Financial Overview
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Transcript of Financial Overview
Financial OverviewTIM MORSE
Value Creation
Operational Framework
Best-in-Class Properties
Reach and Scale
Science and Know-how
Re-aligned Cost Structure
Search Agreement
Rich Data
People
Leverage Key Strengths
Product Innovation
User Insights
Brand Value
Engagement $
Search Experiences
Editorial as Competitive Advantage
Continue to Improve and Evolve
Execution
Growth
M&A
Complexity
Global Platforms
Focus, Prioritization, Accountability
Fix Now
} Credibility
Value Creation
Business Priorities• Growth• Margin Expansion• Disciplined Resource Allocation• Capital Efficiency
Innovation
Monetization
Execution
Maximize Free Cash Flow
Fund M&A
Offset Equity Dilution
Build Execution Machine
Simplify
Focus on ROI
Expand Margins
Operational:Share in Yahoo! Japan success
Strategic: Participate in China growth
through Alibaba
Financial Framework
Total Yahoo! Valuation
Cash Core Business Asian Assets
Revenue
MonetizeInsights
MaintainValue Proposition
Next-GenExperience
PortfolioManagement
O&O Search~$1.5B
Fees, Listings & Other
~$1.2B
O&O Display~$1.7B
Revenue: 2009E
Please note: 2009 revenue segments calculated using 2009 actuals through Q3’09 plus the midpoint of Q4’09 revenue guidance.
Affiliates~$2.0B
Revenue Ex-TAC
Intelligent supply and demand shaping
International UU growth
Matching relevance
Better utilized existing inventory
Multi-objective optimization
Web analytics
Pricing accuracy
Yield optimization
Video
Behavioral targeting
Marketplace design
Rich ads
Insights-ROI
Offline-online behavioral convergence
Editorial click enhancement Easy to do business with
Content optimization
Revenue Levers
INNOVATION MONETIZATION
EXECUTION
Search volume User experience
Revenue Growth PrioritiesRevenue Opportunity
5% of U.S. Ad Revenue Share Shift = $650
million1
Close 50% of RPS Gap in U.S. = ~$300 million2
Increase International ARPU by 50% = $500+
million annually3
• Win in Display
• Grow Search Volume & RPS
• Improve Monetization of International Audience#3
#1
#2
Note 1: Source Veronis Suhler Stevenson Communications Industry Forecast (2009).Note 2: Source: Internal Yahoo! Estimates. RPS gap compared to market leader.Note 3: Source: Internal Yahoo! Estimates.
Cost Optimization
P&L impacts over time
Cost Management Overview
Phase I
Budget Discipline
Differentiation
Plan for Efficiency
Phase III
Simplify and Streamline
Structural Changes
Continuous Improvement
Phase II
Self-funding Mentality
Right-sourcing
Invest for Productivity
Be Lean
Fund ROI
Development
Analytical
Compliance
Support Transactional
Differentiating Costs
Breakworkforcecosts intoactionablecategories
OSP
Marketing
Other
Cost of Revenue
Workforce
~$3B
Traditional View
Repositioning Cost Structure
Resource Optimization
Engineers & Salespeople
Low-cost Centers of Excellence
$
Organizational Efficiency
Global Functions & Priorities
Cost Optimization @ Scale
$
Smarter Solutions
System & Platform Investments
Cloud Deployment & Tech Refresh
$
Better Infrastructure Utilization
Automation & Standardization
Low-cost DCs & Flattened Networks
$
Structural Opportunities
Engineering Productivity
1x OutputUp to 2xOutput
Structural Opportunities
Geographic Resources
Undifferentiated, Organic Differentiated, Planned
HighCost
HighCost
LowCost
LowCost
Structural Opportunities
Infrastructure
Structural Opportunities
Internal “Plumbing”
Convoluted, Complex Lean, Simple
A B BA
Impact of Search Agreement
• No revenue sharing• All basic Algo and Paid Search costs
funded by Microsoft after regulatoryclearance
• 1st of 3 $50M payments to Yahoo!• Upfront transition costs
Regulatory Clearance Algo Transition U.S. Paid Search
Transition
International Paid Search Transition
• Revenue sharing begins as each market rolls out
• Headcount transitions completed and remaining Yahoo! support cost rationalized
• 2nd and 3rd $50M payments to Yahoo!
2010 Modeling 2011-12 Modeling
Will guide & report together
Early 2010 Within 12 months Within 12 months Within 24 months
Please note: Additional detail on the terms of the agreement can be found in Yahoo!’s 8-K dated July 29, 2009.
Financial Metrics
“New” Financial Metrics
• GAAP Operating Income• GAAP Net Income & EPS
Profitability
• Operating Margin Rate• Return on Invested Capital
Efficiency
• GAAP Cash Flows from Operating Activities• Free Cash FlowCash Generation
“New”
“New”
1. Amount shown by dotted line is non-GAAP and excludes a goodwill impairment charge of $488 million. In 2008, GAAP Operating Income was $13 million, GAAP Operating Margin was 0.2% and Return on Invested Capital was 0%.
2. 2008 GAAP Net Income includes a $401 million non-cash gain related to Alibaba Group’s initial public offering of Alibaba.com.
Note: Operating Margin is calculated as Operating Income / Revenues. Return on Invested Capital represents Operating Income After Tax divided by Average Invested Capital; it is calculated as: (Operating Income x (1 – Effective Tax Rate)) / (2-yr average of Stockholders’ Equity + Interest Bearing Debt – Cash & Cash Equivalents – Investments in equity interests). Effective Tax Rate is calculated as (Provision for income taxes) / (Income before provision for income taxes, earnings in equity interests, and minority interests).
GAAP Operating Income
2006 2007 2008 2009E
$941M
$413M
1
2006 2007 2008 2009E
GAAP Operating Margin Rate15%
6%
1
2006 2007 2008 2009E
GAAP Net Income & EPS
$732M$589M
51¢ 41¢
2
2006 2007 2008 2009E
Return on Invested Capital14%
5%
1
2010-2012 Financial Objectives
15-20% Operating Margin Rate
Accelerate Revenue Growth
15-20% Return on Invested CapitalReturns
~3x2009
3-4x2009
Margins
Revenue