906 | (2,515,712 | ) | 993,604 | |||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||
Acquisition of property and equipment | (160,955 | ) | (43,172 | ) | (428,345 | ) | (197,508 | ) | ||||||||||||||
Proceeds from sales of property and equipment | 10,574 | 1,202 | 11,069 | 249,089 | ||||||||||||||||||
Purchases of marketable securities | (1,145,701 | ) | (1,423,283 | ) | (3,472,587 | ) | (5,680,284 | ) | ||||||||||||||
Proceeds from sales of marketable securities | 92,546 | 113,432 | 566,321 | 281,393 | ||||||||||||||||||
Proceeds from maturities of marketable securities | 1,304,841 | 1,281,069 | 4,889,437 | 4,223,735 | ||||||||||||||||||
Acquisitions, net of cash acquired | (153,339 | ) | - | (174,630 | ) | - | ||||||||||||||||
Proceeds from sales of patents | 9,100 | - | 29,100 | 1,500 | ||||||||||||||||||
Purchases of intangible assets | (122 | ) | (36 | ) | (4,733 | ) | (2,001 | ) | ||||||||||||||
Proceeds from the settlement of derivative hedge contracts | 55,915 | 1,192 | 120,682 | 39,007 | ||||||||||||||||||
Payments for settlement of derivative hedge contracts | (2,712 | ) | (1,848 | ) | (6,594 | ) | (7,012 | ) | ||||||||||||||
Payments for equity investments in privately held companies | - | - | - | (9 | ) | |||||||||||||||||
Other investing activities, net | (50 | ) | (34 | ) | (203 | ) | (127 | ) | ||||||||||||||
Net cash provided by (used in) investing activities | 10,097 | (71,478 | ) | 1,529,517 | (1,092,217 | ) | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||
Proceeds from issuance of common stock | 5,520 | 4,588 | 52,297 | 15,512 | ||||||||||||||||||
Repurchases of common stock | - | - | (203,771 | ) | - | |||||||||||||||||
Excess tax benefits from stock-based awards | 31,509 | (8,817 | ) | 33,359 | 1,743 | |||||||||||||||||
Tax withholdings related to net share settlements of restricted stock awards and restricted stock units | (66,101 | ) | (66,017 | ) | (216,061 | ) | (157,442 | ) | ||||||||||||||
Distributions to noncontrolling interests | - | - | (15,847 | ) | (5,948 | ) | ||||||||||||||||
Other financing activities, net | (4,539 | ) | (2,847 | ) | (13,554 | ) | (10,414 | ) | ||||||||||||||
Net cash used in financing activities | (33,611 | ) | (73,093 | ) | (363,577 | ) | (156,549 | ) | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (20,770 | ) | 12,569 | (33,166 | ) | 34,559 | ||||||||||||||||
Net change in cash and cash equivalents | 92,991 | 85,904 | (1,382,938 | ) | (220,603 | ) | ||||||||||||||||
Cash and cash equivalents, beginning of period | 1,188,169 | 1,325,404 | 2,664,098 | 1,631,911 | ||||||||||||||||||
Cash and cash equivalents, end of period | $ | 1,281,160 | $ | 1,411,308 | $ | 1,281,160 | $ | 1,411,308 | ||||||||||||||
Note to Supplemental Financial Data and GAAP
to Non-GAAP Reconciliations
This press release includes adjusted revenue and cost of revenue - TAC amounts that exclude the effect of the Change in Revenue Presentation that occurred during the second quarter of 2016. We believe providing this additional information to investors is useful because it provides investors with comparable revenue and cost of revenue - TAC measures for comparison to our historical reported financial information. See "Change in Revenue Presentation" in the accompanying press release.
This press release and its attachments also include the non-GAAP
financial measures of revenue excluding traffic acquisition costs
("revenue ex-TAC"); gross mobile revenue; gross search revenue; adjusted
EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP
net earnings per diluted share; and free cash flow, which are reconciled
to revenue (in the case of revenue ex-TAC, gross mobile revenue, and
gross search revenue); net loss attributable to
Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue
less TAC that has been recorded as a cost of revenue. TAC consists of
payments made to Affiliates, and payments made to companies that direct
consumer and business traffic to
Each of gross mobile revenue and gross search revenue is a non-GAAP
financial measure. Gross mobile revenue is defined as GAAP mobile
revenue plus the related revenue share with third parties. Gross search
revenue is defined as GAAP search revenue plus the related revenue share
with third parties. We present these amounts to provide investors with
additional metrics used by the Company for evaluation and
decision-making purposes and as an indicator of the size of our presence
in the relevant business. To this end, gross mobile revenue and gross
search revenue report the total receipts generated on
Adjusted EBITDA is defined as net income (loss) attributable to
Non-GAAP income from operations is defined as income (loss) from operations excluding certain gains, losses, and expenses that we do not believe are indicative of our ongoing operating results and further adjusted to exclude stock-based compensation expense. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on income (loss) from operations. We consider non-GAAP income from operations to be a profitability measure which facilitates the forecasting of our operating results for future periods and allows for the comparison of our results to historical periods. A limitation of non-GAAP income from operations is that it does not include all items that impact our income from operations for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measure of income (loss) from operations which includes the gains, losses, and expenses that are excluded from non-GAAP income from operations.
Non-GAAP net earnings is defined as net income (loss) attributable to
Free cash flow is a non-GAAP financial measure defined as net cash provided by (used in) operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net (i.e., acquisition of property and equipment less proceeds received from disposition of property and equipment) and dividends received from equity investees. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by business operations, after deducting our net payments for acquisitions and dispositions of property and equipment, which cash can then be used for strategic opportunities or other business purposes including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet, and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company's unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.
|
||||||||||||||||||||||
Supplemental Financial Data and GAAP to Non-GAAP Reconciliations | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
|
|
|||||||||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||||||||
Revenue for groups of similar services: | ||||||||||||||||||||||
Search (1)(4) | $ | 515,841 | $ | 703,130 | $ | 1,586,148 | $ | 1,906,507 | ||||||||||||||
Display (4) | 511,356 | 476,263 | 1,481,622 | 1,408,818 | ||||||||||||||||||
Other (4) | 198,476 | 125,813 | 627,138 | 384,670 | ||||||||||||||||||
Total revenue | $ |
1,225,673 |
$ |
1,305,206 |
$ |
3,694,908 |
$ | 3,699,995 | ||||||||||||||
Revenue excluding traffic acquisition costs recorded as cost of revenue ("revenue ex-TAC") for groups of similar services: | ||||||||||||||||||||||
GAAP search revenue (1) | $ | 515,841 | $ | 703,130 | $ | 1,586,148 | $ | 1,906,507 | ||||||||||||||
TAC associated with search revenue (1) | (119,003 | ) | (383,820 | ) | (324,888 | ) | (920,163 | ) | ||||||||||||||
Search revenue ex-TAC | $ | 396,838 | $ | 319,310 | $ | 1,261,260 | $ | 986,344 | ||||||||||||||
GAAP display revenue | $ | 511,356 | $ | 476,263 | $ | 1,481,622 | $ | 1,408,818 | ||||||||||||||
TAC associated with display revenue | (103,718 | ) | (63,347 | ) | (279,834 | ) | (220,225 | ) | ||||||||||||||
Display revenue ex-TAC | $ | 407,638 | $ | 412,916 | $ | 1,201,788 | $ | 1,188,593 | ||||||||||||||
GAAP other revenue | $ | 198,476 | $ | 125,813 | $ | 627,138 | $ | 384,670 | ||||||||||||||
TAC associated with GAAP other revenue | (508 | ) | (370 | ) | (1,876 | ) | (1,398 | ) | ||||||||||||||
Other revenue ex-TAC | $ | 197,968 | $ | 125,443 | $ | 625,262 | $ | 383,272 | ||||||||||||||
Revenue ex-TAC: | ||||||||||||||||||||||
GAAP revenue (1) | $ | 1,225,673 | $ | 1,305,206 | $ | 3,694,908 | $ | 3,699,995 | ||||||||||||||
TAC (1) | (223,229 | ) | (447,537 | ) | (606,598 | ) | (1,141,786 | ) | ||||||||||||||
Revenue ex-TAC | $ | 1,002,444 | $ | 857,669 | $ | 3,088,310 | $ | 2,558,209 | ||||||||||||||
Revenue ex-TAC by segment: | ||||||||||||||||||||||
|
||||||||||||||||||||||
GAAP revenue (1) | $ | 987,374 | $ | 1,058,416 | $ | 2,964,305 | $ | 2,975,023 | ||||||||||||||
TAC (1) | (201,855 | ) | (394,838 | ) | (549,332 | ) | (1,012,903 | ) | ||||||||||||||
Revenue ex-TAC | $ | 785,519 | $ | 663,578 | $ | 2,414,973 | $ | 1,962,120 | ||||||||||||||
EMEA: | ||||||||||||||||||||||
GAAP revenue (1) | $ | 79,614 | $ | 98,654 | $ | 246,530 | $ | 278,711 | ||||||||||||||
TAC (1) | (12,745 | ) | (41,948 | ) | (37,399 | ) | (96,787 | ) | ||||||||||||||
Revenue ex-TAC | $ | 66,869 | $ | 56,706 | $ | 209,131 | $ | 181,924 | ||||||||||||||
|
||||||||||||||||||||||
GAAP revenue (1) | $ | 158,685 | $ | 148,136 | $ | 484,073 | $ | 446,261 | ||||||||||||||
TAC (1) | (8,629 | ) | (10,751 | ) | (19,867 | ) | (32,096 | ) | ||||||||||||||
Revenue ex-TAC | $ | 150,056 | $ | 137,385 | $ | 464,206 | $ | 414,165 | ||||||||||||||
Total revenue ex-TAC | $ | 1,002,444 | $ | 857,669 | $ | 3,088,310 | $ | 2,558,209 | ||||||||||||||
Direct costs by segment (5): | ||||||||||||||||||||||
|
$ | 74,495 | $ | 63,069 | $ | 214,079 | $ | 201,343 | ||||||||||||||
EMEA | 23,196 | 7,587 | 63,947 | 47,090 | ||||||||||||||||||
|
47,214 | 45,607 | 149,766 | 137,399 | ||||||||||||||||||
Global operating costs (6) | 613,302 | 539,403 | 1,942,565 | 1,676,710 | ||||||||||||||||||
Gain on sale of patents and land | - | - | (11,100 | ) | (121,559 | ) | ||||||||||||||||
Asset impairment charge | 41,699 | - | 41,699 | - | ||||||||||||||||||
|
- | - | - | 394,901 | ||||||||||||||||||
Intangible assets impairment charge | - | - | - | 87,335 | ||||||||||||||||||
Restructuring charges, net | 26,012 | 9,962 | 96,932 | 86,576 | ||||||||||||||||||
Depreciation and amortization | 152,412 | 115,468 | 457,630 | 388,360 | ||||||||||||||||||
Stock-based compensation expense | 110,426 | 128,892 | 351,252 | 369,263 | ||||||||||||||||||
Loss from operations | $ | (86,312 | ) | $ | (52,319 | ) | $ | (218,460 | ) | $ | (709,209 | ) |
(1) |
Commencing in the second quarter of 2016, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as cost of revenue - TAC due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. |
|||||
(4) | In the first quarter of 2016, we reclassified certain amounts from other revenue to either display or search revenue. Prior period amounts have been revised to conform to the current presentation. | |||||
(5) |
Direct costs for each segment include certain cost of revenue -
other and costs associated with the local sales teams. Prior to
the second quarter of 2016, certain account management costs
associated with |
|||||
(6) |
Global operating costs include product development, marketing,
real estate workplace, general and administrative, account
management costs and other corporate expenses that are managed on a
global basis and that are not directly attributable to any
particular segment. Beginning in the second quarter of 2016, certain
account management costs associated with |
|||||
|
||||||||||||||||||||||
Supplemental Financial Data and GAAP to Non-GAAP Reconciliations (continued) | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||||||||
Reconciliation of net income (loss) attributable to |
||||||||||||||||||||||
Net income (loss) attributable to |
$ | 76,261 | $ | 162,826 | $ | 75,905 | $ | (376,319 | ) | |||||||||||||
Advisory fees | - | 27,150 | 8,000 | 51,427 | ||||||||||||||||||
Gain on sale of land | - | - | - | (120,059 | ) | |||||||||||||||||
Depreciation and amortization | 152,412 | 115,468 | 457,630 | 388,360 | ||||||||||||||||||
Stock-based compensation expense | 110,426 | 128,892 | 351,252 | 369,263 | ||||||||||||||||||
Asset impairment charge | 41,699 | - | 41,699 | - | ||||||||||||||||||
|
- | - | - | 394,901 | ||||||||||||||||||
Intangible assets impairment charge | - | - | - | 87,335 | ||||||||||||||||||
Restructuring charges, net | 26,012 | 9,962 | 96,932 | 86,576 | ||||||||||||||||||
Other expense, net | 23,955 | 6,122 | 66,759 | 38,476 | ||||||||||||||||||
Benefit for income taxes | (93,208 | ) | (105,513 | ) | (75,613 | ) | (124,736 | ) | ||||||||||||||
Earnings in equity interests | (95,195 | ) | (116,228 | ) | (290,726 | ) | (249,579 | ) | ||||||||||||||
Net income attributable to noncontrolling interests | 1,875 | 474 | 5,215 | 2,949 | ||||||||||||||||||
Adjusted EBITDA | $ | 244,237 | $ | 229,153 | $ | 737,053 | $ | 548,594 | ||||||||||||||
Reconciliation of net cash provided by (used in) operating activities to free cash flow: | ||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 137,275 | $ | 217,906 | $ | (2,515,712 | ) | $ | 993,604 | |||||||||||||
Acquisition of property and equipment, net |
(150,381 | ) | (41,970 | ) | (417,276 | ) | 51,581 | |||||||||||||||
Dividends received from equity investee | (375 | ) | - | (142,045 | ) | (156,968 | ) | |||||||||||||||
Excess tax benefits from stock-based awards |
31,509 | (8,817 | ) | 33,359 | 1,743 | |||||||||||||||||
Free cash flow(2)(3) | $ | 18,028 | $ | 167,119 | $ | (3,041,674 | ) | $ | 889,960 | |||||||||||||
Reconciliation of GAAP mobile revenue to gross mobile revenue: | ||||||||||||||||||||||
GAAP mobile revenue (1) | $ | 271,413 | $ | 395,832 | $ | 756,852 | $ |
1,034,772 |
||||||||||||||
Revenue share with third parties (1) | 152,728 | 36,542 | 473,406 | 224,632 | ||||||||||||||||||
Gross mobile revenue | $ | 424,141 | $ | 432,374 | $ | 1,230,258 | $ |
1,259,404 |
||||||||||||||
Reconciliation of GAAP search revenue to gross search revenue: | ||||||||||||||||||||||
GAAP search revenue (1) | $ | 515,841 | $ | 703,130 | $ | 1,586,148 | $ | 1,906,507 | ||||||||||||||
Revenue share with third parties (1) | 360,469 | 49,328 | 1,183,278 | 431,688 | ||||||||||||||||||
Gross search revenue | $ |
876,310 |
$ |
752,458 |
$ | 2,769,426 | $ |
2,338,195 |
(1) |
Commencing in the second quarter of 2016, TAC payments related to the Microsoft Search Agreement, which previously would have been recorded as a reduction of revenue, began to be recorded as cost of revenue - TAC due to a required change in revenue presentation. See "Change in Revenue Presentation" in the accompanying press release. |
|||||
(2) |
During the nine months ended |
|||||
(3) |
During the nine months ended |
|||||
|
||||||||||||||
GAAP to Non-GAAP Reconciliations | ||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||
Three Months Ended | ||||||||||||||
|
||||||||||||||
2015 | 2016 | |||||||||||||
GAAP loss from operations | $ | (86,312 | ) | $ | (52,319 | ) | ||||||||
(a) | Restructuring charges, net | 26,012 | 9,962 | |||||||||||
(b) | Stock-based compensation expense | 110,426 | 128,892 | |||||||||||
(c) | Advisory fees | - | 27,150 | |||||||||||
(d) | Asset impairment charge | 41,699 | - | |||||||||||
Non-GAAP income from operations | $ | 91,825 | $ | 113,685 | ||||||||||
GAAP net income attributable to |
$ | 76,261 | $ | 162,826 | ||||||||||
(a) | Restructuring charges, net | 26,012 | 9,962 | |||||||||||
(b) | Stock-based compensation expense | 110,426 | 128,892 | |||||||||||
(c) | Advisory fees | - | 27,150 | |||||||||||
(d) | Asset impairment charge | 41,699 | - | |||||||||||
(e) | Loss on Hortonworks warrants | 12,781 | 8,493 | |||||||||||
(f) |
To adjust the provision for income taxes to reflect an effective
tax rate of 35% for both the three months ended |
(121,436 | ) | (146,133 | ) | |||||||||
Non-GAAP net earnings | $ | 145,743 | $ | 191,190 | ||||||||||
GAAP net income attributable to |
$ | 0.08 | $ | 0.17 | ||||||||||
Non-GAAP net earnings per share - diluted | $ | 0.15 | $ | 0.20 | ||||||||||
Shares used in non-GAAP per share calculation - diluted | 946,934 | 957,304 | ||||||||||||
Nine Months Ended | ||||||||||||||
|
||||||||||||||
2015 | 2016 | |||||||||||||
GAAP loss from operations | $ | (218,460 | ) | $ | (709,209 | ) | ||||||||
(a) | Restructuring charges, net | 96,932 | 86,576 | |||||||||||
(b) | Stock-based compensation | 351,252 | 369,263 | |||||||||||
(c) | Advisory fees | 8,000 | 51,427 | |||||||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||||||
(e) |
|
- | 394,901 | |||||||||||
(f) | Intangible assets impairment charge | - | 87,335 | |||||||||||
(g) | Asset impairment charge | 41,699 | - | |||||||||||
Non-GAAP income from operations | $ | 279,423 | $ | 160,234 | ||||||||||
GAAP net income (loss) attributable to |
$ | 75,905 | $ | (376,319 | ) | |||||||||
(a) | Restructuring charges, net | 96,932 | 86,576 | |||||||||||
(b) | Stock-based compensation | 351,252 | 369,263 | |||||||||||
(c) | Advisory fees | 8,000 | 51,427 | |||||||||||
(d) | Gain on sale of land | - | (120,059 | ) | ||||||||||
(e) |
|
- | 394,901 | |||||||||||
(f) | Intangible assets impairment charge | - | 87,335 | |||||||||||
(g) | Loss on Hortonworks warrants | 19,241 | 49,930 | |||||||||||
(h) | Asset impairment charge | 41,699 | - | |||||||||||
(i) | To adjust the provision for income taxes to reflect an effective tax rate of 35% for both the nine months ended September 30, 2015 and 2016 | (156,780 | ) | (184,827 | ) | |||||||||
Non-GAAP net earnings | $ | 436,249 | $ | 358,227 | ||||||||||
GAAP net income (loss) attributable to |
$ | 0.08 | $ | (0.40 | ) | |||||||||
Non-GAAP net earnings per share - diluted | $ | 0.46 | $ | 0.38 | ||||||||||
Shares used in non-GAAP per share calculation - diluted | 944,160 | 954,664 | ||||||||||||
Business Outlook
The following business outlook is based on information and expectations
as of October 18, 2016.
Three Months | Fiscal Year | |||||
Ending | Ending | |||||
December 31, 2016 | December 31, 2016 | |||||
(in millions) | (in millions) | |||||
GAAP revenue: | $ | 1,360 - 1,400 | $ | 5,060 - 5,100 | ||
Cost of revenue - TAC: |
$ | 480 | $ | 1,620 | ||
Revenue excluding traffic acquisition costs ("Revenue ex-TAC"): | $ | 880 - 920 | $ | 3,440 - 3,480 | ||
Adjusted EBITDA: |
$ | 260 - 300 | $ | 810 - 850 | ||
Non-GAAP income from operations: | $ | 140 - 180 | $ | 300 - 340 | ||
Reconciliations: | ||||||
Revenue ex-TAC: | ||||||
GAAP revenue (7) | $ | 1,360 - 1,400 | $ | 5,060 - 5,100 | ||
Less: Cost of revenue - TAC (7) |
480 | 1,620 | ||||
Revenue ex-TAC | $ | 880 - 920 | $ | 3,440 - 3,480 | ||
Adjusted EBITDA (8): | ||||||
Depreciation and amortization | $ | 120 | $ | 510 | ||
Stock-based compensation | $ | 120 | $ | 500 | ||
Non-GAAP income from operations (9): | ||||||
Stock-based compensation | $ | 120 | $ | 500 |
(7) | Includes anticipated impact of the Change in Revenue Presentation. |
(8) |
|
(9) |
|
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