Yahoo sees better-than-expected Q1 results and signs of revival



Yahoo’s Q1 2014 revenues show the best Q1 since 2010

Yahoo (YHOO) announced its Q1 2014 results Tuesday, which were slightly above Wall Street expectations. Yahoo earned 38 cents per share on $1.087 billion in revenues, while analysts were expecting Yahoo to report earnings of 37 cents per share on revenue of $1.08 billion. Most importantly, Q1 2014 was the best Q1 in terms of revenues since 2010, highlighting that the company is showing the initial signs of coming back to growth under the leadership of CEO Marissa Mayer.

Yahoo Revenue Region Wise

New products and ad formats drive growth in the Americas

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As the above chart shows, the Americas produced the maximum revenue growth of more than 3%, primarily driven by investments in new products and ad formats. The APAC region saw a year-over-year revenue decline of 8%, driven almost entirely by favorable foreign exchange, which negatively impacted the top line by approximately $13 million year-over-year. In constant currency, revenue ex-TAC fell approximately 1% in the region.

Yahoo Revenue Source Wise

The search and display business is driving Yahoo growth

The search and display advertising business is the most important business not only in terms of revenue share, but also in terms of growth. As the above chart shows, Yahoo’s Search and Display segments contribute about 80% of the company’s revenues. Search advertising revenue ex-TAC grew 9% in Q1 2014 compared to Q1 2013, and Display revenue ex-TAC grew 2%, while Other revenues declined 11%.

Yahoo competes with Google (GOOG), Microsoft (MSFT), and AOL (AOL) in the search advertising business, and according to Comscore, Yahoo has about 10% share in the U.S. explicit core search market, while Google leads this market with a share of about 68%. Yahoo competes with Facebook (FB) in the display advertising business, and within this segment, the company expects mobile, social, video, and native to be future catalysts of growth.

What to expect in Q2?

Yahoo expects the ex-TAC revenue to be in the range of $1.06 billion to $1.10 billion in Q2 2014. During the conference call to discuss Q1 earnings, management mentioned, “As it relates to Q2, we expect to see increased contribution from mobile apps, video, stream ads, Americas Audience Display, and improvements in international segments. The expiration of the Microsoft RPS Guarantee at the end of Q1 will however be a headwind.”


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