yahoo_logoFor Yahoo, there’s good news and bad news. The bad news is that the company’s revenue continues to decline. The good news is that its revenue isn’t declining as much as analysts expected.

The company’s total revenue decreased by 5 percent year over year, from a little more than $1.2 billion to $1.14 billion this quarter. That’s still better than expectations, with analysts expecting Yahoo’s earnings to come in around $1.12 billion for the quarter.

While revenue wasn’t rising, Yahoo’s user numbers are. The company reported that it’s now reaching 800 million monthly active users, an increase of 20 percent over the past 15 months. Unfortunately, those users haven’t contributed to significant growth in Yahoo’s core revenue, which continues its decline year over year and quarter over quarter.

All that said, Yahoo’s stock is up 4 percent in after hours trading following the earnings news, continuing its rise following Marissa Mayer’s appointment as CEO. Mayer, for her part, said that she was happy with where Yahoo’s business is going.

“I’m very pleased with our execution, especially as we’ve continued to invest in and strengthen our core business,” Mayer said in a press release. “In Q3, we launched new user experiences across many of our digital daily habits — Yahoo Screen, My Yahoo, Fantasy Sports, and more. Now with more than 800 million monthly users on Yahoo — up 20 percent over the past 15 months — we’re achieving meaningful increases in user engagement and traffic.”

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One bright spot on the company’s balance sheet came from its 24 percent stake in China’s Alibaba Corp., which is slated to make its IPO in 2014. Yahoo’s stake in the company could translate into $28 billion in value if Alibaba lives up to analyst expectations.

An edited text of Yahoo’s earnings release follows below.

“I’m very pleased with our execution, especially as we’ve continued to invest in and strengthen our core business,” said Yahoo CEO Marissa Mayer. “In Q3, we launched new user experiences across many of our digital daily habits — Yahoo Screen, My Yahoo,Fantasy Sports, and more. Now with more than 800 million monthly users on Yahoo — up 20 percent over the past 15 months — we’re achieving meaningful increases in user engagement and traffic.”

GAAP revenue was $1,139 million for the third quarter of 2013, a 5 percent decrease from the third quarter of 2012. Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,081 million for the third quarter of 2013, a 1 percent decrease compared to the third quarter of 2012.

Adjusted EBITDA for the third quarter of 2013 was $331 million, a 19 percent decrease compared to the same period of 2012.

GAAP income from operations was $93 million for the third quarter of 2013, a 39 percent decrease from the third quarter of 2012 (which reflected a restructuring charge of $25 million). Non-GAAP income from operations was $173 million for the third quarter of 2013, a 27 percent decrease from the third quarter of 2012.

GAAP net earnings for the third quarter of 2013 was $297 million, a 91 percent decrease compared to $3,160 million in the third quarter of 2012 (which included a net gain of $2.8 billion related to the sale of Alibaba Group shares). Non-GAAP net earnings for the third quarter of 2013 was $358 million, a 24 percent decrease from the same period of 2012.

GAAP net earnings per diluted share was $0.28 in the third quarter of 2013, compared to$2.64 in the third quarter of 2012. Non-GAAP net earnings per diluted share was $0.34 in the third quarter of 2013, compared to $0.39 in the third quarter of 2012.

Business Highlights

  • Yahoo continued its product momentum in the third quarter, launching new experiences for users’ daily habits across desktop, mobile and tablets (including Yahoo Screen, Sports, Fantasy Sports, Movies, Music, TV, omg!, Games and Weather), as well as a new camera experience on Flickr for iPhone. The Company introduced a new My Yahoo, allowing users to personalize their homepage with a more modern design. Yahoo also rolled out a new logo to reflect the evolution of the Company’s products and experiences after more than 18 years without a major redesign.
  • The Company continues to generate business opportunities through streamlined advertising seamlessly integrated with the content experience. In the third quarter,Yahoo expanded Yahoo Stream Ads across Mail and mobile media properties.
  • Yahoo began offering more premium content through its partnerships with ABC Newsand NBC Sports, and launched its Fall Comedy Lineup including eight original web series, the Saturday Night Live clip archive and clips from Viacom’s Comedy Central and MTV shows, including The Daily Show with Jon StewartThe Colbert Report, and more.
  • During the third quarter, Yahoo made eight acquisitions to strengthen its products, content offerings, core technology and talent, including Bignoggins, Qwiki, Xobni, Admovate, Ztelic, Lexity, Rockmelt and IQ Engines.
  • Yahoo continued to invest in people, recruiting exceptional talent from around the world. The Company hired Ned Brody as Senior Vice President and Head of theAmericas, and Dawn Airey as Senior Vice President and Head of EMEA. Yahoo also brought on New York Times journalist and editor Megan Liberman as Editor-in-Chief forYahoo News. Jeff Bonforte, who joined Yahoo through the Company’s acquisition ofXobni, was appointed as Senior Vice President of Communications Products; and Mike Kerns was named Senior Vice President of Homepage and Verticals.
  • Yahoo also announced today that it has entered into an amendment to the share repurchase and preference sale agreement with Alibaba Group. The amendment reduces the maximum number of shares of Alibaba Group that Yahoo is required to sell in connection with a qualified initial public offering of Alibaba, from 261.5 million shares to 208 million shares.

Third Quarter 2013 Financial Highlights

Display:

  • GAAP display revenue was $470 million for the third quarter of 2013, a 7 percent decrease compared to $506 million for the third quarter of 2012.
  • Display revenue ex-TAC was $421 million for the third quarter of 2013, a 7 percent decrease compared to $452 million for the third quarter of 2012.
  • The Number of Ads Sold (excluding Korea) increased approximately 1 percent compared to the third quarter of 2012.
  • Price-per-Ad (excluding Korea) decreased approximately 7 percent compared to the third quarter of 2012.

Search:

  • GAAP search revenue was $435 million for the third quarter of 2013, an 8 percent decrease compared to $473 million for the third quarter of 2012.
  • Search revenue ex-TAC was $426 million for the third quarter of 2013, a 3 percent increase compared to $414 million for the third quarter of 2012.
  • Paid Clicks (excluding Korea) increased approximately 21 percent compared to the third quarter of 2012.
  • Price-per-Click (excluding Korea) decreased approximately 4 percent compared to the third quarter of 2012.

Cash Balance:

  • Cash, cash equivalents, and investments in marketable securities were $3.2 billion as of September 30, 2013 compared to $6 billion as of December 31, 2012, a decrease of$2.8 billion.
  • During the third quarter of 2013, Yahoo repurchased 59 million shares for $1,685 millionand used a net $163 million for acquisitions.

“In Q3, we generated free cash flow of $249 million and returned an additional $1.7 billionto shareholders through buybacks,” said Ken Goldman, CFO of Yahoo. “As we exit Q3, we are extremely pleased with the strength of our balance sheet, with nearly $3.2 billion in cash and securities, and we are well positioned with ample liquidity to fund our future investments for growth.”

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