YHOO - Q1 2007 Yahoo, Inc
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FINAL TRANSCRIPT YHOO - Q1 2007 Yahoo, Inc. Earnings Conference Call Event Date/Time: Apr. 17. 2007 / 5:00PM ET www.streetevents.com Contact Us © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Apr. 17. 2007 / 5:00PM, YHOO - Q1 2007 Yahoo, Inc. Earnings Conference Call CORPORATE PARTICIPANTS Marta Nichols Yahoo, Inc. - Director of IR Terry Semel Yahoo, Inc. - President, Director & CEO Susan Decker Yahoo, Inc. - CFO CONFERENCE CALL PARTICIPANTS Jeetil Patel Deutsche Bank - Analyst Jordan Rohan RBC Capital Markets / Dain Rauscher - Analyst Imran Khan JPMorgan Chase & Co. - Analyst Anthony Noto Goldman Sachs - Analyst Christa Quarles Thomas Weisel Partners - Analyst Ben Schachter UBS - Analyst Justin Post Merrill Lynch - Analyst Heath Terry Credit Suisse - Analyst David Joseph Morgan Stanley - Analyst Scott Kessler Standard & Poor©s - Analyst Mark Mahaney Citigroup - Analyst PRESENTATION Operator Good afternoon, ladies and gentlemen, and welcome to the Yahoo! Q1 2007 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I would now turn the call over to Ms. Marta Nichols. Ms. Nichols, you may begin. www.streetevents.com Contact Us 1 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Apr. 17. 2007 / 5:00PM, YHOO - Q1 2007 Yahoo, Inc. Earnings Conference Call Marta Nichols - Yahoo, Inc. - Director of IR Good afternoon and welcome to Yahoo!©s first quarter earnings conference call. On the call today are members of our executive team, Terry Semel, Sue Decker, and Jerry Yang. Before we begin, I©d like to remind you that matters discussed on this call contain forward-looking statements that involve risks and uncertainties concerning Yahoo!©s expected financial performance as well as Yahoo!©s strategic and operational plans. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, the successful implementation and acceptance by advertisers of the Company©s new search advertising system, the Company©s ability to compete with new or existing competitors, the implementation and results of the Company©s announced reorganization, the reduction in spending by or loss of marketing services customers, the demand by customers for Yahoo!©s premium services, the acceptance by users of new products and services, and the risks related to joint ventures and the integration of acquisitions. Other potential factors that could affect the Company©s business and financial results are included in the Company©s annual and quarterly reports, which are on file with the SEC. All information discussed on this call is as of today, April 17th, and Yahoo! does not intend and undertakes no duty to update this information to reflect future events or circumstances. On the call today, we will discuss some non-GAAP financial measures in talking about the Company©s performance, including operating income before depreciation, amortization, and stock-based compensation expense, which will be referred to as operating cash flow, revenue excluding traffic acquisition costs, free cash flow, non-GAAP net income, and non-GAAP net income per share. Reconciliations of those non-GAAP measures to GAAP measures can also be found on our Web site under Investor Relations. Terry and Sue have prepared remarks that should last about 30 minutes and then we©ll have a brief Q&A session. And with that, I©d like to turn the call over to Terry. Terry Semel - Yahoo, Inc. - President, Director & CEO Good afternoon, everyone. Let me begin by reminding you of our strategy, designed to enable us to capture the future growth of the internet. We intend to leverage our [deborniuns] insights to create full-fledged advertising networks, with a marketplace that meets supply and demand both on Yahoo!©s valuable owned and operated network and across the entire internet. Over the past six months, we©ve made clear our intention to sharpen Yahoo!©s focus on our key customer segments and our strategic priorities. We began to reorganize our company around the audience, advertiser and publisher, and technology groups back in December, and we©ve been executing aggressively against our plans to improve our search monetization, strengthen our display advertising business, and seize the opportunities we see in emerging areas, like social media, mobile, and video. We continue to make good progress on all of those efforts during the first quarter of this year and delivered a solid financial performance as a result. We know there is still much more to do and room for more continued growth across our business. We are confident that our hard work and focus will help us in our efforts to capture the major growth opportunities we see ahead and thereby improve our financial performance and continue to build shareholder value. Let me begin by talking about the progress we©ve made in our advertising business, as well as some of the initiatives we©re focused on in the months ahead. Our vision for our global advertising network is to revolutionize how advertisers connect with www.streetevents.com Contact Us 2 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Apr. 17. 2007 / 5:00PM, YHOO - Q1 2007 Yahoo, Inc. Earnings Conference Call their target customers across the internet. Our goal is to drive more value from more advertisers and publishers than any other company. We©re executing against this mission in a number of ways. First, I©ll review our progress on our new search marketing system known as Panama. To remind you, this is the first step in a broader company priority to create next generation ad platforms. Over the past few months, we©ve been focused squarely on launching our new search marketing ranking model and our plan to migrate our active U.S. advertisers to the new search marketing system. Our teams have now achieved both of those goals and I couldn©t be more pleased with the early results that we©re seeing. On February 5th, we turned on the new search market ranking model in the U.S. and on March 30th, we successfully completed our Panama migration plan for active U.S. advertisers. While we©re still in the early days, we©ve already seen significant increases in the relevance of our most prominent sponsored search ads and have heard from our advertisers that they are seeing meaningful improvements in ad performance. Given the early success of Panama in the U.S., we©re now well-positioned to succeed in the international markets, including the ad interface first and then launching our new ranking model as we did in the U.S. In fact, I©m pleased to announce that we launched the system interface to a select group of customers in Japan yesterday and will begin sending upgrade invitations to our broader advertiser base in Japan over the course of the next week. We plan to roll out Panama to remaining international markets in the months ahead, beginning with the advertising--advertiser migration in Korea and Europe later this quarter. We believe the Panama ad system will help significantly improve our search monetization. As we©ve said previously, we expect to see financial impact beginning this quarter, Q2, and gain momentum throughout ©07 and beyond. And we also believe that we can use Panama©s flexible platform to introduce more features in the future and integrate with other Next Generation advertising targeting and monetization capabilities we are developing both on and off the Yahoo! network. Turning to some broader dynamics in our advertising business, we©ve been talking about the changing mix of available inventory on the web for the past few months. The market is going through a significant transition, with new forms of inventory becoming available from a range of new and established competitors. This market shift represents great opportunity for Yahoo!. We believe that we©re well-positioned to take advantage of this shift because of our position as the largest display advertising network, our improving monetization abilities through Panama, and our proven ability to deliver results from multi-objective advertisers. At the same time, we are continuing to make some adjustments in our business that I have discussed previously, including aligning our sales force, broadening our advertiser tools, and expanding our ad network. As the market undergoes this natural transition, we expect that this year our growth will be broadly consistent with the U.S. display market. Importantly, that©s from a much higher base and we continue to be the largest display network. Longer term, we intend to outpace the growth of the market. I©d like to spend some more time discussing some of the key steps we©ve taken to expand our ad network in order to address this changing landscape. Our goal is to assemble a formidable network of partners that incorporates many forms of online advertising and a greater variety of inventory, so advertisers have the ability to connect with their target customers wherever they are on the internet. Last week, we renewed and expanded a multi-year partnership with Viacom through which Yahoo! will serve as the exclusive provider of sponsored search and contextual ads to all 33 of Viacom©s world leading broadband sights, including MTV, VH1, Nickelodeon, Comedy Central, and BET.