"Revenue excluding traffic acquisition costs ("revenue ex-TAC") was $1,072 million for the third quarter of 2011, a 5 percent decrease from the third quarter of 2010. Income from operations decreased 6 percent to $177 million in the third quarter of 2011, compared to $189 million in the third quarter of 2010. The year over year decreases were primarily due to the revenue share related to the Search Agreement with Microsoft."
"GAAP display revenue was $502 million, a decrease of 2 percent, compared to $514 million for the third quarter of 2010."
Display down again. Yikes.
The Earnings Call Play-By-Play
CFO, acting CEO and Wall Street whipping boy, Tim Morse flew solo on the earnings call with analysts and said there would be no news today on strategic investors or new CEOs - or anything like that. So, don't hold your breath Wall Street. He then got right into the details of display results saying that premium display revenue grew and Non-premium revenue display declined. Morse said specifically that Yahoo! Mail and other similar non-premium placements (Finance and News sections were mentioned later) are experiencing "headwinds". EMEA and APAC continued to be strong - as it seems every quarter - but "the Americas" was not, which is an echo of previous quarters, too.
Later, Morse clarfied his "premium" and "non-premium" vocabulary as "premium" meant "guaranteed" and "non-premium" placements meant "non-guaranteed" - which are likely sold through Right Media Exchange. There was more "P" word later... "Premium personalized content" is a stated goal by the company as Yahoo! is making clear its aim to position the massive portal as worthy of a higher, premium CPM to agencies and advertisers. But does context and placement matter to increasingly data-driven audience buyers?
Morse said that the Yahoo! sales team did a good job in August and September in answers to a question about sales team performance, and consequently the company didn't see the dip it saw in Q2 2011.
A question on the still-unannounced, Class II inventory partnership with Aol and Microsoft got an official "no comment." In general, Morse said Yahoo! sees the need to make improvement on the non-premium side with inventory, engagement and technology. Is Yahoo! in acquisition mode as it says it wants to update its technology? Hard to believe considering no CEO and questions regarding selling the company. Or is this all reliant on internal innovation? In fact, that's the public position as was revealed later in the call.
Regarding addressing the agency, Morse said things remain the same as the company admits it needs to be easier to do business with and be more competitive and the new sales team strategy will hopefully shore up these deficiencies.
A question on flagging CPMs and premium display had Morse reiterate the new sales strategy (tentpoles, partnerships) and sales team.
Regarding non-premium, Morse admitted fragmentation was hurting yield. But said that new and better content would help (like the expanded ABC News partnership). He also suggested an increase in impressions per page view in Yahoo! Mail would help - this is odd considering a premium opportunity should likely be around scarcity of ads on a page. Morse then said continued improvement in RMX techology would "improve and expand" the non-guaranteed opportunity. Yes, he said that. Improvements aren't soon enough because the CPMs have already been dropping on the exchange given Q3's results.
Asked for a prediction on the growth of display in 2012, Morse demurred saying that Q4 2011 would expect the usual, sequential "bump" in display. Undoubtedly, he meant "up."
More understanding was requested by a Wall Street analyst about display revenues slipping by 2% year-over-year, which Morse still termed "flat." Morse said he thinks there's yield improvements coming with an update to RMX technology. Product development expenses were up, so it's possible it went toward Right Media. Possible. At this point, this was the first time RMX had been mentioned twice in a call since I don't know when. Analysts were all over Morse about display.
On the search front, it was revealed Microsoft had to pay up on revenue per search guarantees during the quarter because the Yahoo! search transition to Bing continues to fall short from a revenue perspective. Yahoo! was fortunate to see an extension of the agreement - or was it? - as an analyst tried to suggest that something else may be going on - is the search re-up part of the coming Aol/Microsoft/Yahoo! agreement (my words)?
Morse then made a third comment about RMX saying that algorithms would be improved. Oh, the algo.
Yahoo! needs to close up the CEO gap or sell the company - quickly. No doubt the executive team believes this. What the board thinks may be another matter.
The uncertainty is a slow burn for employees, future strategy, display CPMs (guaranteed or non-guaranteed display) - let alone the algo. It's painful listening to Morse even if he fielded questions smoothly. He had no answers other than wait-and-see. I bet he could write a helluva behind-the-scenes book.
Yahoo! can continue to crank out cash. It's not going to die. But, the point is the opportunity ahead - the strategy needs to be put in place now. Media buying will go increasingly cross-channel with data-driving it. That data could be some sweet Yahoo! data pointing at Yahoo! inventory and its look-alike premium brethren. Yahoo! is missing the opportunity bus.. Still.
Is the MSFT/Aol/Yahoo! deal the savior? It seems only a piece from here.
By John Ebbert