Full Transcript of Yahoo’s 3Q05 Conference Call — Prepared Remarks (YHOO)

Here’s the entire text of the prepared remarks from Yahoo's (ticker: YHOO) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Operator:

Good afternoon, ladies and gentlemen. And welcome to the Yahoo Third Quarter 2005 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 will now turn the call over to Mr. Paul Hollerbach, Vice President, finance and investor relations. Mr. Paul You may begin.

Mr. Paul Hollerbach, Vice-President, Finance and Investor Relations

Thank you and good afternoon and welcome to Yahoo's third quarter earnings conference call. On the call today are members of our executive team Terry Semel, Sue Decker and Dan Rosensweig, and Jerry Yang. Before I 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 predicted results and reported results should not be considered in indication of future performance. The potential risk and uncertainness include among others the company's ability to compete with new or existing competitors, a reduction in marketing services spending, adoption of our premium services and risks related to the integration of recent acquisitions. All information discussed in this call is as of October 18, and Yahoo undertakes no duty to update this information. 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. On the call today we'll be discussing some non-GAAP financial measures in characterizing the company's performance. Reconciliation’s of those measures to GAAP measures can be found on our investor relations website. Terry and Sue will spend the next 30 minutes on prepared remarks, which will then be followed by a Q&A session that will lastly until 3 p.m. Pacific Time. Now I'd like the call over to Terry.

Terry Semel

Thank you, Paul and good afternoon, ladies and gentlemen. Yahoo has continued its run of exceptional growth. Our relentless focus on our consumers and continued investments in people and infrastructure has led to increased product quality and a powerful rate of innovation, which are really paying off. As Yahoo's relationship with its users grows stronger, the costs we have chosen to build the world's largest global online network of integrated services is being further validated.

This is a very exciting time. For the third quarter we reported revenue of $1.3 billion, up 47% from the third quarter of last year and our 10th quarter of record results. We achieved balanced growth with contributions across the board from our multiple lines of business and geographies. Operation income before depreciation and amortization in the third quarter was Yahoo's highest ever at $385 million, up 48% year-over-year. We were able to deliver these results even while investing in and pursuing emerging opportunities and launching some of our most exciting and innovative products to date.

These results clearly highlight the power of our brand, products and business model. Yahoo reaches 73% of all Internet users in the U.S. in any given month, which speaks of the importance of the extraordinary breadth of our product suite. In fact, there is no doubt that Yahoo reaches more people in more ways than any other company on the web. Most importantly, Yahoo has deeper relationships with its users, which is essential to success in the next growth phase of the Internet. This helps provide our users and advertisers with richer and more relevant experiences. The broadband and mobile Internet is always on, always fast, and always with you. As users depend on the Internet for more things in more places and on more devices, we believe Yahoo with its integration of search, content, community and personalization has the best product suite to provide the greatest value to users around the world. By building both breadth and depth of usage globally, our consumer relationships also enable us to take advantage of multiple moneterization opportunities, which includes offerings all forms of advertising as well as premium services and commerce.

As a global network among the biggest future growth opportunities of course is China. That is why we signed an agreement with Alibaba in China during the quarter in which we combine our assets and have approximately a 40% economic stake in the new entity. This transaction is expected to close in this fourth quarter. We believe the combination of Alibaba and Yahoo is the best approach for Yahoo to win in China. Together the two companies can combine to deliver the best search, commerce and communications under the management of a very strong local team. This arrangement will further strengthen Yahoo's position as a pre-eminent destination in Asia, where we are a leader in many of the most important markets in that region. We have been on a mission globally and it is really coming to fruition.

Let's look at some of the specific highlights for the quarter. We ended the quarter with approximately 411 million unique users up 26% from 325 million for the same period last year. Our active registered users now stand at approximately 191 million, up 22% from 157 million in last year's third quarter. The fastest growing subset of users continue to be our paid subscribers as people find more value in Yahoo's suite of premium services. In the third quarter we ended with 11.4 million unique paying relationships up approximately 1.3 million subscribers from the last quarter and up 50% from last year. When we look further into our numbers, we are extremely pleased that we have achieved important share gains across many, many key verticals. Additionally, the average number of Yahoo services used by consumers and frequency of usage in many of our key verticals are also up.

As an Internet network, we look at these trends and we know that we're moving in the right direction. We have always said great products lead to a great business and this quarter you have seen us launch some of our best products to date. I'll now give you a quick overview of some of them. In communications, Yahoo messenger and mail made significant advances. We announced the industry's first major IM inter- operability agreement together with Microsoft to form the world's largest consumer IM community with more than 275 million users. We also made significant upgrades to Yahoo messenger with high quality PC-to-PC voice and interactive photo sharing, which we launched in 18 countries. This was the next step in our voice strategy which you'll see unfold further over the coming months.

Yahoo mail hit a significant milestone becoming the largest global web-based e-mail provider according to ComScore Media Metrix. We recently launched a new beta featuring a completely redesigned intuitive user interface with the speed and responsiveness of a desktop application. Industry experts called it “Far superior to competitors, sleeker, faster and smarter than its predecessor and stunning in its simplicity.