Yahoo Earnings Meet Expectations, More-or-Less

Yahoo just released its earnings report for the fourth quarter of 2011, with results that were basically in line with the expectations of Wall Street analysts.

The company earned 24 cents per share, which is what analysts estimated, and what the company delivered during the same quarter last year. But meeting those low expectations is no great triumph. For one thing, Yahoo’s revenues have been in declining for a while now, and the trend continued. Fourth quarter revenue, minus traffic acquisition costs, came in at $1.17 billion, a 3 percent decrease from the same period last year. That’s also less than the analyst estimate of $1.19 billion.

Display ad revenue was down 4 percent, to $546 million. Search ad revenue was down 3 percent to $388 million. But hey, some numbers went up — operating income increased 10 percent to $242 million, a fact that new CEO Scott Thompson highlighted in the earnings release.

“Yahoo! continued to make progress in the quarter with operating income increasing ten percent year over year,” Thompson said. “In 2012 we will be aligning resources behind key areas of focus to enable us to move aggressively in market and grow our business, bringing innovative new products and experiences to both our users and advertisers.”

The numbers cover a quarter when Yahoo was mostly without permanent leadership — Carol Bartz was fired in September, and the company was run by interim CEO Tim Morse (normally Yahoo’s CFO) until Thompson’s hiring in early January.

More interesting than the numbers will be Thompson’s first earnings call as Yahoo CEO, which starts at 2pm Pacific. We’ll be liveblogging the call in this post.

Earnings call liveblog

2:03pm: After the boilerplate, Scott Thompson starts the call. It has been three weeks since he joined, two weeks since his official start date. He’s been “rapidly coming up to speed.” Talks about Yahoo’s “exceptional foundation,” user base, brand, etc. “We will focus on generating real, sustainable growth and value creation.” Acknowledges that there’s a lot of work to do, but says it’s too early for a detailed plan. His guiding principle is to “insist that we be balanced,” especially in “the way we allocate capital.”

2:06pm: Thompson goes over the basic numbers. “A lot of people worked very hard” to get these results, but there’s “no question” that they need to improve. Tim Morse takes over to go into more detail. “This quarter was challenging in many respects, but I’m proud of what the company accomplished.” Talks about new products, salesforth growth, Interclick acquisition, and more.

2:09pm: Morse starts talking about finances for the whole year, noting that revenues are down in large part because of the beginning of the search partnership with Microsoft. Morse notes declining costs, but argues that Yahoo isn’t cutting everything — the company spent $250 million on new products.

2:16pm: Morse discusses audience and engagement growth, thanks to content and product launches. “One in six Americans online watched a Yahoo original video in November.”  Despite these wins, “Revenue isn’t growing. … We expected better.”

2:19pm: Morse says, “a low- to mid-teens operating margin is not what you should expect from us in the future.” The margin should improve thanks to revenue growth and improved “cost structure.”

2:21pm: Thompson thanks Morse for leading the company through the transition. Then Thompson talks more about his goal of balance. First, he will balance Yahoo’s approach to its customers — which includes users and advertisers. “We will focus equally on both.” Second, he will balance “who we are.” “Yahoo is fundamentally both a media company and a technology company. We need to be great at both.” “So we end the debate about which is more important — we are both a media company and a tech company. We must do both.”

2:23pm: Third, balance between speed and thoughtfulness: “We will get speed back into the equation.” Fourth, balance in how Yahoo’s invests its capital. Majority of resources should be dedicated to current core business. But Thompson also believes in significantly investing in new products, and spending a small but non-trivial amount on technologies that won’t be relevant for at least 12 months. “This isn’t starting from scratch on a new investment cycle.”

2:27pm: Two fundamental building blocks of future plans. One is a focus on customer experiences. “We need to improve the quality of our relationship with these customers and their experiences with Yahoo.” Those improvements can include new interfaces, better content, and faster services. Yahoo will also give advertisers “better tools to increase the effectiveness and ROI of their spend with us.” The second building block, data, is one way Yahoo can improve that experience. “Yahoo has made some real progress in this area but there’s a long way to go to get to that uniquely relevant experience that will really differentiate it.” “Our data may be Yahoo’s single most underrated, under-appreciated and under-used asset.” Data will be “the cornerstone of the next generation of Yahoo products.”

2:30pm: The board has worked systematically to make decisions about Yahoo’s future, whether that’s an acquisition, raising more capital, or selling off part of the company. “It’s important for you to know that the company remains open to anything that would be good for our shareholders.” However, Thompson says he feels strongly that Yahoo’s Asian assets are important — implying that he will oppose a sale. “I’m here because I believe this company can do much more to innovate and disrupt, to build great products, and to leverage great data and technology in ways that the world hasn’t yet conceived.”

2:33pm: Question and answer portion starts. How much will Interclick contribute to Q1 numbers? And can you say anything about search RPS improvements? Morse: There’s about $25 million of cost and $10 million of revenue. On RPS, Microsoft is “starting to get into the swing of things. … We’re definitely closing the gap.”

2:36pm: How significant of a role do you see M&A in terms of the strategy? Does Yahoo need “transformative acquisitions”? And what about the larger economic environment? Thompson: “If we want to push this agenda forward quickly, we’ll have to be fairly aggressive in the market” — so yes, Yahoo will probably be making some acquisitions. Morse on the macroeconomy: “We’re not expecting much of a pickup in the first quarter anywhere, really.”

2:38pm: What about paying out a dividend? And how can Yahoo turn around its display ad business? Thompson: Too early to talk about dividends. On turning around display business, “a lot of my time and attention has gone into understanding what that business is.” Display advertising is “the very highest priority I have in the core business today.”

2:40pm: Can we assume there are no sacred cows going forward? And how are those premium video programs actually doing? Thompson: It’s hard to interpret the first question. “We are understanding and evaluating all options for the business going forward. … I don’t know whether what I just said fits into no sacred cows, but we’re being aggressive.” Morse: In the last month we had nine out of the top 10 shows in terms of original programming on the Web. Yahoo doesn’t disclose revenue or streaming numbers. “I think it’s safe to assume healthy growth there, but we need to do more.”

2:42pm: What are the economics of Electric City, the web video series in partnership with Tom Hanks? Is it just an experiment? Thompson was at CES where Electric City was announced, says he was “fascinated” by the buzz. No details about how that’s going to affect the larger business.

2:45pm: What are some of the broad themes on new areas that Yahoo could pursue? And what can you say about search share and revenue? Thompson: Too early to talk about those themes. “I hesitate to say what picks at this point in time, what strategy we’re going to invest in.” Morse: It’s definitely Yahoo’s goal to grow search share. Thompson: “No winner has shown themselves … as it relates to mobile and search and display and local.”

2:48pm: How would you define Yahoo? Thompson: “This debate is apparently a long-standing debate inside the company. I would reiterate my comments, which is we better be darn good at both.” “We are going to stop this debate.”

2:53pm: What kind of growth rate do you expect to see on “Class 2” display advertising inventory?  Morse: You’re right, we didn’t have enough focus on that segment. That’s what the Interclick acquisition is for, but no numbers. We are investing in this area “in order to meaningfully improve the growth rates and especially the CPMs in that area.”