The following is my humble attempt to keep up with Tim Koogle's mile-a-minute mouth. The conference call revealed yet again how strong this management team truly is, and how focused they are on making Yahoo! a ubiquitous, repeat-purchase, cash-generating business. Enjoy.-MattYahoo! Q3 – 10/6/99Note: In this quarter, Yahoo!'s results now include Yahoo!, Geocities, and – for the first time – broadcast.com.Q3 Pro Forma Income Statement Notes:- Gross Margins: 84.7% vs. 80.9% a year ago (up from 82% on a pro forma basis in Q2)- Operating Margins: 34.6% vs. 8.7% a year ago- Net Margins: 26.1% vs. 10.4% a year ago- Revenue growth: $155.1 M vs. $66.3 M a year ago -- 133.9% growth- Diluted EPS: $0.14 vs. $0.02 a year ago – 600% growth- Shares Outstanding: 296,336,000 vs. 279,842,000 a year ago – 5.9% growthQ3 Reported Income Statement Notes:- Gross Margins: 83.1% vs. 78.7%- Operating Margins: 16.5% vs. 4.7%- Net Margins: 9.6% vs. 6.4%- Diluted EPS: $0.05 vs. $0.01Balance Sheet Notes:- Cash & Equivs:- $790.5M, up from $679.9M sequentially – an increase of $110.6 M- YTD, up from $626.8M– an increase of $163.7M- Q3 included a $22.1M cost as part of broadcast's acquisition- Cash & Long-term Investments equals $846.5M, or 80.2% of total assets- Accounts Receivables grew sequentially from $40.6M to $43.9M – 8.1% growth; YTD growth of 28.7%- YTD growth of total non-interest-bearing liabilities equals 61.6%- No interest-bearing debt- Approximate Flowie Comparison (no current/LT breakout):- 9/30/99 Flow: 0.26- 12/31/98 Flow: 0.33- Property & Equipment as % of assets:- 9/30/99 = 4.2% ($44.5M P&E)- 12/31/98 = 4.0% ($31.0M P&E)The Call:Key words: relentless, aggressive, focused, integrated, worldwideGary Valenzuela:- 5 key financial metrics: page views, revenues, EPS, profitability (operating profit margin), and cash flows- Page Views: an average of 385 million page views per day, compared to an average of 310 million page views per day in June 1999- Q4 page views IS affected by holiday period- Revenues grew 134% year-over-year to $155 million, versus consensus estimate for $139 M. Up sequentially 21% from $115 million in Q2.- International revs contributed just under 10% of revs.- Operating profits grew to 35% of revenues, versus 27% in Q2- Cash balance grew $111M during quarter- Customers increased to 3,150 advertisers vs. 2800 in Q2. Avg. contract length up to 171 days, from 166 days.- Gross margin up to 85%, up from 82% in Q2, on a pro forma basis.- Maintaining operating margin guidance of 30-36%.- Total headcount equals 1728 vs. 1278 at end of Q2 (incl. 330 from broadcast).- “Our focus on asset management has produced an incredibly strong and conservatively managed balance sheet.”- 10th consecutive quarter of cash growth – now $791 million (net cash, no debt)- DSO improved for 14th consecutive quarter, declining to 26 days from 29 days in Q2.T.K.:- Yahoo! – the only place anyone would have to go to find or get connected to anybody.- Very unique aspect of Internet is no distribution constraints – first such distribution channel EVER.- Leverage the integration of media, communication, and commerce.The Yahoo! Plan:1) Aggressively build the consumption base on Yahoo! through focused brand, content, and distribution strategies.2) Establish a direct branded operational presence in all of the major connected population centers of the world, early in the market cycle. 3) Build a truly comprehensive, leverageable, and integrated platform of media, communication, and commerce.4) Relentlessly build deeper and deeper offerings for our users off of that platform to attain the world's largest base of connected customers.5) Establish the Web's most extensive and most effective sales channel and fill their tool bag with the industry's widest set of integrated business services.“A business with inherent self-reinforcing scale.” - Dollars always follow eyeballs, and Yahoo! is “very serious about taking a disproportionate share of the rapidly expanding Web advertising dollars.”- Yahoo! has now established a direct presence in most of the major population centers of the world. – First such Web service to achieve this global scale.- Entering Q4 with the Web's largest user base and the largest array of communication tools and services. Yahoo! is prepared to launch new services substantially faster and at a lower cost than its competitors.- Going into 2000, Yahoo! is uniquely positioned to take advantage of some emerging trends:- A rapidly growing world market – both in users and spending- The continued growth in available bandwidth and access worldwide- A strong trend toward multi-device and multi-network access - The rapid adoption of Web-enabled commerce worldwide- The continued growth in integrated communication services, including IP telephony, universal messaging, universal forwarding services- The fundamental and profound evolution from distributed application software products to services- Yahoo! will deliver increasingly rich content to the desktop and home, especially as bandwidth rapidly expands- Goal of being one of the largest gross enabler of transactions and will move deeper into the transaction stream.- “as paranoid and focused as ever” to “take as large a share of the market as possible”Jeff Mallet:- Audience and brand development – attracted 105 million unique monthly visitors in September. Saw cumulative registered database surpass 80 million, of which 25 million signed into a personal Yahoo service during September; - Active demographic groups: 36 million adults 24-34; 32 million women, 16 million business professionals, 15 million college students- Work/home reach in U.S. – 64%- During Q3, opened Brazil, China, and Mexico services – 21 global services- According to NPD, #1 in user loyalty, satisfaction, and bookmarked site- Yahoo! audience registers “well above average” for making a Web purchase in the past 30 days. 72% of Yahoo users make Web purchases.- Distribution – goal to deliver to largest audience – data delivered to 25 million unique IP connections, including 5,000 ISPs.- My Yahoo services offered on Sprint PCS phones and Palm products, including new Palm VII- Commerce Activities – significantly expanded Yahoo! Shopping and Store services- 7000 merchants; 4 million products- One-click buying across all merchants- “explosive growth” in auctions – from 20K items to 930K in past year. Yahoo auctions in Japan, France, Sweden, Germany, Spain, Italy, and Singapore – total of 10 countries with local auction services- strong growth in Yahoo “verticals” – insurance, etc.- total volume of transactions equals $100 million on commerce platform during September alone- Yahoo Bill Pay in partnership with CheckFree- In September, Yahoo mail handled over 2 billion messages- Yahoo Briefcase allows access of files and photos from any place- Yahoo Mobile – send personal Yahoo services to wireless devices- Media Business – Yahoo users with broadband access rose to 50 million- thru Yahoo Broadcast, streaming on-demand video- provided streaming services to 380 customers- Yahoo Digital – watch, listen, purchase, and self-publish music and movies- Strong demand across all world markets for marketing services- 3,150 advertising clients- Sharp rise in retail clients providing direct online transactions- 1,250 new online merchants to Yahoo Shopping, bringing total to over 7,000- $49K per advertising client- renewal rate of 96%- 23 of Fortune 50 advertising on YahooQ&AQ - Scott Reamer, SG Cowan – “moving further into the transaction stream” mentioned last quarter – anything new there?, when or if Yahoo can participate like Amazon? A – Moving all services on site to both fixed and variable pricing. With true critical mass on auctions, Yahoo will move into fixed pricing… but no time table yet.Q – Jamie Keegan, DLJ – on broadcast & geocities… weight on operating margins? We expected less this quarter.A – We approach the business conservatively and tightly. We've taken these businesses in and we exceeded our own expectations. Starts with our being very focused. We're not going to break out the individual businesses. Speaking of operating margins, “we're relentless in growing this business, so we're sticking to our guidance to 30-36% range.”Q – Michael Purack, Goldman Sachs – My favorite announcement during the quarter was Yahoo cabs in S.F. (?) Question on overall pricing trends – how are advertisers reacting, considering competitive dynamics? And, how about the competition out there, such as MSFT?A – A year ago, Yahoo realized that CPM was only going to be part of the mix. There's been a lot of discussion about our rates. Now, with a better understanding of our audience, we saw rates increase now for the 5th consecutive year. But we have pricing packages that range from a few hundred dollars up to tens of millions. But yes, we saw an overall lift in pricing. The competitive landscape is no different. “Our numbers speak for themselves.” Q – David Reederman, Thomas Wessel Partners – “uncharacteristic for me… congratulations on a great quarter.” – How are you going to keep us from revising up? There's a 40% sequential increase in revs last year going into Q4. Why not again?A – “If you're going to fault me, you'll fault me for being conservative.” (Gary Valenzuela) side: described this as an “overperformance.” We're going to continue to be conservative in guidance, but aggressive in managing and growing the business.Q – Given good chance of AT&T opening its cable pipes, what would Yahoo offer over broadband? Second question… on page views, is the sequential comparison pro forma?A – T.K…. if AT&T opens its cable platform, “there are multiple opportunities to work together.” Remember that anytime someone sells access to the web, truly open, users will be able to bump into Yahoo. Jeff M… the 385 M pageviews includes less than 4M from broadcast.com (broadcast is not a page view model)Q – Great growth on every metric… what drove that growth in a seasonally weaker quarter? Was it the acquisitions? Was it execution? Is this an indication of pulling away from the pack?A – T.K… on pageview growth, “pageview consumption is a little bit cyclical with seasons.” “We have separated from those guys [the competition].” Jeff… “overachievement on the top line.” Also, our performance is from a commitment to understanding what our advertising clients and users really want. We're heavy into the data mining.Q – Shifting focus to international… is it keeping up with the U.S.?A – Jeff… the general trend is to break the world into 3 parts: 1) Pan Europe – next year should be a break out year. 2) Asia-Pacific – Japan has jumped ahead in past few years. “Encouraged by Korea.” It's too early to expect much from some of the others. 3) Latin America – Beginning to move into that market just lately. It's still at '96-'97 in U.S. terms.Q – Mark Mahaney – international revs as percentage of total? And, how successful can China be?A – T.K… In Q3, total international contribution was ~ 10%. We aren't projecting forward for international. “We think we're incredibly well positioned, uniquely well positioned … to take an unfair share of those markets.” Jeff… China is still determining what technology it allows within its country.Q – Fusion marketing… how did it contribute? Tell us about the integrated marketing services.A – T.K…. “We've come a long way.” The contract retention and growth tell the story of our success with advertising clients. We have the broadest array of integrated marketing packages. Our advertisers say “we have some power.” “We're at a good but early stage of taking advantage of our registered user base… we're going to get more prudent about it and grow it aggressively.”Q – Are you focusing more on brand names than products? What % of users are making purchases?A – Jeff… Internet is an effective platform for small businesses, yet broad enough for major companies. The 7,000 total merchants is a combination. Q – Lee Spire, C.S. First Boston -- $100 million goods sold thru September… how does that compare for August?A – T.K… on pageviews, we saw a good, steady ramp thru the quarter. The September 385 M is an average for the month. On shopping… Jeff… September is up significantly from June… but that's partly a ramp for the holiday season.Q – possibility of regional auction marketplaces, ala eBay?A – There's already the “Get Local” classifieds strategy. Planning on bringing the “Get Local” model to auctions. Q – free ISP possibility?A – T.K… it's an area “we're watching very closely.” “Lots of discussions with access folks.” “It's a movement in which we anticipate working.” Q – Arthur Newman, Schroeders – corporate services… when will these become more substantial?A – Won't be a significant part of business in 2000. “Still early stage.” Advantage in this from the sales org at broadcast.Q – Niles Russ, Robertson Humphrey – do you continue to drive the consumer on the marketing end? Or marketing directly to corporations?A – We have a strong focus on the consumer and end user. Microsoft has show the power of this over the past 20 years. We'll let the partners do the heavy lifting, while we provide the info and service. Light business model
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