Also, Yahoo acquired online-advertising technology company, Interclick for $270m in Nov-2011 to help revamp its online display advertising efforts. Yahoo has gained a better grip on its display advertising fortunes with Interclick and can expect a turnaround going forward due improved targeting capabilities.
Is The Search Alliance Working?
There is still growth in search for Yahoo, and even more so with the Microsoft partnership in place. Yahoo has a revenue sharing agreement with Microsoft in which Microsoft powers the search on Yahoo’s properties and Yahoo keeps 88% of revenues generated. And the company will be focused on growing their share on both desktop and mobile and can be expected to grow at a faster pace down the road, even though competition from Google and other regional search engine providers are very strong.
Yahoo’s search revenues have been rather steady in the last few quarters, because Microsoft guarantees a large portion of search revenues under a previous agreement. However, this agreement in North American locations will end in March 2013, and might impact search revenues going forward.
Yahoo’s Core Business Not Performing
Yahoo’s major headaches comes from the continued deceleration of its core business comprised of both display and search ads. Yahoo’s revenues were up 2% year-over-year and ended the Q4 2012 at $1.35B and for the full year stood at $4.99B which is flat from the revenues of 2011. Operating Income for Q4 2012 came in at $190m which is down 22% compared to Q4 2011 when it stood at $242m.
The bottom line for Q4 wasn’t too pleasing either; Net income was down 8% year-over-year to end Q4 2012 at $272m, compared to $296m a year ago in Q4 of 2011. EPS stood at $0.23 for Q4 2012 which is slightly down from the Q4 2011 EPS of $0.24, in spite of substantial share buybacks amounting to $1.45 billion in the 4th quarter.
Equity Interests and Share Repurchases Are Driving the Company Forward
Earnings from equity interests were up 18% year-over-year in Q4 primarily driven by the performance of Yahoo Japan and Alibaba. In 2012, the huge uptick in the net income was due to a net gain from the partial sale of Yahoo’s Alibaba stake. As a result, the EPS in 2012 saw massive improvement and came in at $3.28 compared to the 2011 EPS of $0.82. Earnings from Alibaba and Yahoo Japan have both been major contributors to Yahoo’s bottom line profits in recent years.
Going Forward
Yahoo’s core businesses have been in decline for years. However, the company has an attractive portfolio of assets. The near term drivers of the stock has been the $3.65B share repurchase, which drove the company’s earnings and the share price substantially higher. The company is in a transition phase, and is investing heavily to revamp its business segments, and might be a good turnaround story down the road.
The article Will This Company’s Fortunes Turn Around? originally appeared on Fool.com and is written by Ishfaque Faruk.
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