Yahoo! (YHOO) Marissa A. Mayer on Q4 2015 Results - Earnings Call Transcript

| About: Yahoo! Inc. (YHOO)

Yahoo!, Inc. (NASDAQ:YHOO)

Q4 2015 Earnings Call

February 02, 2016 5:00 pm ET


Shibani Joshi - News Reporter, FOX Business Network

Marissa A. Mayer - President, Chief Executive Officer & Director

Kenneth A. Goldman - Chief Financial Officer


Heath Patrick Terry - Goldman Sachs & Co.

Mark Mahaney - RBC Capital Markets LLC

Brian Nowak - Morgan Stanley

Eric J. Sheridan - UBS Securities LLC

Anthony DiClemente - Nomura Securities International, Inc.

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Justin Post - Bank of America Merrill Lynch

Ron Victor Josey - JMP Securities LLC

Ben Schachter - Macquarie Capital (NYSE:USA), Inc.

Youssef Squali - Cantor Fitzgerald Securities

Stephen Ju - Credit Suisse Securities (USA) LLC (Broker)


Good afternoon, and welcome to Yahoo!'s Fourth Quarter and Full Year 2015 Earnings Video Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. The webcast today will be moderated by Shibani Joshi.

Before getting started, I want to remind you that today's presentation will contain forward-looking statements about Yahoo!'s strategic plan and long-term financial model, including our projected financial performance and planned operational improvements, restructurings and cost controls, as well as statements about our board's strategic review process and the separation of our remaining stake in Alibaba Group from the operating business.

Actual results might differ materially from our projections. The potential risks that could cause these differences are described in our press releases issued this afternoon and related slide presentation on our Investor Relations website and our Form 10-Q filed with the SEC on November 5, 2015.

All information in this video is as of today, February 2, 2016, and we undertake no duty to update it for subsequent events. Today's discussion will include non-GAAP financial measures. Reconciliations of our non-GAAP results to the GAAP results we consider most comparable can be found in our earning slides, which also contain full versions of the financial charts and graphs you'll see in today's video. We encourage you to review the complete slide presentations in our Investor Relations website at under earnings.

And with that, let me turn the program over to Shibani.

Shibani Joshi - News Reporter, FOX Business Network

Welcome to Yahoo!'s Fourth Quarter and Full Year 2015 Earnings Video Webcast. I'm Shibani Joshi and I'll be moderating today's earnings event. Here with me are Marissa Mayer, Yahoo!'s Chief Executive Officer; and Ken Goldman, Yahoo!'s Chief Financial Officer. Today we'll bring you prepared remarks from both Marissa and Ken around Yahoo!'s fourth quarter and full year performance, and later they'll be answering your questions as well.

And now, I'd like to turn it over to Marissa.

Marissa A. Mayer - President, Chief Executive Officer & Director

Good afternoon, and welcome to our earnings live stream hosted on Yahoo! Finance. Today I'll share an overview of our Q4 and overall 2015 performance. Then as we committed to on our last earnings call, Ken and I will discuss our plan for a more focused Yahoo! in 2016 and beyond, with details on how we plan to concentrate our efforts, improve execution and further engage our users and advertisers.

Let's begin with Q4 highlights. I'm pleased to report that our Q4 performance exceeded guidance across GAAP revenue, revenue ex-TAC, adjusted EBITDA and non-GAAP operating income. In Q4, we delivered $1.273 billion of GAAP revenue, which was 6% above our guidance range.

In terms of revenue ex-TAC, we delivered just over $1 billion of revenue in the quarter, approximately 4% above our guidance range. And we delivered $215 million of adjusted EBITDA, 7% above our guidance range. These results were enabled by Gemini native, our Gemini native product, which continued to exceed expectations, and by strength in programmatic ads, which showed solid demand in Q4.

I'd like to recognize our global sales team. They have worked tirelessly to deliver a great return on investment to our clients and in turn to deliver these results.

Looking at 2015 in total, our GAAP revenue was just under $5 billion, up 8% year-over-year. I continue to be pleased to see top-line GAAP revenue growth at this stage of our transformation. Our display GAAP growth this year was propelled largely by growth in native and video with the addition of BrightRoll, offset by the drag of legacy display.

Search GAAP grew year-over-year as well with the addition of our Mozilla partnership. On an ex-TAC basis, revenue was $4.091 billion, down 7% year-over-year, driven by partner payments. Overall, while we grew GAAP revenue, we did not grow ex-TAC revenue as we planned.

I now want to talk a bit about where we are in our turnaround. Yahoo! today is a far stronger, more modern company than the one I joined three-and-a-half years ago. We've tripled our mobile audience to more than 600 million monthly users, improved many partnerships, streamlined our data centers, hired incredible technical talent and invested wisely to meet future needs.

At the same time, we shifted resources towards growth-oriented businesses and markets by closing 22 offices and sunsetting more than 120 products and features. As a result in 2015 alone about a third of our revenue was completely new revenue with over $1.6 billion attributable to Mavens: mobile, video, native and social.

I'd like to talk about the balance of new revenue versus legacy for a moment, as well as some of the strategic decisions we've made. In a turnaround, you must literally turn around declining revenue and get it to grow. There are two ways to do that: by returning current business lines to growth, or by adding new business lines that grow. When I arrived at Yahoo!, I reviewed all the lines of business. Each one was in decline and had been for years.

Worse, we depended heavily upon banner ads and desktop users, both of which were declining in line with industry trends. That was the bad news. It meant we were sitting on about $5 billion of deteriorating revenue, with essentially no clear path to growth. We needed to turn that around, that declining revenue, with new businesses, not existing ones. And we needed something that was going to be big enough, and grow fast enough to matter to a $5 billion business.

The next decision you have to make in a turnaround is do you completely cut deteriorating revenue lines, so you can show significant growth faster, or do you try and stem the decline so you have the stability, but know that the headwinds will last longer as legacy revenue continues to deteriorate? We chose the latter. Given the size of our revenue and user base, we really didn't have a choice.

So to picture the turnaround, we knew we had a large but declining base of revenue. We knew it'd be irresponsible to walk away from large streams of revenue and profits prematurely, and we knew we had to invent new businesses that were extremely fast-growing and large enough to be material. Basically, our turnaround would look as shown here. This would have meant that we would have had some amount of time where revenue was flat to down. However, during that period, the makeup of the revenue would change dramatically. As an analogy, it could be described as a tectonic shift or the plates shift beneath your feet in terms of revenue composition, but you stay at roughly the same elevation in terms of total revenue.

However, once the new business has become large enough you'll see – begin to see the revenue from those new businesses overpower the legacy from the old, as show growth.

Let's look at how this has actually played out for Yahoo!. In our case, the legacy revenue is banner ads and to some extent desktop search. We have quantified the headwinds as at times more than $100 million per quarter. In other words, close to $0.5 billion per year. The new businesses are our Mavens, and as noted earlier they generated more than $1.6 billion in GAAP revenue last year. This is essentially from zero. Mavens as a revenue source didn't exist at all in 2011 and was nascent in 2012. And if you look at our actuals combined with our projected outlook it follows this pattern.

That said, if you look at our Mavens businesses alone, it looks like this. You can see how impressive the growth is. It's an incredibly fast-growing line of business, growing at 45% in 2015 year-over-year.

Now, let's turn to the strategic plans that supports our forward projections. Today we are announcing a strong set of actions that bring Yahoo! into the future. We'll be doubling down in areas and markets of greatest strength, so we can grow faster. Our plan covers four core areas. The first is to play to our strengths, to grow user engagement, particularly on mobile. We'll channel all of our efforts towards the products and markets that matter most to engage users, distinguish us competitively and drive growth. This focus will let us escalate the pace of innovation to make our best products even better faster.

Second, we will continue to drive Mavens revenue growth by investing in mobile, video, native and social through initiatives that improve advertiser satisfaction and sales. At the same time, we will continue to stabilize and slow declines in our legacy revenue.

Third, we will simplify the business to improve execution. Through product sunsets and divestitures, we will continue to prune our portfolio, so that our priorities and value are clearer to users, advertisers, partners and shareholders.

And finally, as a result of these changes, we must efficiently align our resources to our priorities and size the business accordingly. We believe these changes will improve our course and influence a positive trajectory on our earnings.

Let's go into more depth on each of these. Our vision for Yahoo! isn't changing and is rooted in our beginnings as Dave and Jerry's Guide to the World Wide Web. To consumers, we want to be known for discovery. We are guide to digital information discovery. We inform, connect and entertain them with our Search, Communications and Digital Content products.

Search, Communications and Digital Content form a three-legged stool for Yahoo!. Search is obviously essential discovery, and the lucrative nature of Search makes it very important to our overall business. Communications drives frequency. Our most engaged and most frequent visitors have Yahoo! Mail. Communications is easily the biggest driver of engagement on our network. And finally digital content is our differentiation. People come to Yahoo! because of our distinct voice through original content, aggregation and personalization.

The analogy of the three-legged stool holds true because if you remove any one of the three legs the system and the business works less well. Remove Search and you lose a key element of discovery, and also a really lucrative piece of the business. Remove Mail and you lose engagement and the frequency of use. Remove digital content, and you remove our differentiation, the reason people turn to us over other mail and search providers. Together the three of them form a true digital network and make Yahoo!, Yahoo!.

On the B2B side, we're also an advertising driven business, dedicated to helping our clients, build and grow their businesses through precise targeting and superior return on investment. In 2016 Yahoo!'s portfolio will intensely focus on the products that drives the most substantial portion of our users, revenue and market opportunity. Yahoo! is all about discovery. We'll be focused on three global platforms. Search, Mail and Tumblr, and four core verticals. News, Sports, Finance and Lifestyle in our priority markets. Those markets being U.S., Canada, U.K., Germany, Hong Kong and Taiwan.

To prioritize these markets, we're shifting our focus away from providing local products for most of Europe and Latin America. And going forward Yahoo! will be defined by two core advertiser, offerings Gemini and BrightRoll. Gemini combines search and native ads for superior results, while BrightRoll is being expanded to offer programmatic buying and selling for video, display and native advertising.

Our total user population exceeds 1 billion monthly users. While we have one of the largest audiences on the web, 2016 is about growing how much each user uses Yahoo!, in other words, engagement. And we want that engagement to grow, particularly on mobile. We must create more useful, relevant products to grow our page use, drive more logged-in users and grow our daily active users or DAUs.

Our product strategies are designed to foster growth in these areas. Let's start with the first leg of the stool, Search. Search is key to Yahoo!'s user proposition of discovery. As the mobile search market continues to expand and as user behavior shifts more towards contextual search queries, we see mobile search as the biggest opportunity. As a result, we're shifting our focus toward forward-leaning mobile search investments and thinking through how search should change.

In Q4, we launched an initial update to our Yahoo! Search application, the beginning of a complete re-imagination of mobile search. Given our strategic relationships with carriers and OEMs and the wealth of data within Yahoo! Mail that can help us personalize our results better, we're positioned to succeed here. Overall, while this shift has and will continue to require great prioritization internally, we believe that the mobile search opportunity will help drive sustainable, long-term growth and differentiation.

Turning to communications, Mail is a substantial driver of engagement across our entire product portfolio. In 2016, we're investing resources in speed, stability and features that can drive growth on our branded products. We'll continue to launch features that differentiate Yahoo! Mail for consumers and improve their ability to share, search and connect. We want Yahoo! Mail to be the absolute best place to send and receive your e-mail.

In Q4, we launched the ability for users to integrate their AOL, Outlook and Gmail account, and we've already seen millions of new accounts connected. And with the Q4 launch of our redesigned messenger product now integrated into Yahoo! Mail, we're deepening engagement even further. Users are responding very positively. We've achieved an impressive 4.5 star rating on both the App Store and Google Play, and we've reached record DAUs across our Mail applications in Q4.

Finally, looking at digital content, there are really two areas: Tumblr and our verticals that Yahoo! has always been strong in; news, sports, finance and lifestyles. These are areas in which we're already strong and where we will invest for engagement growth. By engaging users as well as consumers and creators of content, they are more likely to remain on our network.

With more than half of Tumblr users now on mobile, we're developing features to accelerate the mobile experience including new mobile creation tools, in-stream recommendations and push-notifications. The number of mobile followers has more than doubled since last year when we consider it to be – which we consider to be a strong indicator of user retention and engagement.

We're also seeing incredible new traction in user-to-user engagement with the launch of Tumblr messaging in Q4, that now sees millions of messages sent each day. By focusing on areas where Yahoo! is strong and differentiated, we can propel our execution to a new level. Focusing on just four areas, news, sports, finance and lifestyles, we can not only provide great content, but also great tools and services in these areas.

Tools like finance portfolios or Yahoo!'s Fantasy Sports, fuel our engagement and help us develop a deeper interaction with the user and keeps them coming back. Just last week, we launched exciting changes to both the Yahoo! app and, making it even easier than ever for users to find, consume and engage around news, content and videos tailored to their interests. Also in 2016, we'll be rolling out new features across our sports and finance apps that make engaging with sports scores, players and stocks much more compelling.

We'll also further integrate Polyvore into the lifestyle vertical to bring together incredible content with actionable shopable utilities. With these seven products, Yahoo! will better guide discovery for consumers going forward. Search, Mail and Tumblr will service global platforms to our worldwide audience and our core verticals of news, sports, finance and lifestyle will be more focused in our priority growth markets. Together these products will play to our strengths and deliver a deeply integrated and differentiated experience across Yahoo!'s entire network.

Revenue growth remains the most important indicator of progress in our transformation. Over the past few years, we've experienced strong headwinds from legacy display as the industry shifts away from ad formats such as banner ads. In addition, the recurring non-advertising base TIPLA royalty revenue from Alibaba has now expired. As these revenue streams come to a close, we expect absolute revenue to face pressure. We will achieve a baseline more reflective of the strong performance and growth potential of our core products.

As we seek to drive long-term sustainable revenue growth, our plan involves continued investment in Mavens to counterbalance legacy declines with a particular emphasis on mobile. With Mavens revenue at over $1.6 billion for the year, mobile is the largest contributor adding over $1 billion, or nearly a quarter of our traffic driven revenue. On video, we delivered $375 million of GAAP revenue in 2015, up 64% year-over-year.

Our native ad business continues to grow sharply with native display delivering over $0.5 billion of GAAP revenue for the year. And the social continues to be a long-term strategic play for us. We're pleased to see mobile DAUs on Tumblr up 34% year-over-year.

At the same time, we're continuing to thoughtfully monetize Tumblr's growing audience. Looking ahead, we continue to bolster our Mavens investments and expect to grow double-digit this year, reaching at least $1.8 billion in Mavens GAAP revenue in 2016. Underpinning that continued growth will be the M in Mavens, Mobile. Especially with the mobile industry ads spend estimated to nearly double by 2018. With a sharper focus on growing DAUs across our seven consumer products, we expect engagement growth combined with improved monetization will ultimately drive long-term sustainable revenue growth. In addition to the monetization of our own products, we're syndicating our excellent mobile tools with our Mobile Developer Suite, which continues to see great traction.

Buoyed by our acquisition of Flurry, we now serve nearly a quarter of a million developers reaching nearly 800,000 apps across more than 2 billion devices with 10 billion sessions every day. These staggering numbers also mean real revenue. Yahoo! App Publishing, which allows developers to monetize their apps now that contributes roughly half of our Gemini native revenue. Advertisers are increasingly embracing programmatic technology for its optimal performance, pricing and control. In line with this trend, our global sales team has been training and scaling form traditional premium focused sales to performance and programmatic offerings. As part of this plan, we are streamlining our sales support and operations teams and simplifying our international organization to focus on fewer ad products.

By refining our go-to-market strategy and reducing the number of client touch points, we expect to improve customer satisfaction. We have seen the benefits of this in Q4 with better-than-expected results. In all, these efforts are expected to drive sustainable growth going forward.

All sound strategies clarify what a company will and will not do. Yahoo! cannot win the hearts and minds of users and advertisers with a complex fragmented portfolio of products and assets. Especially, if some no longer meet our aggressive growth goals or distract from growth products. A simplified Yahoo! will yield better focus, execution and ultimately increase shareholder value.

Since 2012, we've invested in a series of bets across different product areas and markets. In an industry fueled by innovation, continued experimentation is critical for growth. While some investments have become essential to Yahoo!'s transformation, others have not. We've taken an honest look at those bets and have chosen to reprioritize many resources towards more proven areas of growth. To that end, in Q4 we closed Yahoo! Screen and shifted away from original scripted content. In 2016, some of our digital magazines will have their content consolidated under one of our four core verticals. While others will be shut down.

We'll also exit legacy products including Yahoo! Games and Smart TV. While we'll continue to support a handful of higher-margin, higher-engagement legacy products like Flickr, Answers and Groves. We will do so with a more efficient model that requires significantly lower investment.

In addition to our clarified product portfolio, we've begun to explore divesting nonstrategic assets of value. As an example these efforts include the responsible monetization of nonstrategic patents, the sale of valuable real estate, and other non-core, nonstrategic assets. In total, we estimate that these efforts could generate significant cash in excess of $1 billion. In sum, we believe a simplified Yahoo! will increase shareholder value over the long-term. Having fewer products also means we can improve those products faster, and increase profitability and focus. With this plan, we will also execute on additional efforts to save money and operate more effectively and efficiently.

Our new vision for the company requires each and every employee to work on areas that play to our strengths and drive the company forward. We've already made significant strides in managing head count and achieving quality and stability with fewer employees. Our workforce is 34% smaller today than it was in 2012 after reducing head count from around 17,000 total employees, roughly 14,200 employees and 2,800 contractors, to 10,400 employees and 860 contractors at the end of 2015. Throughout this time, we've also closed 22 offices. We value everyone who has dedicated themselves to Yahoo! and made contributions here. The changes in our employee footprint to date have not been easy, but they have been necessary to position the company for a stronger future.

To that end as we've already shared with our employees, we plan to reduce our workforce by roughly 15%. In addition, we will be exiting five of our offices: Dubai, Mexico City, Buenos Aires, Madrid and Milan. A majority of these changes will take place in Q1, but by the end of 2016, we anticipate we will have approximately 9,000 employees and less than 1,000 contractors. This represents a workforce that is roughly 42% smaller than it was in 2012 and will contribute to a total realized savings in short-term operating expense of approximately $400 million annually. This decision is not one we've taken lightly, and we will make every effort to treat affected employees with thoughtfulness, transparency and compassion.

On the issue of costs, I want to take a moment to discuss some blatant falsehoods that have been circulating in the press about the company's spending. I have found these untruths to be upsetting, and I'm sure our investors have as well. And while we do not have time on today's call to address all the inaccurate information, I want to touch on a few. For example, there have been reports of a $7 million holiday party and a $450 million spend on food over the past few years at the company. Both numbers are exaggerated by more than a factor of three. Our holiday parties globally cost approximately $150 per invited attendee. Our food program is extremely well run and all of our employee perks are standard for our industry, in line with other companies in our area and generally run less expensively here than elsewhere.

There has been a discussion of millions of dollars spent on free smartphones. The notion of free implies that these were given to employees. These phones remain property of the company, much like the desks, chairs and computers we issue to employees. Further, as is obvious from this call, mobile is a huge part of our strategy. We could not have built a billion-dollar mobile advertising business, one of the largest in the world, if the people building it did not use the tools, platforms and products we expect our users to use. There are many more examples of untruths and mischaracterizations. We can't touch on all of them. However, please know that we are very thoughtful about how we spend company resources, and we will continue to be.

We strongly believe that our strategic plan will create the best version of Yahoo! for our users, advertisers, employees and shareholders. As we implement these changes, 2016 will very much be a transition year with revenues and earnings expected to decline, returning to modest but accelerating growth in 2017 and 2018.

In sum, we expect our 2016 strategic plan to deliver the following value. Better user and advertiser product quality with growth in daily active users across our three global platforms, including Search, Mail and Tumblr; and four core vertical utilities, news, sports, finance and lifestyle in our priority markets. Continuing Mavens growth while on track to exceed $1.8 billion in 2016. GAAP revenue impact of product and regional exits of approximately $100 million; improved profitability with an adjusted EBITDA run rate of more than $1 billion by the second half of 2016. An annual operating expense reduction of over $400 million by the end of 2016. And overall simplification of Yahoo!'s business through nonstrategic asset divestitures, generating in excess of $1 billion in cash.

Before moving on from the plan, I want to say that I have never believed more in this company, in the people, in the products and in the inherent value of what we do. To be clear, this is a strong plan and a bold plan, and one we are embarking on with the full support of the board. We are very proud of the new $1 billion Mavens business, $1.6 billion in GAAP revenue to be exact, that we have built from essentially a zero in just three years. Today's announcements build from that achievement and will dramatically brighten our future and improve our competitiveness and attractiveness to users, advertisers and partners. This plan sets out to make Yahoo! the very best version of itself, and I'm confident in the company's ability to successfully execute it.

Turning now to capital allocation, we understand the importance of potential value maximization that could be realized by separating our Alibaba stake from our operating business. For this reason, the board and management are aligned that exploring additional strategic alternatives in parallel to the execution of our plan, is in the best interest of shareholders.

Per our announcements in December, we have been focused on and evaluating a reverse spin transaction, whereby Yahoo!'s operating business and equity holdings in Yahoo! Japan will be separated into a new operating entity. In addition to continuing the work on the reverse spin, the board will also engage with other qualified strategic proposals. Both the board and management feel pursuing these strategic alternatives in parallel is complementary to executing the plan. We are dedicated to being good stewards of capital and delivering shareholder value.

With that, thank you for your continued confidence in Yahoo!, and I'll now turn it over to Ken to talk a bit more about Q4 and our 2016 plan.

Kenneth A. Goldman - Chief Financial Officer

Thanks, Marissa, and thanks to all of you for joining us today. Today I'll review our Q4 and full year 2015 financial results. In short, we're encouraged that our fourth quarter results exceeded the expectations in many of our core metrics. We had good overall revenue growth in 2015, up 8% over 2014, including significant contribution from Mavens revenue, which as Marissa said, grew to over $1.6 billion.

Additionally, we have made progress in multiple initiatives to strengthen the business and drive efficiencies. I will provide greater detail about our strategic plan and our long-term financial model, so you'll be able to see where our business is going and how we plan to deliver value to our shareholders. Lastly, I will discuss our outlook for the coming quarter and full year as we position Yahoo! for sustainable and profitable growth.

First, some facts about our performance and progress on multiple fronts. Q4 GAAP revenue was $1.273 billion and revenue ex-TAC was $1.002 billion, both above our guidance range as we saw better-than-expected performance in our native and programmatic display businesses. For the full year 2015, GAAP revenue grew 8% year-over-year to $4.968 billion as we increased partnership revenue and executed on Mavens investments. This helped offset headwinds from the legacy businesses and the loss of TIPLA amortization.

Revenue ex-TAC was $4.091 billion and Mavens delivered $1.660 billion GAAP revenue for the full year, growing by 45% over 2014 and now representing 36% of traffic driven revenue versus 28% in the prior year.

Our Q4 revenue performance led to a better-than-expected adjusted EBITDA of $215 million, as our business transition is leading to greater efficiencies. As a result of these efforts, our full-time employee base declined by approximately 300 in the quarter ending at 10,400 and reflect a year-over-year reduction of 2,100 or 17%, even though we continue to substantially invest in the growth business. Non-GAAP EPS was $0.13 for Q4 and $0.59 for the full year. Ending diluted share count for the period was 952 million. With our strategic plan announcement today, we are further reshaping the company and expect to realize cost efficiencies that would be reflected in our financial results throughout the next year and beyond. Our new drivers of growth are strengthening, building on a number of investments and acquisitions that have helped us to drive the growth trajectory of the new Yahoo!

Our Mavens strategy. Some have worked well and some have yet to, but are expected to bear fruit. We continue to objectively and clinically evaluate how we would invest in these and other investments in this rapidly evolving technology landscape. Today we are going to be providing additional detail related to our plan to further reshape the company. Realize cost efficiencies and grow the business based on our core strengths.

As we go through our fourth quarter full year 2015 results in great detail, as seen on slides 11 and 12, I will focus discussion around non-GAAP results, which excludes stock-based compensation, restructuring charges and other expenses and charges and related tax impacts from all of these items.

Non-GAAP results also exclude noncash goodwill impairment of $4.5 billion as a result of our annual goodwill impairment test performed as on October 31. I will provide more detail around this later in the call. You can find complete reconciliations between GAAP and non-GAAP results in our earnings slides in our Investor Relations website.

In Q4, GAAP revenue is $1.273 billion, up 2% year-over-year, or 4% excluding the impact of foreign-exchange. Full year 2015 GAAP revenue was $4.968 billion, up 8% year-over-year. Search GAAP revenue grew 16% year-over-year, while display grew 11%. Traffic acquisition costs were $271 million, up $197 million compared to the prior year, primarily due to our Mozilla partnership, Gemini search and growth in our display networks, including video.

Revenue ex-TAC was $1.002 billion for Q4, and as I noted $4.091 billion for the year. And taking a closer look at search, GAAP search revenue was $522 million in Q4, up 12% year-over-year. Search revenue ex-TAC declined 8% year-over-year due to click-driven revenue decline of 7% and increasing TAC payments. Our global paid clicks declined 10% year-over-year in Q4, as we did see declines in affiliated Yahoo! Traffic, offset by growth from strategic partners like Mozilla and Oracle. Key drivers of the decline were volume decline in the U.S. across the affiliates and Yahoo! Search and investment into Germany.

PPC grew 3% mainly due to mix shift toward higher monetizing regions. We continue to make good progress in our internal search efforts and in Gemini, and see consistent PPCs across our platforms. Our overall investment in Gemini was similar to Q3 and in-line with our plans. We expect that our first verticals to start to reach their RPM targets in first quarter and we expect to reach overall breakeven in the second half of 2016.

Now moving to display, we saw a continuation of growth trends from the prior two quarters. GAAP display revenue was $601 million, up 13% year-over-year as a result of our growing native and video businesses. Display ads grew 8% year-over-year, driven primarily by continued native growth internationally, and through our network of mobile apps.

PPA increased 6% year-over-year, driven by the growth of our video formats and marketplaces. We also saw encouraging increases in our premium programmatic segments, helping to reduce a drag from the legacy formats. Display revenue ex-TAC grew 2% year-over-year, or 5% excluding the impact of foreign-exchange.

Let me now provide details on our Mavens investment businesses. Our Mavens GAAP revenue grew 26% year-over-year in Q4, Mavens now contributes 39% to our traffic driven revenue, which was up 33% in the prior year. Video experienced another good and solid quarter of year-over-year growth with many exciting highlights. Such as a successful global stream of the NFL game, and advertiser can now buy our fast-growing native video ad formats on our BrightRoll platform.

Mobile GAAP revenue grew 15% year-over-year and we continue to see our native ads build scale through syndication partners such as Bleacher Report and Cheetah. This will offset some deceleration in mobile search volumes. Our native display revenue, across all devices, reached approximately $160 million in the quarter, driven by volume growth internationally and through syndication.

For our Tumblr, our priority remains user growth and we have been pleased with the progress made in engagement, with over 80% of daily users on mobile. In 2015, we experienced a slower ramp in monetization than we initially expected, and coupled with the sales realignment, the business did not deliver the $100 million revenue goal for the year.

Moving forward, the team has a solid plan in place and we continue to believe that Tumblr's compelling content and attractive demographics will be a significant long-term driver of our overall Mavens and company growth. For revenue detail by regions, please refer to slide 10. Trends are consistent with the prior quarters.

Now, let me move to expenses. Non-GAAP total operating expenses were $940 million for the quarter, which is up 2% versus prior year. Depreciation and amortization remains consistent with the past several quarters at approximately $150 million. Our non-GAAP cash expenses in the full quarter came in at $788 million, which was up 2% year-over-year. Excluding the $35 million benefit from patent sales in prior year, we saw a decline of approximately 2% year-over-year as we continue to carefully drive operating efficiencies for the company. Sequentially for Q3, we did see one-off increases in non-head count related costs related to the quarter, which included NFL content costs, some additional legal costs, and accruals for accounts receivable reserves.

EBITDA was $250 million in Q4 with a margin of 21% based on revenue ex-TAC. Adjusted EBITDA for the full year was $952 million as we made investments in TAC to support our growth and partnership initiatives across Search, Communications and Digital Content. Non-GAAP operating income was $63 million and full year non-GAAP operating income was $342 million.

Now, let me turn quickly to the balance sheet. I'd first like to cover our goodwill impairment charge. We test goodwill annually at the reporting unit level. During the first step, we determine the estimated fair value of each reported unit, using the income and market approaches, by looking at future cash flows and current market comparables. As a result, we conclude the carrying value of several reporting units exceed their respective estimated fair values, resulting from a combination of factors. Including a decrease in our market capitalization in the fourth quarter and lower projected cash flows from the 2016 planning process, as well as the overall decreases in public market valuations for technology companies.

A second step was performed to measure the impairment. This resulted in impairment charges for the following reporting units, $3.7 billion for U.S. and Canada, $530 million for Europe, $230 million for Tumblr and $8 million for Latin America. Goodwill impairment testing is done on an aggregate basis – aggregate basis by reporting unit. As such, $2 billion of goodwill originated from acquisitions prior to 2007, $1.3 billion from acquisitions from 2008 to 2011 and $1.2 billion from acquisitions since 2012.

Looking back to the balance sheet, our Alibaba investment was $31 billion on the balance sheet, reflecting the Alibaba share price at the end of Q4 as this is mark-to-market. At the end of Q4, we had a $6.8 billion in cash and marketable securities, or $5.5 billion net of our convertible and other debt.

Free cash flow for the quarter was $32 million, including CapEx, which included CapEx spending of $126 million related to our products in Mail, Search and Mavens investments. Free cash flow for the full year, adjusted for the settlement of $3.3 billion in taxes related to the Alibaba IPO in Q1 was approximately $270 million.

Let me now move the discussion to financial details about our strategic plan that incorporates our views for full-year 2016, and a longer-term financial model. Earlier, Marissa outlined our strategy going forward. We anticipate that strategy will result in a business that delivers sustainable long-term revenue growth, enhanced profitability in excess of 25% EBITDA margins, and significant free cash flow generation. To get to that point, our strategic plan includes specific changes to our product portfolio and geographic footprint.

Our decisions to exit or de-emphasize certain areas of our business will have a near-term revenue impact but are necessary in creating an improved company with a foundation for future growth and profitability.

We will narrow our focus on key priorities of Mavens and mobile search monetization as we allocate resources and align efforts in 2016. To illustrate some of the changes for the year in detail, let me walk through a revenue bridge for how we think about full-year targets.

When starting with 2015 GAAP revenue, we factor in revenue changes rising from the loss of TIPLA amortization of approximately $200 million, strategic exit impact of approximately $100 million as we implement our plan of consolidating our digital magazines and right-sizing our operational footprint. Approximately $200 million decline for the platform shift in our Search business, reflecting the volume trends we're experiencing on desktop, and the shifting of resources towards the four leading areas of mobile search.

The ongoing headwinds from our legacy display and leads listing of fees business will be a drag on the business of approximately $175 million. We expect our initiatives in Mavens areas across mobile, search, native, social and video will continue to drive growth in the aggregate of approximately $200 million. All of these factors result in a full-year 2016 GAAP revenue expectation of $4.4 billion to $4.6 billion.

As we realign the business, we will also invest in our core areas of Search, Communications and Digital Content to drive our long-term engagement and revenue growth. The combination of our exits, efficiency programs and investments should allow us to operate a head count of approximately 9,000 by the end of 2016, or nearly 15% below today's level.

To do this, we will be driving business transformation. Changing our approach and doing things in a few select areas. For example, increasing our sales efficiency by getting the right balance between direct selling costs and sales support costs. Rationalizing our regional approach and footprint. Clarifying where we offer the full breadth of our global products. And G&A, though, we have made progress over the last year, we still have an opportunity to right-size to best in class benchmarks.

And in technology, we will more tightly align costs of core technology platforms with the products and businesses we are focusing on going forward. This will result in savings of $400 million approximately in 2016, with a focus on expenses that can be reduced in the short-term rather than fixed costs such as facilities, data centers and content expense that would take additional time to address.

With those actions, we aim to achieve a non-GAAP cash expense run rate of $2.4 billion, $2.6 billion after 2016. While revenues will decline initially, EBITDA margin will improve as we remove both variable and fixed costs as the year progresses. We expect full-year adjusted EBITDA to be in the range of $700 million to $800 million for 2016. Exiting the year, however, with the second-half annualized run rate of approximately $1 billion.

As we think about longer-term targets, we plan to drive towards sustainable market growth rates with an EBITDA margin in excess of 25%. In going through many of these changes in this transition year, we will be a more financially fit company with improving margins and growth over time. Regarding our separation of Alibaba, we continue to work through the business of regulatory issues necessary to effectuate a reverse spinoff as well as other strategic options. The board and management team, working with our advisers, are committed to ensuring a separation of the Alibaba assets as expeditiously and thoughtfully as possible.

We are fully aligned with our shareholders in our desire to maximize value for this investment. Spinoffs involved in the separation of operating businesses are inherently complex and lengthy processes and there are a number of steps and considerations.

As you can see on slide 9 of our earnings deck, these include separation planning, SEC matters such as filings, audited financials and review, convertible note consideration, our compliance with our agreements regarding Yahoo! Japan, our likely stockholder vote, and other key steps as negotiation of third-party consents.

Yahoo! will separate its global operating business as Japanese joint-venture Yahoo! Japan from the remaining entity, which will retain the Alibaba stake. The reverse spin raised a number of issues not raised in the forward spin we pursued last year, some of which are not within our control. We estimate it will take 9 months to 12 months to complete.

Regarding future further shareholder value creation, Marissa mentioned that we have identified opportunities across real-estate, patents, and other non-core assets. We will continue to execute on all types of value creation programs, providing additional capital and during our tenure, we have repurchased over $9 billion and reduced diluted share count by over 20%. With the remaining authorization of $2.7 billion for share repurchases, we will be prudent around timing of returning capital to excess cash. Over time we will have a balanced approach in returning cash to shareholders.

In summary, this strategy and financial plan builds on a track record we have in creating new streams of revenue, while continuing to drive efficiencies in the business and manage platform shifts, to set us up for the next phase in transformation.

Now, let me cover our guidance for the upcoming quarter, which will reflect many of the planned drivers I've previously discussed. For our GAAP revenue, we have now annualized our Mozilla partnership and BrightRoll acquisition. Investments in excess will have minimal revenue impact in Q1. TIPLA will continue to be a year-over-year headwind of approximately $69 million.

For TAC, growth will moderate now that we have annualized Mozilla and BrightRoll. We expect growth driven by a Gemini platform across search and native advertising. For Q1 guidance, we expect the following, GAAP revenue in the range of $1.05 billion to $1.09 billion, TAC of approximately $230 million, revenue ex-TAC in the range of $820 million to $860 million, adjusted EBITDA in the range of $100 million to $120 million, and non-GAAP operating income in the range of negative $50 million to negative $30 million.

For the full-year guidance, we expect the following: GAAP revenue range of $4.4 billion to $4.6 billion, TAC of approximately $1 billion, revenue ex-TAC in the range of $3.4 billion to $3.6 billion and adjusted EBITDA in the range of $700 million to $800 million, and non-GAAP operating income in the range of $150 million to $250 million.

In closing, this guidance and our long-term targets reflect a more focused strategy for the company and actions we're taking to improve performance in 2016 and beyond.

With that, Marissa and I will take your questions. Shibani?

Question-and-Answer Session

Shibani Joshi - News Reporter, FOX Business Network

Thanks, Ken. And that brings us to the Q&A portion of our live earnings event. And now the first question will come from Heath Terry of Goldman Sachs. Proceed with your question.

Heath Patrick Terry - Goldman Sachs & Co.

Great, thanks. Marissa, I guess as you move to execute on this strategic plan, what are your priorities, in terms of maintaining talent versus continuing to acquire, to bring new talent into the company? How aggressive do you feel like you can be from an M&A standpoint, particularly to take advantage of some of the opportunities that might be created by a tighter venture funding environment out there?

Marissa A. Mayer - President, Chief Executive Officer & Director

Well, as I have talked about in the past, tech is an incredibly acquisitive industry, and when I first arrived at Yahoo!, I felt it was very important to do many small talent acquisitions, in terms of really bringing new talent, new ideas, more entrepreneurial spirit into the business. We've done a good job bringing that talent here, and we have a lot of entrepreneurial spirit here in the company. And so we'll continue to hire and we will continue to acquire. In the case of exceptional talent, I feel the need is slightly less acute now, because we have really excellent teams helming each of these areas that I have a lot of confidence in.

Shibani Joshi - News Reporter, FOX Business Network

Next, we'll go to Mark Mahaney with RBC Capital Markets.

Mark Mahaney - RBC Capital Markets LLC

I want to ask you a high-level question about mobile search. It does seem like across the industry, at a bit of an inflection point. Could you step back a little bit and explain what's happening? There was a concern, at least in financial circles, that mobile search would be dilutive, it would slow down the growth, there'd be transitions, but it seems like that's accelerating across the industry. So just, if you think about the top-level drivers of mobile search and why now? Thanks a lot.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. I appreciate the question. It's a complicated one, because there's mobile search as it exists today and then there's what mobile search might become in the future. One of the things that we are seeing is that PPCs on mobile are under more pressure than they are in desktop. And in large part, that's because, for example, e-commerce transactions, et cetera, are more difficult from the mobile web on a smartphone. That said, we do see benefits and opportunities to do new kinds of advertising. For example, at marketing, et cetera, in our – in the context of our mobile web offering.

But even more so, we would love to see search evolve into a more app-oriented format where either from – within the Flurry software development kit, or through in standalone applications, we're able to drive a really rich app-based experience for search. And search in that context probably behaves much differently than web search does. Web search will always be really useful, but that said, what you need on your phone when you're on the go under time pressure, you need to actually be searching over a lot more personal information. You also need to have a better understanding of what apps people have on their phone, et cetera.

So for example, I may want, if you were looking to find somewhere in, say, in downtown San Francisco and it's 6:00 on a Saturday night, it's useful to be able to say, okay, use Yelp, use OpenTable to actually book a reservation and being able to know which – what applications you have on your phone, deep link to them and really provide a great guidance. This is really where Yahoo!'s mission around being the guide comes into play. It's something that's quite different and it will monetize differently. The user interaction will be different, and we really think that mobile search needs a much deeper re-imagination.

So I would say that a lot of the trends that have been discussed more broadly are true in terms of mobile web-based search. That said, we do think that app-based search, some of the personal assistant work that's happening across the industry really takes mobile search in a new direction, and we think those re-imaginations are only going to become more intense.

Shibani Joshi - News Reporter, FOX Business Network

Brian Nowak with Morgan Stanley. Go ahead.

Brian Nowak - Morgan Stanley

Great, thanks for taking my questions. I have two. On the asset and patent divestitures, I think in the press release, you mentioned the potential for $1 billion to $3 billion by the end of the year. Could you just help us understand the swing factor between $1 billion and $3 billion? And are those net tax numbers? And then second question is also unfortunately on taxes. Ken, can you help us understand the potential tax liability on the spin of the core business? Thanks.

Kenneth A. Goldman - Chief Financial Officer

Yeah, I can take a couple. In terms of the – we're talking about pre-tax numbers, there is a wide range, and frankly, there's a wide range relative to what we think we can do in terms of monetizing our patents that we looked at; in terms of how we think about sale of some of the property we have, which we talked about, and it has been rumored in the press some of the things we're doing there; and three, in terms of what we referred to in some of the non-core businesses in terms of what we might not do there. So it is a wide range. And we've gotten some estimates in terms of what we can do on patents, some estimates we can do on some of the land ideas we have as well as some thoughts and some of the non-core assets that we think we can monetize over time.

In terms of – I don't want to go through the exact numbers on tax. Obviously, we could do a reverse spin that would be basically tax-free. More likely it will be taxable, so we understand that. We do have some basis for our core business as well as basis for Yahoo! Japan. But I'd rather not go through those numbers, because they're still being tuned a little bit, in terms of right now for public process.

Shibani Joshi - News Reporter, FOX Business Network

Okay. Thanks very much. Next, we're going to go to Eric Sheridan at UBS.

Eric J. Sheridan - UBS Securities LLC

Thanks for taking the questions. Maybe two quick on revenues. When we look at slide number five in the presentation, I think one of the things I'm trying to grasp is on the legacy business, sort of re-accelerating in some of the out years, when you start to lap some of the impacts you called down on slide number seven, I want to know what's driving that inside the legacy business?

And number two, on the Mavens forecast you provided for 2016, that was probably lower than we would have thought for the Mavens business, at around 12% revenue growth given the industry's growing roughly around the mid-teens broadly for digital advertising. So maybe help us, give us a little bit of color on some of the puts and takes that drove the Mavens forecast? Thank you

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. So I'll take the question on the legacy drag. In general, we have been experiencing, as we talked about, rather intense legacy drag from our premium decline. That said, what we're seeing is the premium ad dollars are shifting both into programmatic with the same ad formats, but also, they are shifting into new ad formats. Largely, the new ad formats are classified into our Mavens revenue. There are some historical ad formats that are staying in our legacy numbers. And so one of the things you're seeing happening is there is a lot of price per ad pressure in the near term, in terms of the immediate years following. And as that premium shift to programmatic, that mix shift continues to happen. That said, once that stabilizes, we do think we'll start to see price appreciation in programmatic selling of older style ad formats. And so that's one of the things that causes that to buoy back up.

And in terms of Mavens, as we projected, we anticipate it will be at least $1.8 billion in 2016. We are really happy with the strong growth we've seen in mobile and particularly in native. The fact that Gemini had more than $0.5 billion in GAAP revenue this past year is just terrific. It's a product that was invented in the middle of 2013. We're really excited about that.

But overall as we looked at our strategic plan, one of the things that we did was we took a tighter view on revenue to basically help us really seek the types of efficiencies on costs that we ultimately would seek. And so, we basically worked with a tight revenue number to really drive a larger set of cost efficiencies across the business. But we feel confident that given the industry trends and our own product momentum here, that this is a reasonable number.

Shibani Joshi - News Reporter, FOX Business Network

Okay. Now, we'll move on to Anthony DiClemente with Nomura.

Anthony DiClemente - Nomura Securities International, Inc.

Thank you for taking my questions. First for Ken, you discussed some of the efficiencies in getting to that $1 billion of adjusted EBITDA run rate by the second half of the year, but that plan, I think, implies about 20% adjusted EBITDA growth as we get to the end of 2016. Are there specific areas or efficiencies that you can point to, that give you confidence in the quarterly phasing of that to get to that run rate? And what gives you the confidence you can execute the $400 million in cost savings while returning to that pretty substantial EBITDA growth to end the year?

And, Marissa, if I may, just between the reverse spin strategy, the strategic plan for the core business and the potential for strategic proposals, it strikes me that you'll be pursuing three plans basically at the same time, all with their own complexities, all with their own multi-variable outcomes as you laid out in your prepared remarks. Can you just help us understand how you're going to prioritize your time or prioritize those three? Are there one or two that you would favor over another, for example? Thanks for taking my question.

Kenneth A. Goldman - Chief Financial Officer

So, yeah, let me talk to a few things. One is in terms of cost, we're going to take – we already talked about the actions on head count. It'll take us a little bit of time to effectuate those. We do expect that to be fully effective for the second half of the year. So a lot of the costs that will go down includes workforce-related expenses, so that's a good part of it. There are facilities actions, we're going to take, as Marissa noted, some of the facilities that we are eliminating, so that also will be cost that we'll take out.

We'll be taking out some content costs. Particularly we're looking at content costs that don't make sense for where we are, what regions we're in and so forth. So there's a number of things we're going to do to take out costs. Certainly, the variable costs are more quickly to take out. The fixed costs, by nature, are a bit fixed, but even there we're going to do some work particularly on the facilities, things that come in my area.

So and then there's a lot of workforce related costs like T&E whatever that will also come down with the head count. So a lot of those costs as we take actions this quarter on those and then they get effectuated, that's how we see second half.

The other thing that helps us on the EBITDA for second half is clearly, we expect revenue to grow in Q4 so we do expect the normal seasonal pattern in Q4 revenue. So some of the better EBITDA is both from reduced the cost base by $100 million a quarter, roughly as we go forward here and once we get it all done. And two is then the higher revenue.

I would say down the road we continue – we will continue to look at some of the fixed costs where we can be more effective in our data centers, our other facilities, consolidations we can do and so forth. And there may be areas of content and partnership arrangements that we can also reduce. So there's a number of things that we look forward to as we go past 2016 to 2017. And the thing is, frankly, we've used a lot of objective data benchmarking and so forth to really drive ourselves to be much more efficient and effective.

Marissa A. Mayer - President, Chief Executive Officer & Director

And to the second question, I think at the risk of stating the obvious, I think it's clear to everyone our situation is complex and it's not surprising that the strategy for maximizing our value is also going to be complex. Yes, we need to execute on our strategic plan. We need to create the very best version of Yahoo! that we can create. We also see a lot of possible value in a spinoff transaction, and the reverse spinoff being likely the most valuable there. And then finally, as we announced today, we'd like to take a look at alternative strategic opportunities. And so we do need to look at all three of those.

It is going to be very busy but to put things in perspective, for the majority of people here at Yahoo!, we really need to be focused on executing the plan, because executing the plan well creates value in all possible scenarios and really increases our shareholder value. That's what the majority of people here will be working on. There is a smaller group, much the same group that worked on the forward spin last year that will be dedicating time to the reverse spin. There's many of the same complexities. There's a few new complexities and they'll be dedicating their time there. And reviewing strategic alternatives as well as it should be, would be a board-led process. And so I would anticipate our board will be dedicating their time there.

I will have to spend time on each of the three things but, again, my view is the highest priority for me personally is working on the strategic plan and making sure that we really execute to the best of our abilities inside the company because that's what unlocks the most shareholder value.

Shibani Joshi - News Reporter, FOX Business Network

Our next question will come from Mark May at Citi now.

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Thanks. One is a bit of a follow-up from an earlier question, but regarding Mavens, I believe that the revenue there grew 45% last year, but your guidance implies that it could slow as little as 8% this year. I was just wondering if you could shed a little bit more light on what exactly is driving that slowdown. It seems like part of that might be driven by some of the cuts and it reductions that you're making but maybe if you could shed a little bit more light on that, that would be helpful. Thanks.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. We've seen – and I'll refer to Ken for some perspective in a moment too but we've, obviously, seen strong growth and the Mavens is something that we're really, really quite proud of. That said, we do have – the Mavens revenue is largely split between both Search and Display and so our Search, our Mobile Search business is one that has reached a point of some maturity. It's a very large business. And we do think we're going to start seeing some slowing in growth there. I will say that our – the native business that we have inside of Mavens as well as our syndicated business through Yahoo! App Publishing is growing quite strong. So a lot of these, it's really, I would say, hard to project exactly where we're likely to end up but we do feel confident in the $1.8 billion number, so good solid growth. And hopefully with good execution we can possibly better that number. Ken?

Kenneth A. Goldman - Chief Financial Officer

And maybe it's easy for me to say, I hope it's a bit conservative but, I think, some areas that we are looking for growth. Clearly Tumblr, we're looking for good growth this year. I think in the area Marissa talked about in Search, particularly as we invest more there, it will take us some time to get that growing at the rates we would like to grow. We do think we can do, frankly I'm hoping to do a little bit better in video than we have here. So there are some numbers there that, frankly – the other thing I think that Marissa talked about is as we eliminate some of the regions, whatever, there is some revenue that goes with that. And that was part of Mavens. So part of it is the transitions as we're going forward, and part of it is as we move forward with the company. And so I think this is a base number that we're going to work with in terms of our sales organization, particularly as they realign themselves as well.

Shibani Joshi - News Reporter, FOX Business Network

Justin Post with Bank of America, please proceed with your question.

Justin Post - Bank of America Merrill Lynch

Thank you. I wonder if you could talk a little bit about the separation, what you've learned so far, is it on track? And do you still feel confident that it can be something you can do this calendar year or next calendar year? Thank you.

Kenneth A. Goldman - Chief Financial Officer

Yeah, I do feel comfortable we can do it this year. I mean we've clearly learned a lot. I mean we were, as I sort of reiterate a little bit, we were very, very close to completing the forward spin as it was. Now, we clearly understand the issues that it included. So, but we were close. We did a lot of things. There are some other things we have to do. I'm not going to go through them all. As you saw the chart we put together, there are a lot of things that we do have to do to consummate that, which is why it just takes some time. There's a number of things that are included in the reverse spin that weren't included in the forward, which is one of the reasons why we initially selected a forward spin.

And to your point of, do we feel confident about completing it in 2016, yes, we do. We're very focused on it. We do feel, we've always felt that having a separation of Alibaba and letting it be free, so to speak, and let us focus on the core business would be very helpful no matter what direction we take this. So we're very focused on it. We have a very – a good group of folks working on it. We have effectively the same group of internal people as well as the advisers working on it. And so it's a good continuous stream of people that are looking at it and working with us, including the people we have internally. So I guess the short answer would be, yes.

Shibani Joshi - News Reporter, FOX Business Network

Ron Josey at JMP Securities, go ahead.

Ron Victor Josey - JMP Securities LLC

Great. Thanks for taking the question. When thinking about the four main verticals: news, sports, finance, lifestyle, can you talk about what percentage of traffic they represent today maybe in terms of the 600 million MAUs, mobile MAUs, I think you mentioned earlier. And just the difference in how you are thinking about your strategic alternatives between now and maybe early December when the board met. What sparked the change? That'd be helpful. Thank you.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. In terms of news, sports, finance and lifestyle, obviously, we have a large network. Mail is actually the largest of our traffic drivers and engagement drivers, as I referenced in my remarks. And so it's probably the biggest driver overall. So I would say in the grand scheme of Yahoo!, I'm not going to offer a specific percentage, but the percentages are overall small in terms of how much traffic is being driven by news, sports, finance, and lifestyle. That's so that traffic is very well-targeted, it's very desirable traffic for the advertisers. And while it's small in the context of Yahoo!, it's quite large in the areas of those verticals, with most of those applications being either number one or number two in their space, both in terms of usage and ratings and other things. And so it is something that we think is really important to focus on in terms of digital content. It helps us ultimately really differentiate, and they are very valuable businesses in their space, but where Yahoo! can make a name for itself.

In terms of reviewing the strategic alternatives, we did reference in our announcement in December that while we were focused on a reverse spin, we were going to look at a number of different alternatives. And I think that the announcement today is basically just the formalization of that.

Kenneth A. Goldman - Chief Financial Officer

Yeah, I would add to your point, I mean, clearly if you look at where our revenue comes from, it is search. And then if you look at display, display really is home page. And by the way, hopefully you'll see our new home page displayed, which includes news, sports and finance and Tumblr. Those are our big revenue drivers and those are the ones that we're really putting a lot of effort behind. So what you see really is a recognition of here's the products that really do drive our revenue, aligning the head count against those products as well as core regions. And then basically other areas that weren't core or focused, those were the ones that we're sort of exiting, if you will.

Shibani Joshi - News Reporter, FOX Business Network

We'll now take a question from Ben Schachter at Macquarie. Go ahead.

Ben Schachter - Macquarie Capital (USA), Inc.

Marissa, going back to the mobile search question, you talked about mobile search evolving. But how do you stay ahead of what Google and others are trying to do there? And then how do you do it without it becoming a very expensive arms race? In other words, even if you're correct that mobile search does evolve differently, how does Yahoo! win there? Thanks.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. We think that the profile of how mobile search evolves will be somewhat different than web search evolved. Obviously, the web is really large. In some ways it's nearly infinite. And so crawling all information that's out on the web is publicly available, that's privately available is something that is really challenging and very capital intensive.

In Mobile search, it's much more about your personal information. How can we make you more efficient, more effective, and know where you might want to be going, how to get you there most efficiently, what apps can help you accomplish the task that you ultimately want to accomplish? The search space is basically much smaller, the required disk space, the conversation space is smaller. And we just think it really comes down to, it's a lot about being able to do those basics of search well. But then it's really around user interaction, user expectations and how do we build the best possible applications to really meet those needs.

But I think the overall cost profile will be somewhat different, and I do think this is an area that's really deeply in need of reimagination. And I think when you look at how smartphones have transformed so many different industries and different types of activities that we all do. When you look at Search and Mail, it's very clear there's going to be a lot more evolution to come, and that's something that we're really excited to participate in, and we have a long heritage in search, and we have a lot of people here who have great ideas about what they'd like to do.

Shibani Joshi - News Reporter, FOX Business Network

Youssef Squali at Cantor Fitzgerald, go ahead with your question.

Youssef Squali - Cantor Fitzgerald Securities

Hi. Thank you very much. Marissa, can you share with us what your learnings were from the NFL game that you streamed, the economics of that too, and just your foray into video content in general. And then, Ken, thanks for helping us with the breakout of the impairment charges though you did mention that since 2012 there was $1.2 billion in impairment. I think Tumblr was – only accounted for about $230 million, I was wondering if you could maybe call out the other components for the other billion dollars? Thanks.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. I will start on the NFL game. I just have to glow about it. We were so proud that the NFL chose us for this first ever global live-stream, and the team executed on it just brilliantly. We saw 33 million views of the game with 15 million unique viewers. It really set records in a number of different ways in terms of a live event, live sporting event. It was just one of the biggest audiences ever assembled for something like that and it's because the NFL brought us such great content. But I was also really proud of how our team executed technically. We had a very good 0.6% re-buffering rate which is unheard-of across the industry. We were running on incredibly high-definition on all platforms. It was really, really magnificent to see how the technical piece of this performed. I think it really shows how strong our streaming technology can be and where streaming ultimately can go.

We also, I think, really showed, and one of the things we really learned, was the value of our network and the value of our large audience. The fact that on a Sunday morning, frankly quite early in a lot of places where they like to watch NFL, we were able to assemble such a large audience by basically putting the game in places where people who are coming to Yahoo! properties might see it, and might go on to view it. That was something that worked incredibly well and it shows that Yahoo! having that large audience what it can really do in terms of distributing great content and helping our users really get that same content.

And then finally, I was really very impressed with our sales team. We had more than 30 different brands participating in approximately 70 spots overall in the game. The commercials were all terrific and I was really happy with the execution of those advertisements for our advertisers, our advertisers were really excited about it as well, to participate in that type of opportunity. So it was terrific to be involved in, I think we learned a lot technically, we learned a lot about what our audience can provide, we learned a lot about what we can do for advertisers in a video live-stream format.

Kenneth A. Goldman - Chief Financial Officer

And let me address your question. First of all, I think it's important to understand that we have nine reporting units, most of them are geographically based. Tumblr is a separate reporting unit and that's why I talked about the separate delineation for goodwill impairment there. And so, the one we talked about that includes the acquisitions, the more recent acquisitions, really is Americas and Canada. So it's not directly associated with any one acquisition.

But those acquisitions that are included in that if you will, include things like BrightRoll, Polyvore, Flurry and so forth. So those are in there, but again the most important part it's a reporting unit of Americas and Canada. It's not specific to any acquisition. And you look at the various cash flows and market comps for that reporting unit. So I just wanted to make it clear and when that carrying value exceeds a fair value that's when we have an issue in terms of write-off.

Shibani Joshi - News Reporter, FOX Business Network

And our final question this afternoon will come from Stephen Ju at Credit Suisse. Stephen, go ahead.

Stephen Ju - Credit Suisse Securities (USA) LLC (Broker)

Okay. Thanks. So, Marissa, in terms of your four verticals of news, sports, finance and lifestyle, what is your view of ad loads at this point? Are you starting to get any pushback from users or can you comfortably increase ad loads there? And, Ken, I think the market already understands the mathematical reality of what will happen to your growth rates with a faster growing Mavens accounting for a greater part of the overall revenue mix but that's – can you help us better understand the incremental margins and the incremental dollar revenue, of what's in Mavens versus your legacy business? Thanks.

Marissa A. Mayer - President, Chief Executive Officer & Director

Sure. I'll start off on the ad load question around the different verticals. So we feel these are the right verticals for us. They're verticals where Yahoo!'s has always been strong and there's something that we're excited to really invest in and see where we can go with them. If we're really focused on them in mobile. We, overall, are really happy with the ad formats we have and the ad load that we have. We, obviously, use our Yahoo! Gemini product to do our monetization on mobile. So when we look at these four verticals and building up the best-of-breed application on mobile for them, Gemini's how will begin to monetize them. That's said, we have been doing some experimentation lately with some, for example, first start of the day takeovers, things like that.

So the first time you boot up the application you might see for example a full-screen advertisement. We've tried that on Tumblr. That works well, but I would say with the ad formats we have, I'm comfortable with our ad load. I would rather not see us increase it, but one of the things we have seen excitement around, both from advertisers and from users is sometimes changing up some of the ad formats and producing new ad formats and possibly increasing the ad load that way.

Kenneth A. Goldman - Chief Financial Officer

And I would say on margins, we clearly on Mavens, we're still in investment mode. So, yes, we are profitable, particularly on an EBITDA point of view but, again, we don't break out profitability by product because most of our costs are very shared, and we frankly are a much more functional organization, so we don't really look at it that way. The key is, frankly, is really very simple, is really driving – continue to drive revenue as we grow on Mavens and taking out costs like we talked about. That is the way we're going to drive the profitability of the company and, again, what I wanted to really talk to is we're going to take some actions in the first half of the year. It'll take a while to execute on but by the time we get to the second half of the year, it's much more of a run rate business.

And again, I don't want to say, we won't continue to look at some of the fixed costs because there are some things in the fixed costs areas that we do believe we can continue to work on as well as we go forward. I had enumerate some of those before in terms of facilities costs in particular, some data center and so forth. So we will continue to look at how we can best basically achieve EBITDA and overall profitability in future years, on a growing revenue base.

Shibani Joshi - News Reporter, FOX Business Network

And that concludes Yahoo!'s fourth quarter and full year 2015 earnings video webcast. Thank you so much for joining us this afternoon, and we'll see you next quarter.

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