Yahoo! Q1 15A– The last rabbit

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Yahoo! Japan will be the last rabbit to distract the market.

• Yahoo! pulled its last rabbit out of the hat and in doing so successfully diverted the market’s attention from another disappointing set of results.
• Q1 15A revenues-ex TAC / adjusted EPS were $1.04bn / $0.15 missing consensus of $1.06bn / $0.18.
• The headline figures which are gross revenues before the deduction of traffic acquisition costs showed some improvement but this appears to be almost entirely due to the deal that has been signed with Mozilla.
• Yahoo! is now the default search provider for Firefox and the first effects of that were seen during Q1 15A.
• Mozilla clearly struck a good deal with Yahoo! as headline revenue growth of 8% became a decline of 4% YoY once TAC had been deducted.
• Mobile, Video, Native and Social (Mavens) which make up the growth part of Yahoo! saw 58% revenue growth to $363m but are still not big enough to offset the poor performance of the underlying business.
• Yahoo! made much of generating $234m in revenues from 600m mobile users, but I would argue that this is underperformance on a grand scale.
• RFM estimates that in Q1 15 Google generated $2.3bn in revenue from its 684m Google ecosystem users on Android.
• Yahoo! actually has better coverage of Digital Life than Google does (Google is missing gaming) and hence the opportunity for it to generate revenues on mobile is actually greater than Google’s.
• If its claim to have 600m mobile users is accurate and its house was in order, it should have generated $1.98bn in revenues in Q1 15A using Google as a benchmark.
• The missed opportunity of $1.75bn is due to the company’s failure to develop its acquisitions into an ecosystem of integrated Digital Life services that are easy and fun to use.
• On this front there has been no progress and until Yahoo! executes on creating its mobile ecosystem, it is likely to continue vastly underperforming its potential.
• This fact was evident in Q2 15E guidance where revenues are expected to be $1.01bn-$1.05bn below consensus of $1.054bn.
• Yahoo! attempted to cover up this failing by announcing that it is now exploring strategic opportunities for Yahoo! Japan.
• After this has been sold and the proceeds returned to investors, the hutch will be empty of rabbits with which to distract investors from the underperformance of the core business.
• A quick glance at its competitors Google, Facebook, Twitter and so on show just how badly Yahoo! is underperforming when it comes to exploiting the opportunity it has before it.
• Until Yahoo! begins to execute on its vision rather than just accumulating assets nothing is going to change.
• Of this there is no sign and I see no reason to go near Yahoo! for some time to come.