Liveblogging Yahoo Q1 Do-Or-Die Earnings Call

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Yahoo’s first-quarter earnings are out. The conference call is about to start.

5:03 ET: Boiler plate risks, blah, blah, blah

5:05 ET: Jerry Yang. We are very proud fop our Q1 results. Q1 revenue and cash flow in the upper half of our guidance, and raising guidance for the rest of the year. Results underscore the fact that our strategy is beginning to pay off: attract the most users, serve the most advertisers, and develop the best platform. Investments in innovation beginning to bring results. Will address MSFT bid, Q1 performance, and strategy

After a careful evaluation our board determined that MSFT’s offer undervalued Yahoo. Worldwide audience, strategic position in Asia, mobile, scale, tools, and technology. Our board has continued to be open to offers, exploring a number of strategic alternatives. If you take one thing away from thsi Discussion is that our board and management are committed to maximizing shareholder value and will not enter into any transaction that undervalues the company.

results. acquired Maven networks, previewed Amp advertising program, closed the gap on search relevance. Strategy: increasing volume and yield across both search and display. Focusing on starting points. Yield objective is rooted on serving advertisers so well they will insist on working with us. Working on video and mobile, and ads that span both search and display. We closed the revenue search ad gap between ourselves and the leader. Our largest opportunity is in display. With our leadership in display, starting points, and AMPs program, we have [a lot of opportunity here]

5:14 ET: Sue Decker. longterm objectives, becoming starting point for consumers and must0buy for advertisers. Approach to starting points is 3 changes in strategy, instead of hundreds of properties, narrowing focus to make these starting points the best on the Web. Opening up to third parties. Giving people what they want instead of solely directing them to Yahoo properties. Great content good for our users and financed by others. 3rd. linking Yahoo users to friends, family, and community. We are not trying to become another social network.

In March, we made it clear that driving 10% volume growth in search is long-term value driver. We exceeded that in the first quarter. Focused on game-changing features that will differentiate Yahoo from the leader. SearchAssist, which allows searchers to complete searches faster, also integrated with video and other search types. Our next advance is OpenSearch, Later in Q2 we will open the Search interface to developers. Call this Search Monkey. We are also innovating in mobile search. OneSearch is geared towards the mobile user. This quarter released OneSearch 2.0 with voice activated features.

Comscore relevancy score was 72.9 percent versus 69 percent for the next competitor. Mentions Buzz. Use votes to develop popularity indices. Over 120 publishers are in the beta. Yahoo.com has sent tens of millions of referrals in the beta to partners. comscore says 4 million unique visitors in the first month. With our enormous scale this should make us the partner of choice for publishers and bring users back for more as a key starting point.
video on Flickr launched a few weeks ago. Has quadrupled video uploads to Yahoo.

Panama. owned and operated site revenue per search was up 10 percent in the US. Have improved click yield. price per click upside. Can make the marketplace more efficient. Just launched minimum bid changes. eliminating 10 cent minimum bid, rewards advertisers for quality. the site is the most significant since the launch of Panama, in terms of engineering and potential. important in reaching our three-year gal of 15% growth in revenue per search.

test with Google. Premature to speculate what kind of arrangement that may result in. But goal is to improve search monetization. Overall display pricing in 1Q was up slightly as inventory shifted from guaranteed to non-guaranteed inventory.

Compared to search we are buying reach through two large players in display (Blue Lithium and Right Media). Simplifying the market can increase display yield. We are redesigning ad management. Announced AMP, previewed it with newspaper partners, will roll it out in Q3. should result in increase in display yield. Adding insights into display inventory, and already seeing yield benefits. the upside can be even greater.

5:31 ET: We feel we are on the verge of fundamentally changing the game in the most important advertising category: display.

CFO: reaffirming 2008 revenue outlook and increasing cash flow outllook. During Q1 recorded $29M related to workforce realignment. Also recorded $14M in cost for outside advisers related to MSFT’s unsolicited proposal. We will discuss results normalized for these items.

increasingly managing our business around GAAP revenue.

free cash flow: $647M

in Q1 $351M payment from AT&T. excluding this one-time payment, it was $297M

reinvested $79M in Yahoo stock.

$166M in two acquisitions: Maven Networks and FoxyTunes

Investments in Asian companies such as Alibaba was $13.8B or $10 per share, does not include investments Alibaba holds in Taoboa or other properties. Non-cash gain of $141M related to the Alibaba IPO.

GAAP Rev: $1.18B, up 9 percent
GAAP rev ex-TAC, up 14 percent.
O-and-O search up 15 percent
O-and-O display up 16 percent

Advertisers budgets may fall, but we believe the compelling ROI of online ads will cushion the impact.

Strategic relationships with AT&T and Rogers now reflect ad revenue shares, declining portal revenues fees will impact us. Expect fee line to be flat in 2008., with y-o-y declines in the back half. But we believe thee part

US revenues ex-TAC, up 17 percent
International, up 7 percent
14,800 employees

Business outlook for FY08. changing to GAAP (excludes workforce, AT&T payment, MSFT related expenses):

GAAP revenue of $7.2B to $8B
Operating cash flow: $1.1775B to $2.025B
free cash flow $900M to $1.050B
CapEx: $675M to $775M
headcount:13,800, down from 14,300 at end of 2007 (includes 600 new hires)

Q&A

Q: You are guiding 20 percent revenue growth, outstrips estimates for online ad growth.

A: We believe . . . [says they are sticking to their guidannce]

Sanford Bernstein: We noticed TAC is coming down as percentage of gross revenues. Are you doing better deals, or is there a slowdown in network business?

A: Overall TAC rates decreased around 4%. Average TAC still 78% globally. We believe still upward pressure on TAC rates. As we build out our network display business, competitors are also building out a network display business, we will have to compete for that business.

Q: Right Media and weakness in travel and other segments?

Sue: We refer to remnant inventory as non-guaranteed. Last fall we talked about moving that in Right Media (remnant ads). We are seeing significant growth in class 2 (remnant), very strong growth in revenues and CPMs, with revenues close to doubling in that category.

Q: slowdown in O-and-o from 20% to 10%

Decker: you are right, growth was 20% before, now 10%. We are very pleased in where we stand in click-through yield. Looking forward, most important drivers will be a variety of launches around the marketplace, and driving CPC. bid pricing change just launched last week, so had no impact in this Q.

Mark Mahaney,Citigroup: strategic Q about Asian assets. They have always been a large part of the value of Yahoo. What are the hypothetical things you could do with those assets, especially Alibaba and Yahoo Japan

jerry: as we think about the strategic value of Yahoo, we certainly think the position we have been able to achieve in China and Japan is second to none and not possible to easily recreate, so a scarcity value. We will continue to talk about those to our investors.

Q: AMP, how flexible is the architecture in terms of adding in other ad networks. And if you a partnered with someone into search

Sue Decker: A foundational tenet of AMP is that it is built on the exchange, any ad network that is open will have full participation in the exchange. Can power yahoo inventory as well> We intend to be very open as long as other ad networks are open and they connect to the exchange.

In terms of the search component, AMP today is primarily a display platform. The roadmap includes incorporating various kind of inventory, some of which today is considered search. We very much see the world converging, which is why we recently merged our salesforce.

Q: International revenue growth was 7%, what was onetime event. Also what percentage of growth might have been impacted by MSFT distraction with customers holding back their budgets.

A: was not a one-time event, what is impacting international growth is impact of affiliates, moving off low=quality affiliates drives down revenue growth. Seeing strong display growth,. you will see that more overtime.

jerry: Our business continues to perform robustly. the MSFt uncertainty, we keep our eye on the ball, running the business. Hardly any impact at all. We had a really good quarter. We needed up ahead of where we thought we would be.

Q: Do you view current US economic weakness affecting only display and not search?

A: Travel, financial and retail are seeing the same weakness in both search and display, but seeing strong growth elsewhere. Where we are seeing weakness we are seeing it across both industries. But the Internet is evolving into a mainstream advertising vehicle. Seeing 15% plus RPS growth as well.

Q: Where did you get 60% to 70% improvement in search monetization? And on guidance improvement for the bottom line, is that from cost savings?

Sue: I am not sure what you are talking about in terms of the 60% to 70%, if you mean comscore numbers, we do a lot of testing against competitors, also get information back from bidding on deals, so quite a number of inputs. We thought the gap was closer to 100% when we launched Panama. We feel comfortable that we narrowed the gap by 30% in the U.S. and there is 60% to 70% remaining. Also in the US saw strong paid clicks versus the market.

Q: What are you doing to drive inventory growth in display?

A: Continue to be number one in key categories and launching new categories like Shine. Our longterm goal has been to drive 12% CAGR over next 3 years. But all these new initiatives, whether Buzz or Flickr video is all around this inventory goal.

Call ends.

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