Yahoo!'s CEO Discusses Q3 2011 Results - Earnings Call Transcript

 |  About: Yahoo! Inc. (YHOO)
by: SA Transcripts


Good afternoon, ladies and gentlemen, and welcome to the Yahoo! Q3 2011 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Marta Nichols. Ms. Nichols, you may begin.

Marta Nichols

Thank you, and good afternoon, and welcome to Yahoo!'s Third Quarter 2011 Earnings Conference Call. On the call today will be Tim Morse, the company's Chief Financial Officer and Interim Chief Executive Officer.

Before we begin, I'd like to remind you that today's call may contain forward-looking statements concerning matters such as our expected financial and operational performance, our long-term financial objectives and the company's strategic review process, as well as our expectations for the economy, in general, and online advertising, in particular. The financial and operational impact of our Search Alliance with Microsoft and our strategic operational and product plans. Actual results may differ materially from the results predicted in our statements, and reported results should not be considered indicative of future performance.

Potential risks and uncertainties that could cause our business and financial results to differ materially from our forward-looking statements are described in our Form 10-Q filed with the SEC August 8, 2011, as well as in the earnings release included as Exhibit 99.1 to the Form 8-K we furnished today to the SEC. All information discussed on this call is as of today, October 18, 2011, and Yahoo! does not intend and undertakes no duty to update this information to reflect subsequent events or circumstances.

On today's call, we'll discuss some non-GAAP financial measures as we talk about the company's performance. These may include total expenses less traffic acquisition costs, or TAC, revenue excluding TAC or revenue ex-TAC, and operating margin ex-TAC. Reconciliations of those non-GAAP financial measures to the GAAP measures we consider most comparable can be found on our corporate website,, under Investor Relations. We have prepared remarks that will last about 15 minutes, then we'll have a brief Q&A session. And with that, I'd like to turn the call over to Tim.

Timothy R. Morse

Thanks, Marta. Good afternoon, and thanks for joining our discussion of third quarter 2011 financial results. We are pleased that revenue, operating income and EPS were all above consensus estimates this quarter and look forward to discussing the details of our performance with you. In addition to these financial results, the key operating take away, our underscore is that we remain focused on executing against our key strategies to build best-in-class technology, deepen the quality and personalization of our content, and grow monetization. Before I get into the details of our results, let me reiterate what the Board has said about its comprehensive strategic review process. The board is actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation. The objective is to deliver on our company's potential and to create value for our employees, advertisers, users and our shareholders. The Board also has said that when it has something to announce, it will do so. That will take time. It will not be today and not on this call. For the rest of my comments, we'll focus on third quarter results and fourth quarter guidance.

Let's begin with an overview of third quarter. On the top line, our 3Q ex-TAC revenue of $1,072,000,000 was fractionally below the midpoint of our guidance range. Our operating income of $177 million was above the high end of our range and ex-TAC operating margins were higher than we expected and roughly flat with last year's third quarter at 17%. Earnings per share were $0.23. Adjusted EPS were $0.21, which is up 32% versus 3Q a year ago. This excludes a $25 million onetime gain in 3Q '11 related to our ownership in Alibaba Group, and also a $186 million gain on the sale of HotJobs from the prior year. We are also very pleased to have repurchased 44 million shares for $593 million during the quarter.

Diving into revenue in more detail, worldwide ex-TAC Display revenue was flat year-over-year at $449 million, below our expectations for modest growth. Premium Display revenue grew versus prior year, helped by Page View growth of 9% on our media properties. By contrast, nonpremium Display revenue declined due to lower impressions in yield. As in 2Q, Display revenue in EMEA and APAC performed well, growing nearly 30% versus 2010. In Americas, we're seeing some positive momentum and some headwinds. On the plus side, our media properties are seeing growth in sell-through rates, serving impressions and revenue for premium or guaranteed placements. However, declines in nonguaranteed placements across Mail and other high-reach sites contributed to an overall Display revenue decline in the Americas region.

We told you last quarter that we're restructuring the U.S. sales force and I'm happy to report that we're seeing signs of progress. Our headcount has stabilized, we continue to hire aggressively in sales and we have great additional talent in the pipeline. As you all know, it takes time to reestablish and refine the account coverage and budgets are both well ahead of time, so our efforts are a work in progress. But sales productivity is ramping up. We see it in the sequential improvements in premium revenue, sell-through and serving impressions that I just mentioned, as well as in key areas like our home page, where we sold more premium placements in 3Q than we did in 2Q. We expect to see increased efficiency in expanding growth opportunities as the new team gets fully ramped up and sells over multiple quarters. Along those lines, there continue to be encouraging signs we can point to.

During the quarter, we ran major campaigns for many leading brands, including P&G, Visa, Dodge, Toyota, Jaguar, AT&T, Bank of America, Levi's and Paramount Pictures, as well as all of the major TV networks who promoted their new fall TV lineups. But it's clear there's still work to do. Continuing to expand sales force capacity and sell-through over multiple quarters will enable our premium strategy to fully take hold. On the nonpremium side, we're taking actions to improve both our overall supply and ad serving as well as our yield, including marketplace demand, sell-through and technology capabilities. Important, however, to put these combined efforts into the larger context of improvements in technology and content that will drive engagement and, therefore, position us for future Display revenue growth.

With that in mind, I'll quickly run through several key areas of progress for you. First, technology. We brought up 28 sites on the new Yahoo! Publishing platform since the end of last quarter, bringing the total to 95. And we also launched Yahoo! News activity, a new way for users to discover content on Yahoo! News by seeing what their Facebook friends are reading. Second, content, several examples here. We've recently introduced a broad strategic alliance with ABC News, underscoring our commitment to premium content. And 9/11 remembered, our 9/11 anniversary site, generated more than 300 million page views and more than 250 million photo views. We're also securing exclusive content such as the online interview with President Obama 2 weeks ago and the Clinton Foundation concert, which we broadcast live on Yahoo! this past weekend.

Lastly, I'd like to emphasize an important progress in video. We just launched our new video destination, Yahoo! Screen, along with our slate of 8 new original video programs targeted at women. Even before this launch, everyone of the top 10 in 13 of the top 15 original video programs on the Web in the U.S. is from Yahoo!.

Turning now to Search. Third quarter ex-TAC revenue was $374 million, ahead of our expectations. Owned and Operated revenue was slightly better than expected and continued to benefit from the Microsoft RPS guarantee. With respect to operational Search metrics, our worldwide O&O query volume was down mid-single digits versus last year and worldwide RPS was up mid-single digits. In the U.S. marketplace, where we fully transitioned to Microsoft systems, query volume in RPS, including the guarantee, were both up slightly. Once again, operational RPS in the U.S. grew sequentially as both Microsoft and Yahoo! completed initiatives to close the gap. At the end of 3Q, we had closed nearly 30% of the RPS gap that existed in April.

In order to create more financial certainty, Microsoft and Yahoo! recently agreed to extend the RPS guarantee in the U.S. and Canada through March 2013. We will continue our joint work with Microsoft to close the remaining gap as quickly as possible, and we're obviously working to do so before that time frame. Both companies remain fully committed to the success of our Search Alliance and the RPS guarantee extension represents an important sign of that commitment.

With respect to the progress of the algo [algorithmic] transition, as we discussed last quarter, our stated goal was to complete the transition of all markets by the end of this year. We expect that goal to be achieved next month. We have transitioned O&O and syndication partners in over 40 markets from Yahoo! Search to Microsoft, for Web, image, and video algo Search results across both desktop and mobile. One algo search market remains to be completed, that's Korea, which we plan to transition in November.

Finally, we also completed the Page Search transition in India this quarter and expect to begin transition activities for additional page search markets early in 2012, following the holiday season.

With that review of our core business dynamics, I'll now turn to the values of each of our Asian assets. First, on Japan, based on public market data as of September 30, the pretax value of our 35% stake in Yahoo! Japan was $6.4 billion. Our efforts to unlock shareholder value on a tax efficient basis are ongoing, but potential transactions are complex and generally involve extended timeframes to complete.

And with respect to Alibaba group, using the pending third-party tender offer from employee-owned shares as a value guide based on the number of shares Yahoo! owns and the proposed offering price, we believe our investment in Alibaba Group will be valued at just over $14 billion on a pretax basis.

Finally, turning to fourth quarter guidance. We expect ex-TAC revenue to be in the range of $1,125,000,000 to $1,235,000,000. For ex-TAC expenses, we expect a range of $925 million to $975 million for fourth quarter, with the midpoint up roughly $55 million sequentially due primarily to seasonality and continued investments in sales force buildout and video. Recall that we fully utilized the $150 million transition allowance from Microsoft to ongoing transition work as reflected in our cost structure. We are managing that transition cost within the parameters of our overall profitability goals.

At the midpoint of these revenue and expense expectations, our outlook for 4Q operating income is $230 million, implying 20% for ex-TAC operating margin. Before I close, I want to say a sincere thank you to all of the Yahoo! employees around the world who remain focused on our plan and continue to work hard on our progress. Their focus and that of the leadership team is to move the business forward with new technology, partnerships, products and premium personalized content. Much more premiums to be done, but we'll continue to build on encouraging progress being made in so many areas across our company.

With that, let's open it up to questions. Operator?

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Youssef Squali with Jefferies & Company.

Youssef H. Squali - Jefferies & Company, Inc., Research Division

A couple of quick ones. On Display, can you just talk a little bit about the intra-quarter trend, i.e. how September fared? I think last quarter, you talked about how July was actually down. And then what's baked into your guidance, your Q4 guidance?

Timothy R. Morse

Youssef, in terms of the intra-quarter dynamics, we usually don't talk a whole lot about that. I would say it certainly was a big difference. However, from second quarter, we saw July start off a little bit on the light side. But August and September were pretty good quarters, I think our sales force really did a nice job. The headcount really stabilized. The attrition was lower as we went through the quarter, so that was good. In terms of 4Q, I'd expect kind of a normal sequential bump, the kind of range that we've seen a little over the last couple of years.


Our next question comes from the line of Spencer Wang with Credit Suisse.

Spencer Wang - Crédit Suisse AG, Research Division

Tim, maybe just another follow-up question on Display and a couple of parts. I was wondering if you could just talk about, if you're seeing any sort of impact from the macroeconomic environment. And then strategically, I was hoping you could just talk a little bit about the discussions around partnering with Microsoft and AOL in Class 2 Display inventory. How will the revenue shares work? What sort of uplift do you expect in terms of performance? And maybe, what needs to happen on the back end, if anything?

Timothy R. Morse

Sure Spencer. First, in terms of the macro, I wouldn't say we saw anything much different in third quarter then we saw in 2Q or first quarter, for that matter. I think the environment is uncertain. I think we all see that. So we'll keep an eye on it, but I didn't see any real different dynamic here in the third quarter. And as far as our Class 2 or non-guarantee your nonpremium marketplace goes, I really don't have any comment on the potential of combining different companies' efforts here when we have something. And if we have something to announce on any of our partnerships and strategic alliances, we'll do so at the appropriate time. But I think in general, when you look at third quarter, we see the need certainly to continue to make improvements in our nonpremium marketplace on the supply side, with engagement, and on the yield side, with our technology. So we'll continue to work on strategies that best match up where the market's going and make sure we can take advantage of those opportunities.


Our next question comes from the line of Doug Anmuth with JPMorgan.

Douglas Anmuth - JP Morgan Chase & Co, Research Division

I want to ask 2 things. First, on the Microsoft Search deal, Tim, can you talk about why you decided to extend the guarantee now as opposed to waiting until the original term ended or closer to it? And then second of all, in terms of your metrics in Communications and Communities, the page view decline accelerated to down to 9%, but the quarterly minutes actually increased 27%. So can you explain the sharp divergence there?

Timothy R. Morse

Sure, Doug. First, what we've heard very clearly from investors was, a lot of discomfort with the uncertainty that comes along with the RPS and getting it back to parity. So what we wanted to do was introduce as much financial certainty as we possibly could into the process. We are still working to close that gap, absolutely as soon as we possibly can and we've made some nice progress, as I talked about in the script. But really, this is an overriding concern of ours of working with our partner, Microsoft, and working very well with them to address the concern that we've heard consistently from investors. So we feel very, very good about that. On your second question, the Comms and Communities' page views, they're right about in the same level, 8%, 9%. You're right, it's a big difference though on the minutes, and that is really attributable to the rollout of our new Mail product that's gaining some pretty wide acceptance here at this point. We designed it to improve engagement, and I think that's working early on here as indicated by the jump up in minutes.


[Operator Instructions] Our next question comes from Brian Pitz from UBS.

Brian J. Pitz - UBS Investment Bank, Research Division

We've been hearing about your increased efforts working with ad agencies, as well as cutting prices for ads on the Homepage. Can you give us a little additional color and specifics there, as well as the effectiveness of these efforts?

Timothy R. Morse

Sure, Brian. Well, I mean I don't think our efforts with agencies and in large advertisers, honestly, are much different than what we've been trying to do over the last couple of years. I mean, that's been a big push for us. We know we have to be easier to do business with. We know we have to be more flexible. We know we have to go out there and earn the business in a much more competitive market. And I think Rose and Wayne and the team are really, as we talked about last quarter, a little bit painful in the short term as we restructured the sales force. But getting the new skill sets and the new approach to selling that we've previously discussed, it's just vitally important for us going forward. As far as home page or anything else, I think we're selling value there, and I don't -- I honestly don't have any comments on pricing and yield other than we saw a pretty good yield overall for the quarter. It wasn't out of line, it wasn't materially down, it wasn't materially up. I think it was a pretty solid performance on yield, there are a lot of efforts that go into that. But again, we've got a lot of value to sell and I think the teams are doing a good job of that.


Our next question comes from the line of Ben Schachter with Macquarie.

Benjamin A. Schachter - Macquarie Research

Tim, could you discuss little bit about the strength you're seeing in Asia-Pacific? I believe it's about 21% of net revenues now. How big can that get? What's driving it? And can that be a standalone business or are there too many synergies that it has with the corporate business?

Timothy R. Morse

Yes, Ben, the strength -- Rose and her team are really doing a great job across a wide variety of areas. And you've got kind the northern part of the region, Hong Kong and Taiwan, especially, that have terrific positions in their marketplaces. They're very innovative. We continue to roll out more growth programs. They're doing, honestly, a great job especially on the Display side. They're doing even better on this job on the Search side as we convert to Microsoft's algo markets out there as we just have converted over. So we're giving them more ammunition to work on the Search aside, doing a great job on the Display side. And the Taiwan e-commerce business is really quite robust and that team does a fantastic job as well. In terms of could APAC stand alone, it's really a very integrated company when you look at how we run our infrastructure and our platforms, so it's a little bit tough for me to envision that. I think the company works really well as a whole, whether you look at these rollouts of the Yahoo! publishing platform, what we used to call LEGO expanding across all regions and really giving everyone the same kind of tools. Or if you look at the great job that David Dibble and his team are doing in terms of building out a really robust network of data center infrastructure that enables us to move traffic around and be much lower cost and much more flexible. So it's really a very innovative whole that we've spent a lot of time trying to create here so that everything will run better.


Our next question comes from the line of Herman Leung with Susquehanna.

Herman Leung - Susquehanna Financial Group, LLLP, Research Division

Just one quick question on RPS guarantee. I guess the deal was to extend it to 2013, the last quarter, you talked about closing the gap of

[Technical difficulty]

Herman Leung - Susquehanna Financial Group, LLLP, Research Division

So my question is on the RPS guarantee, I'm wondering if where do you close 30% of the RPS gap this quarter, wondering if we are still on track to kind of get to equilibrium by the end of the year or is that going to be sometime in 2012?

Timothy R. Morse

Honestly, I really don't know the answer to that, Herman. We're working as hard as we can on it. The teams are working really well together. And as I said we just wanted to introduce more certainty and financial certainty specifically into this in response to concerns that we've heard from our shareholders. So we're very pleased to be able to work with Microsoft to do that.


Our next question comes from the line of Mark Mahaney with Citi.

Mark S. Mahaney - Citigroup Inc, Research Division

That extension of the RPS guarantee, is that essentially on the same terms and conditions backstops that you had in the original deal or, qualitatively, would you compare the 2? And then any brief color that boost to that growth in the media properties Page views? Would there be 1 or 2 areas in there that you would want to highlight as showing particular strength?

Timothy R. Morse

Mark, the RPS guarantee, yes, same terms, same conditions, nothing really different. We just extended it through March 2013 instead of March 2012, some good news there. Media TVs, honestly, there's nothing I'd call out really specifically other than our general approach that is embodied in our tent poles and anchors strategy, I think the editorial side of the house, the voice side of the house that Mickie Rosen is running. I think is terrific we've got Jai Singh in here just recently, I think their efforts are starting to take hold. I think they've provided a great tool on the new Yahoo! publishing platform. I talked a little bit about some of the exclusive content that we brought up, the sites like 9/11 remembered that are catching on. I think it's just a combination. It's a lot of the kinds of stuff that we've been talking about for the last couple of years and you're starting to see those efforts come to some fruition, whether it's traditional content or increasingly, as I talked about in the prepared comments, video. We feel great about where we are in video. It's something we're investing in and can really leverage our strength.



Operator Instructions] Our next question comes from the line of Jason Helfstein with Oppenheimer.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Just to kind of talk a little bit more about Display, you may -- if you can comment on this. I mean is the challenge ultimately that on the premium inventory, to get the kind of premium content, it's either costing more, we have the partnering. So if you do partner to these others people's content, we'll call it a revenue share, that or the economics are less attractive than if you make it yourself? And then on the nonpremium, we're just seeing abundance of additional inventory out there, where you have sites selling at significant CPM discounts. Do you guys -- and I guess how do you think about that long term? Can you grow the premium enough that you've ultimately we continue to see the fragmentation on the long-term inventory that you can offset that on a premium side?

Timothy R. Morse

Sure, Jason. Honestly, I feel good about both sides, to be honest. So let me talk a little bit about both. On the premium side, we're going to continue to ramp up our sales force. Our sell-through rates will continue as we start to sell over these multiple quarters as in the not only the new sales approach, but the tent poles and anchor strategy, combined with the new tools we're providing the sales force and the partnerships that we're striking. I think they're great. Yes, a lot of them are web share, but that is completely additional revenue, incremental revenue for us. It's a terrific margin. So I feel great about ABC, working well with Facebook, working well with a number of video producers. So that part, I really, I see it -- with the position that we have in terms of audience in the #1 ranking of our properties in the U.S. and in some of them worldwide, where we have a lot of strengths we can bring to the game, and we're looking to grow in as many different ways on the premium side as we can. This isn't just a 1-trick game. On the nonpremium side or nonguaranteed side, I think there is a lot of fragmentation out there. I think that's what we all see in the market. But let's break it down into 2 things: supply and yield. On the supply side, we can still do a lot to drive Page views with new and better content, our tent poles and anchors strategy again there. Better if we can do a better job of packaging and ad solutions, a better job of programming to direct our page views to the right places, impressions per Page view. In terms of really increasing those, tweaking and optimizing our product, especially our new ones like Mail and the new platform that just rolled out on News to improve that. So all of that, I think, are great opportunities to help us out on the supply side. And then on the yield side, we have -- we continue to make improvements in RMX technology and the architecture there with regard to budgets moving, auction design, deepening the auction participation, our prediction, algorithms, in matching algorithms, all have great opportunity for us to expand, to improve and expand. So both sides, honestly, I really see our ability to do better and we've got great plans in place on both the region and product sides to do so.


Our next question comes from the line of Anthony DiClemente with Barclays.

Anthony J. DiClemente - Barclays Capital, Research Division

The question is around operating margins. You exceeded expectations in terms of margins and the guidance implies a 20% ex-TAC margin, which implies further expansion. And so I just wonder if you could talk a little bit more specifically about the areas for greater efficiency in the business. And where can that margin go longer-term? And then what are the sources of potential future upside to profitability?

Timothy R. Morse

Sure, Anthony. Well, we are pleased with third quarter. It was about -- at 17%, it was flat with last year, but remember last year didn't have very much. I think it was $1 million of this rev share in it, and this quarter had 37. So we absorbed all of that in, we're still flat on our margins. So were very pleased about that. Fourth quarter, you're right, 20% that's up a couple of points versus last year so we feel good about that too, which, if you string all the quarters together, it adds up to another year of margin expansion, which is a great objective for us. You take the cost guidance that I just gave and you look back a few years, I think we're down something like, what the implied guidance would give you something like $1.3 billion over the last few years. There's been an awful lot of work to reorient the company, refocus the company. There is a lot of great cost productivity work that's gone into it. But an awful lot of reinvestment as well. I'd probably direct you to the last couple of Investor Days that we've done where I've laid out pretty explicitly our cost structure and the amount in the areas where we see efficiencies, and more importantly, the amount in the areas that we see for investment in the company. And we really are quite bullish on where we can take some of these investment areas and the growth that we can generate. So as we go forward, our goal was really to balance the investment in the outer growth opportunities with the productivity focus, get a good blend of the 2, and continue to move the business forward. We've talked previously about operating margin goals and I said at Investor Day in May, this past May, that it'll be largely -- because of the structure is kind of right on track, maybe a little ahead of schedule, it's largely going to be dependent on our revenue growth. So that's really the focus, is we really need to see where all of this work on platforms, in content strategies, et cetera, starts to really bear fruit and give us the revenue growth.


Our next question comes from the line of Jeetil Patel with Deutsche Bank.

Jeetil J. Patel - Deutsche Bank AG, Research Division

A couple of questions. One on the Display front, I guess, Tim, you seem to be at flat right now. As you look ahead, do you think that Display will be in a growth mode broadly by the first half of '12 or would you say the second half of '12 as we look out and kind of look at some of the comps and some of the initiatives internally from a sales force and product standpoint? And second, it looks like generally, you kind of hit your numbers, and you kind of had some pushes and takes in terms of positives, negatives in the quarter. But I'm curious as to your take on why the Board got rid of Carol [Bartz] in light of, I guess, generally in-line expectations.

Timothy R. Morse

Jeetil, on Display, we're taking 1 quarter at a time. I'm guiding fourth quarter at this point. I talked about the same kind of historical sequential bump that we've previously had. So I'm not going to get into 2012 and any other outlooks at this moment. And on the second one, we're pleased to have exceeded consensus in revenue and operating income and EPS. And that's really all I have to say. The board's process is the board's process.


Our next question comes from the line of Justin Post with Merrill Lynch.

Justin Post - BofA Merrill Lynch, Research Division

Tim, a couple of things for you. You gave a plan and just referred to it a couple of questions ago, for kind of revenue growth in '12 and '13. Is there anything structurally outside of the sales force reorganization that really takes you off the plan? You've got the guarantees back from Microsoft, but lasting longer and sounds like you're pretty optimistic on Display. So just wondering if there's something structural on the market that would take you off the plan from 4 months ago. And then secondly, I don't know if you can, but if you could update us on the CEO Search. I think that's more operational in nature. But what's the company's official stance on that?

Timothy R. Morse

Sure, Justin. Again, I really -- I'm just going to take 1 quarter at a time here, talking about fourth quarter right now. I think in such a fast-moving, fluid marketplace that we compete in, I think there are always structural changes for the good and for the bad and it's how you adapt to them and how well, as I said earlier, how well all this work we've been doing over the last couple of years to revamp our platforms, revamp how we do business and to really create engagement strategies that continue to improve our relevance and the value that we can add to advertisers. That's what's going to determine how successful we are going forward. On the second question, the CEO search, all I can tell you is it's underway. Again, that's the board process and I really don't have any comment on the board's processes.


[Operator Instructions] Our next question comes from the line of Sameet Sinha with B. Riley.

Sameet Sinha - B. Riley & Co., LLC, Research Division

Just going back to Display, down 2% to 3% year-over-year, but Page views and media were up, I guess there are several things going on here because it seems like pricing could be impacted now. Is this because you had to use it up more right media had during the quarter or as per one previous question, there were some concessions given on pricing? Or a third option is potentially better Communications and Communities Page views are a disproportionately bigger percentage of total. So if you can provide some insight into that, that would be appreciated.

Timothy R. Morse

Well, so Display overall was flat year-over-year. The premium side was up in the low single digits. The nonpremium or nonguaranteed side was down a little bit. It really, on the premium side, we saw, again, a pretty good job on volume, the sales force did a nice job there, sell-through was good, pricing was solid. On the nonguaranteed side, there was -- we are a little bit light on both the volume and the yield side. So I don't know if I'd refer that necessarily as pricing. But as I said, we're working on yield improvements, and I think there's great opportunity for us to continue to improve yield there and I went through the list earlier about the RMX architecture improvements that we're working on between budgets moving and option design, et cetera. So that's really what's going on. The premium side, pretty solid on both dimensions, a little bit weaker on the nonguaranteed side on both of those dimensions. But we've actively got some good focus on that, probably a better focus on that, I would say, than we have historically had.


Our next question comes from the line of Scott Kessler with S&P Capital IQ.

Scott H. Kessler - S&P Equity Research

Tim, based on the responses to some other questions, I think I know the answer to this, but I'm going to try anyway. Can you give us a sense as to when the board is going to communicate some of its decisions about the future of the company? Obviously, there are a lot of things up in the air. We understand that it's very complex, but I think a lot of folks might be interested in knowing by what time we expect a lot of these things to be somewhat resolved. Is it by the end of the year? And I have a follow-up.

Timothy R. Morse

I'm just reiterating what I said in my prepared comments. This will take some time. The board wants to do what's best for the company and that doesn't imply that they put a specific timeline on this. The board’s process will be what it will be and the timing will be what it will be. And that's, again, really the only comment I have on it.


Our next question comes from the line of Jordan Rohan with Stifel, Nicolaus.

Jordan Rohan - Stifel, Nicolaus & Co., Inc., Research Division

Give it a shot talking about monetizing Asian assets, if I can get you to answer something there. But the question is very specific. Why didn't Yahoo! offer up some of its shares in Alibaba Group? That's a $32 billion valuation and the round was recently announced with Silver Lake and others. Given that there's a real investor demand for equity in Alibaba Group at a high valuation, why wait and risk that devaluation if they could go down materially with the global uncertainty out there?

Timothy R. Morse

Jordan, it was an employee sale, so neither Softbank nor Yahoo! participated. That's really all there is to it. I think the transaction itself or the pending transaction puts a good valuation on it. I think we got a clear valuation marker out there now without selling, and again, didn't see where we should kind of horn in on an employee-related sale.


Our next question comes from the line of Ross Sandler with RBC Capital Markets.

Ross Sandler - RBC Capital Markets, LLC, Research Division

Just 2 quick questions. First, a follow up on RPS, and then second on Display. So on the RPS extension, it's just kind of interesting because this is obviously a great outcome for Yahoo!, but it comes with the expense of Microsoft financially. So can you help us understand why they chose to extend the guarantee if they're not contractually bound? Are there other things that Yahoo! and Microsoft are talking about in terms of partnering that would give Microsoft incentive to do this and potentially extend the financial hit? Or do they just feel they're going to close the gap and just bide additional time? And then the question on Display, I'm just trying to reconcile the 30% EMEA, APAC comment. Is that x currency or is that on a dollar basis? And then can you just talk about your media Page view growth in those regions versus the U.S.? Is the 9% overall company average? Is that consistent across regions or is Europe and APAC growing any faster than the U.S. in that category?

Timothy R. Morse

Okay, Ross. So RPS guarantee, you really have to ask Microsoft. I know why we did it. We wanted to provide more financial certainty. We heard loud and clear that's what our investors were concerned about, so we went to them with this concern and were able to work it out with them. Both companies still working really hard to get back to parity, and more importantly, above parity as soon as we possibly can. On EMEA and APAC, 30%, yes, that's a dollar basis. There is a little currency in there. I think it's roughly 20%, excluding the currencies, so it's pretty robust regardless. And then media Page view growth international versus U.S., honestly, I don't really look at it that way. We look at it more on properties. But I'm going to venture a guess that with a lot of the LEGO] rollouts or the Yahoo! publishing platform rollouts that it's really been much more internationally-focused. I think that's created some nice inventory Page view, less internationally. So I'm just going to guess that it's roughly the same, maybe a little bit more in EMEA and APAC potentially.


Our next question comes from the line of Jim Friedland with Cowen and Company.

James H. Friedland - Cowen and Company, LLC, Research Division

Just a couple of expense questions. On the Product Development expense, it was up q-over-q, a little more than it has been. In fact, it had been declining. And is there any kind of onetime item there or are you ramping up expenses a bit and what are you investing in? And then conversely, in CapEx, it looks like CapEx on the downswing and that's the investment in the data centers may be tailing off sooner than expected. Is that a right read or is there a timing issue there?

Timothy R. Morse

Yes, on the CapEx, I guided the second half being lower than first half for the reason you just talked about, which is the data centers. There's probably a little bit of timing between 2Q and 4Q on the data centers themselves. But basically, we have the same outlook as I gave on last call for CapEx. In terms of Product Development, there is nothing onetime in that. The things we're investing now are the same things we talked about in Investor Day in the last couple of years. I mean, all the important dimensions, the platform rollouts, the new technologies and improvements in our ad serving, our tech stack, we've got the video, the different content plays, mobile, some of the social integrations like you saw again with Facebook and News this quarter. So it's really the same subset of things that we've been talking about, but we seem to be gaining traction. Again, I want to shout a big congratulations to that product team who's go a lot going on, a lot has rolled out here over the last couple of months and they've got a pretty crowded schedule for rollouts in the coming months as well. So I think they are coming up to speed, doing a nice job. We have a better product planning process in cycle this year that Blake has introduced than we have in previous years. And honestly, we've got some great engineering talent. I mean there are just some really, really talented people that have come into the company, especially and our refreshing the way we go about launching products and the innovation we're using in creating them. So they're clearly going to be a big part of our success as a company moving forward.


[Operator Instructions] Our next question comes from the line of Ken Sena from Evercore.

Kenneth Sena - Evercore Partners Inc., Research Division

If you could just maybe go back and talk a little bit more about the nonpremium category, I know you mentioned that you're focused on it. But given that there are impressions in yield declines, if maybe could speak more specifically to what you're doing to address those fall-offs there. And if possible, what you can say anything to the magnitude of these clients?

Timothy R. Morse

Overall, on premium, like I said, it was down a little bit, we mentioned that earlier in the call. I said in my prepared remarks, too, it's in Mail and a couple of other kind of high-reach properties like Finance and News. And again, it's both volume and yield. I think you look at it in a couple of different ways. We're bringing up some major new properties and products like our new Mail and really scaling that out in News that rolled out under the Yahoo! platform, Yahoo! publishing platform. And we need to continue to tweak and optimize those for Page views and impressions per Page views. So the teams are hard at work on that. And then I've gone through a couple of times on the call that we're working on the yield side too. And there's a lot in RMX, the architecture and the improvement of our algorithm, and algorithms there that we have to improve. I really don't have a whole lot to add, Ken, to what I said earlier, but we can maybe follow-up with you after.


Our final question comes from the line of Karen Russillo with Wells Fargo.

Karen Russillo - Wells Fargo Securities, LLC, Research Division

I think we're kind of exhausted Display and Search. I just have 1 other question. Could you maybe remind us what in that other -- the 20% other revenue bucket and what in the quarter was [indiscernible]?

Timothy R. Morse

Yes, it's our fees, our listings in our leads businesses. I mean, there's e-commerce in the Pacific. There's our deals businesses, that was especially that we've just acquired out in the Pacific earlier in the year. We have our Japan royalties in that line. We got small business, we've got Flickr, we've got shopping travel, autos, all those businesses. Okay, thank you very much. Appreciate everyone joining the call, and we'll close off our third quarter financial results discussion now. Thank you very much.


Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may all disconnect.

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