Yahoo! Inc. (YHOO) Q4 2014 Results Earnings Conference Call January 27, 2015 5:00 PM ET
Executives
Michael Santoli - Business Reporter
Marissa Mayer - CEO and President
Ken Goldman - CFO
Analysts
Doug Anmuth - JPMorgan
Heath Terry - Goldman Sachs
Mark Mahaney - RBC Capital Markets
Anthony DiClemente - Nomura
Justin Post - Bank of America-Merrill Lynch
Ron Josey - JMP Securities
Mark May - Citi
Stephen Ju - Credit Suisse
Carlos Kirjner - Sanford Bernstein
Eric Sheridan - UBS
Operator
Good afternoon and welcome to Yahoo!’s Fourth Quarter and Full year 2014 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 our business reporter from Yahoo! Finance, Mike Santoli.
Before getting started I’d like to remind you that today’s presentation will contain forward-looking statements about our plans for our remaining holdings in Alibaba Group and return of capital to shareholders as well as our expected financial and operational performance, including business and financial strategies, growth, revenue, products and ad sales. Actual results might differ materially from our projections. Potential risk that could cause these differences are described in our press release issued this morning, the related slides presentations on our Investor Relations website and our Form 10-Q filed with the SEC on November 7, 2014.
All information in this video is as of today, January 27, 2015 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 earnings slides, which also contain full versions of the financial charts and graphs you will see in today’s video. We encourage you to review the complete slide presentation on our Investor Relations website at investor.yahoo.com under Earnings.
And with that, let me turn the program over to Mike.
Michael Santoli
Welcome to Yahoo!’s fourth quarter and full year 2014 earnings video webcast. I’m Mike Santoli 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 bring you prepared remarks from both Marissa and Ken around Yahoo!’s fourth’s quarter and full year performance. Later they will be answering your questions.
I’d like to now turn it over to Marissa.
Marissa Mayer
Thank you for joining us on our live earnings webcast covering our Q4 and 2014 results. Before I go into our quarterly and annual financials I'd like to dedicate the first portion of the call to the announcement we sent out earlier today regarding our Alibaba holdings. As our shareholders are aware Yahoo! owns a total of 384 million shares of Alibaba, which comprises 15.4% of Alibaba and is worth nearly $40 billion, using Monday's closing Alibaba share price.
Following the Alibaba IPO these shares are subject to a one year lock-up agreement that runs until September 21, 2015. If sold or transferred through ordinary means the proceeds will be taxable at approximately 40%. Given the low basis this will give rise to a tax liability of approximately $16 billion or roughly $16 per share of Yahoo!
For over two years we have worked with leading tax, accounting, legal and financial advisors to identify and design an optimal transaction that could maximize the value of our Alibaba stake in a tax efficient manner. Today I am happy and proud to announce that management has recommended and the Yahoo! Board has authorized a plan to pursue a tax free spin off of 100% of the company's remaining holdings in Alibaba. We expect to effectuate the spin off in Q4 of 2015. This will result in two independent publicly traded companies.
The spin-off company, which we referred to as SpinCo will be a newly formed independently registered investment company that will hold 384 million shares of Alibaba and a legacy ancillary business that we will separate from Yahoo!’s core. The transaction will be subject to closing conditions including regulatory review as appropriate for a deal of this type.
After an exhaustive review we are pursuing this transaction as we believe it maximizes value for our shareholders and optimizes transaction efficiency and certainty. This is the structure that we can pursue and affect independently capturing value exclusively for our shareholders and we made the conscious decision to distribute 100% of our Alibaba shares because we felt maximum tax efficiency was important in our roles as stewards of capital.
During this team’s tenure Yahoo! has returned approximately $9.3 billion in capital to shareholders through share repurchases. Assuming Monday's value of Alibaba post-spin we will have returned nearly $50 billion of value to our shareholders. This level of return is historic. Moreover, considering the tax free spin off announced today, plus the already completed share repurchases, we are on track to return approximately 97% of our proceeds from Alibaba. It's also worth noting how reducing the number of shares sold in the Alibaba IPO yielded additional value for Yahoo! shareholders. As you know this management team worked very hard to reduce the number of shares that you we are contractually required to sell in the IPO.
We noted on our last call that renegotiating a pre-existing agreement we have realized appreciation of over $4 billion. With today's plan for a tax free transaction we stand to realize $3.31 billion of additional tax savings. In total, the improved relation between the companies and that negotiation we worked so hard for is worth more than $7.7 billion today and nearly $8 per share of Yahoo! I am proud that our management team has, through good stewardship and focus found the possible path to delivering this type of value to our shareholders.
I would like to pause here and offer some gratitude to those who helped along the way. I would like to thank the Yahoo! team along with our advisors for helping us deliver this excellent plan; I would like to thank our Board for their approval of this plan as well as the significant time and energy that they dedicated to this issue. And finally and most importantly I would like to thank you, our shareholders for your patience and suggestions as we carefully analyzed the best path forward for Yahoo! I would like to thank you for investing in us and believing in us. It makes us both really happy to be able to deliver this plan today.
Given this immense value we made finding a solution for our Alibaba holdings a priority in this transaction announced today. While our holding n Yahoo! Japan by comparison are a small fraction of our Alibaba holdings we will continue to explore ways to maximize the value of Yahoo! Japan, continuing our commitment to be a good stewards of capital.
In our core operating business we feel we have built a strong foundation and we are in an excellent position to execute and return the company to growth. I am now going to turn over to Ken to discuss the tax free spin-off structure and the execution plan in more depth.
Ken Goldman
Thanks, Marissa. And thanks all of you for joining us today. Let me provide further detail in the announcement as summary highlights can be found in our slide presentation available on our Investor Relation website. As shown on slide three and four, one company will be the co-existing Yahoo! entity which will include the Yahoo! operating business, net cash in our 35.5% equity ownership stack in our Yahoo! Japan joint venture.
As Marissa mentioned the second company will be the newly formed entity which we will be a registered investment company under the Investment Company Act of 1940 and will include our remaining 15.4% ownership of Alibaba shares. SpinCo will also include a legacy ancillary business as the active trading business with approximately $50 million in adjusted EBIDTA that we’ve identified to be part of the transaction.
The stock in the new company will be distributed pro rata to Yahoo! shareholders. It will be led by independent newly appointed management team and Board of Directors. The composition of SpinCo’s Board of Directors and management team and other details of the transaction including the distribution ratio will be announced prior to close of the transaction. SpinCo will assume no debt as part of the transaction. We believe this to be a unique spin-off transaction. We are not aware of any precedent of an operating company spinning off a registered investment company.
And as seen on slide five we believe the structure is a most attractive alternative for Yahoo! and our shareholders. The transaction is designed to maximize the value of our Alibaba holding exclusively to our shareholders as distribution will be tax free. The ability to execute the transaction independently, optimize its timing in execution efficiency.
Lastly, we believe the structure will improve valuation transparency for both SpinCo and Yahoo! The transaction is subject to regulatory and certain another conditions and we expect to close in Q4 of 2015 as seen on slide six. Key closing conditions do include receipt of IRS and requisite tax opinions confirming tax free status of the spin, filing effectiveness of an applicable registration statement with the Security and Exchange Commission in compliance with the requirements under the Investment Company Act of 1940.
We are in a process of filing for a ruling from the IRS and are in ongoing communication with SEC. Today’s announcement accompanies a comprehensive review of alternatives conducted by the Board and the management team working with our top advisors and we believe this is the optimal structure with a clean transaction for the company and our shareholders. With regard to equity ownership in Yahoo! Japan, is a joint venture with Softbank. We remain open minded about evaluating alternatives for value creation and our equity ownership in Yahoo! Japan is not part of this transaction.
Today we are primarily focused on maximizing the value of our Alibaba shares which are by far our largest non-operating asset in a tax efficient manner to drive significantly shareholder value. Yahoo! Japan ownership stake is currently valued approximately at $7 billion compared to the much greater value of the Alibaba stake at approximately $40 billion and that’s very much smaller value creation opportunity. Given our operating relationship we also need to carefully consider other factors relative to our Yahoo! Japan equity ownership, such as our brand license and technology license agreements.
In conjunction with our advisors the management team is continuing a thorough evaluation of financial, competitive and strategic implications for this entity. Now let me turn it back to Marissa as we discuss our Q4 and full year 2014 performance, Marissa?
Marissa Mayer
This historic level of return from the business has been possible because of Alibaba’s tremendous performance and because of our Founder Jerry Yang’s prescient investment in Alibaba in 2005. We would like to thank both Jerry as well as the team at Alibaba, honed by Jack and Jerry. Thank you.
This level of return has also been possible because the core of Yahoo!’s business is returning to health and stability and we believe growth. We’ve seen over the past 2.5 years that our own free cash flow is healthy enough to allow for the necessary investment in the core business through organic means.
Taking a look at our Q4 and 2014 results I am pleased to report that our performance continues to show stability in the core business. In Q4 our GAAP revenue was $1.253 billion. In 2014 our GAAP revenue was $4.680 billion. Both are roughly flat year-over-year, down approximately 1%. On a revenue ex-TAC basis our revenue in Q4 was $1.179 billion, down approximately 2% year-over-year largely due to the TAC acceleration in our Search business. In 2014 our revenue ex-TAC was $4.401 billion, down less than 1%.
I am now going to turn to look at our progress in detail on Mobile, on our investment businesses, Mobile, Video, Native and Social, on Search and on Display. I’ll then offer a broader look at the company’s progress, our strides for efficiency and excellence and our acquisition strategy.
For the first time last quarter we reported on our mobile revenue. In Q3 we saw approximately $200 million on a GAAP basis and predicted more than $1.2 billion on a gross basis and more than $700 million on a GAAP basis for the year. I am proud to say that we’ve achieved these estimates. In Q4 our mobile revenue was $254 million, up from $207 million in Q3, a growth of 23% quarter-over-quarter.
Our gross level [ph] revenue for the year was $1.260 billion and our mobile GAAP revenue was $768 million, exceeding our estimates by 5% and 10% respectively. We had a very good year in mobile and we grew at an accelerating rate and one that appears to be faster than the industry. In Q4 our mobile monthly active users were up to 575 million, making us one of the largest mobile audiences globally. Note this number includes Tumblr and is measured based on a different methodology, so it cannot be compared with the Q4 number from 2013. For reference we believe this number has grown 18% year-over-year, showing strong growth on an already large user base.
In terms of mobile products our mobile apps continue to win accolades. Google Play recognized Yahoo! News Digest, Yahoo! Now and Tumblr on their best apps of 2014 list and Apple iOS store recognized four of our apps on their best apps of 2014 list; Yahoo! News Digest, Flickr, Yahoo! Finance and Yahoo! Weather. We are incredibly proud of the strong product offering we’ve built and it’s an offering that is in demand with key mobile partners. In Q4 we’ve launched various integrations with Sprint, Samsung and AT&T.
In late 2012 this management team changed course from a confused web-based mobile strategy which preceded us to a beautiful Native app-based strategy, the fruits from our mobile strategy are obvious just two years later, as we’ve fundamentally changed our trajectory in user growth, in industry response and most importantly in mobile revenue.
Building on mobile I would like now to turn to the other key areas of investment. We’ve discussed on past calls the importance of Mobile, Video Native and Social. This is where we invest most heavily and these are the fastest growing areas of digital advertising. For ease of reference we referred to these with a [indiscernible] name, MaVeNS, short for mobile video native and social.
Here at Yahoo! the MaVeNS grew 95% year-over-year and a 100% year-over-year in Q4. In 2014 these businesses accounted for more than $1.1 billion of GAAP revenue. The four MaVeNS businesses do have some overlap which we de-duplicate since we monetized both mobile and social, Tumblr for example with native apps. However please recall that the MaVeNS did not contribute meaningfully to Yahoo! prior 2012. We had no native or social ads and mobile and video were nascent. We have created more than a $1 billion of new revenue annually, basically from nothing in just two years. In 2015 we expect the MaVeNS will contribute over a $1.5 billion to our business. If broken out on their own, as a company they would undoubtedly be one of the fastest growing start-ups in the world.
Let's take a deeper look at each of the MaVeNS beyond mobile, starting with video. Video is incredibly important as we look at how to reinvent our large legacy display business for the future. Video is key, because it is an essential and familiar way for marketers to deliver their messages. We couldn't be more excited about our Q4 acquisition of BrightRoll, as it instantly puts us in a leadership position across the video advertising ecosystem.
In 2014, BrightRoll served more video ads and reached more consumers than any other platform according to comScore. They powered digital video advertising for the world's largest brands and agencies including 87 of the Ad Age top 100 U.S. advertisers, all of the top 15 advertising agencies and all 10 of the leading demand side platforms. BrightRoll is a fast growing business with net revenues exceeding $100 million last year and solid growth expected this year. In our MaVeNS portfolio, video is the slowing growing area. We looked for the right acquisition to jumpstart our work in video ads and we are confident that we found it.
Native ads here at Yahoo! refers to Yahoo! Gemini, which continues to impress. In Q3 we had approximately $80 million of revenue from native ads and we predicted that we would see a $0.25 billion of revenue in 2014. Yahoo! Gemini native ads saw $106 million of revenue in Q4, up more than 32% quarter-over-quarter. In total, over the year Yahoo! Gemini native ads saw nearly $300 million of GAAP revenue. We are seeing strong growth in demand for Gemini powered ads on both PC and mobile, on Yahoo! owned and operated sites as well as through our newly launched publisher offering Yahoo! recommends.
On our final of the MaVeNS, we turn to social and Tumblr. According to November report from Global Web Index, Tumblr overtook Instagram as the fastest growing social network over the preceding six months, and that growth continued in Q4. Across Tumblr we saw our audience rise from 420 million in Q3 to 460 million in Q4, up approximately 9% quarter-over-quarter. Mobile app usage continues to be a key growth driver with mobile app users up 33% year-over-year. And we now have 75 of the Ad Age Top 100 with a presence of Tumbler and 56 of the 75 spending on Tumblr. Overall we are confident that we have honed in on the right investment businesses and our efforts are beginning to show significant traction, more than $1.1 billion of GAAP revenue in 2014 and 95% growth year-over-year. I really want to applaud the teams here at Yahoo! who have helped us invent and create this $1 billion plus business suite.
I'll now turn to a broader discussion of our core business in search and display. Let's first look at search. Many people were struck last quarter by the difference between our gross mobile revenue and our GAAP mobile revenue. This difference is driven by the fact that we account for our search, including affiliates on a net basis. This means our GAAP revenue is roughly equal to our revenue ex-TAC on search and the TAC paid partners hasn't really been visible on our external numbers. This dynamic exists on PC as well. So in order to give our investors more insight into our search affiliate business and our search business as a whole we have decided to begin to release gross search revenues in addition to the GAAP and ex-TAC measures.
In Q4 we have gross search revenue ex-TAC of $932 million which maps the GAAP revenue of $467 million and ex-TAX revenue of $462 million. Gross revenue was up 14% year-over-year. GAAP revenue was up a modest 1% and revenue ex-TAC was roughly flat. Overall in 2014, we saw $3.378 billion of gross search revenue which maps to $1.793 billion in GAAP revenue and $1.784 billion in ex-TAC revenue. Gross revenue was up 14%. GAAP revenue was up 3% year-over-year and revenue ex-TAC was up 5% year-over-year.
Across price-per-click and paid clicks we saw a nice balancing of the metrics. Paid clicks rose 10% year-over-year versus 0% in the prior quarter. This growth in paid clicks was driven primarily by strong growth in the Americas. We saw 23% year-over-year click growth. Price per click also grew. It was up 7% year-over-year. Our search click-driven revenue was up 18% year-over-year. As a note the search click driven revenue closely tracks and predicts our gross revenue growth.
Also in Q4 we struck five year partnership with Mozilla to make Yahoo! the preferred search experience on Firefox browsers across mobile and desktop. External sources estimate that Mozilla has 3% to 5% of the North American search market. So this is a significant opportunity. We began serving Mozilla partly through December, so we’ve not yet had a complete calendar month of data on the deal but we are already impressed with the volume Mozilla search has brought to our marketplace and the insightfulness and agility of the Mozilla team.
Search has been a strong growth story for us and is a strong growth industry. Mobile search does monetize at a lower rate than PC search. So as consumers switch to mobile devices the revenue per search decreases. And we are also seeing TAC rise across the search industry. That said we believe deeply in search as a core growth driver and we intend to keep it that way.
Finally turning to display, visual PC display advertising is in decline across the industry. At Yahoo! we have been working hard to stabilize the traditional business while adding fast growth through our new forward-looking MaVeNS businesses. Our GAAP display revenue in Q4 was $532 million. On a revenue ex-TAC basis, our display revenue was $464 million. Year-over-year this represents a decline of 5% on an ex-TAC revenue basis and 4% on a GAAP revenue basis. While the declines have continued they are slowing. In Q3 we have seen 6% and 5% declines respectively.
Our ads sold in quarter increased approximately 17%. However our price per ad decreased approximately 20%. On our Q3 earnings call we discussed the significant decline in the traditional PC display industry and the effect it has on Yahoo!'s business. Well this decline has and will continue. The decline undoubtedly would have been worse if not for the significant investment we made in programmatic advertising through Yahoo! Ad Manager Plus as well as our investments to increase engagement on our properties. Encouragingly our MaVeNS businesses show strong enough growth to nearly offset these declines. As we conjectured on the last call we believe the growth from the MaVeNS businesses will exceed the declines we experienced in traditional display in 2015 and our overall display business will return to growth this year.
One key factor to returning display to growth is to grow engagement on Yahoo! Mail and our digital content across all platforms. In Q4 we worked hard to enhance and improve both. On mail we launched a broad appealing acclaimed [ph] stationary in partnership with Paperless Post. We also launched better image handling, added our stream from our homepage to mail and a scroll to search feature. And in partnership with Sprint and their two prepaid brands, Virgin Mobile and Boost Mobile, we launched smart context, both on acquired technology from Zotne [ph].
In digital content we continue to increase the quality of our content and improve our engagement. In Q4 we grew our portfolio of digital magazines to 10 by launching Yahoo! Music, Yahoo! Parenting and Yahoo! Makers. With top-notch content and Yahoo's distribution power, our digital magazines are quickly ascending into the leading position in their categories. In recent comScore reports, we saw both Yahoo! Parenting and Yahoo! Travel at number one in their categories and Yahoo! Style at number two.
Across all of our digital magazines, we saw our daily active users grow 39% quarter-over-quarter and advertisers are responding to this beautiful immersive format. In Q4 we added new major advertisers including Gucci, NET-A-PORTER, Mars, Toyota, Visa, Chase, Volkswagen and Citibank. Our efforts around video technological expense and great video content are also bearing fruits. We grew video streams across our network quarter-over-quarter by 15%. With Yahoo! Live, our concert series featuring a live concert each day through our partnership with Live Nation, we saw a 65% increase quarter-over-quarter in streams and even more excitingly 55% of the Yahoo Live viewers were new to the network.
We also launched several short-form video series in conjunction with our digital magazines including Pogue's Basics in Yahoo Tech and beauty stories with Barbie, in Yahoo Beauty. And looking to Q1 and coming to a Screen your view [ph] on March 17 we announced that we will bring Season 6, a Community to Yahoo!
Finally and also in Q4, we added serious strength to our sales stream, Lisa Utzschneider joined us as a Senior Vice President of Americas sales; Kevin Gentzel joins us our Vice President of Premium Sales and Kathy Kayse joins as our VP of Sales, Strategy and Solutions. These three leaders have energized our sales force particularly here in the Americas with new broader and deeper relationships with advertisers and a fresh modern look at our go-to market strategy. I am thrilled to have them on board and look forward to seeing their impact on the business.
In summary on the core where our focus is search and display, we saw a strong growth in search on a gross basis. However increasing TAC rates kept us reasonably flat on a net basis. That said our new partnership with Mozilla gives us reason to be optimistic that search will continue to be a growth story. On display, the declines continued, though it is improving. We remain confident we will get to growth on display this year. We believe the strong growth from our MaVeNS businesses will offset the display to clients elsewhere that we worked to stabilize.
And one final look at the core and really trying to understand the growth trends and headwinds. If we set aside the traditional PC display business, which is in decline across the industry, the core business grew 10% on a GAAP basis and 7% on a revenue ex-TAC basis.
Finally I want to spend some time talking with the widespread and ongoing remix of resources that we're pursuing here at Yahoo! We have been remixing our business and resources away from legacy businesses and toward future oriented activities such as our MaVeNS product lines.
We have been achieving this remix both through changes in headcount allocation as well as through acquisitions. In terms of people at Yahoo! we closed the year with approximately 12,500 full-time employees. Our headcount has been essentially flat throughout current management's tenure. At the same time we've add more than 1000 people from acquisitions. Tumblr had nearly 200, Flurry 100, BrightRoll had more than 400 and several hundred from other building block in town acquisitions and we converted more than 1,000 contractor roles to full-time.
We have achieved the stability in headcount despite these additions through strong performance management by re-prioritizing resources by sunsetting older products and businesses and by consolidating locations.
We enclosed 12 offices including four since our last earnings call; Vietnam, Malaysia, Indonesia and Budapest. And we have sunset more than 75 products. We will continue to seek and execute on efficiencies that we find on an ongoing basis as an effort to better align our resources with our strategy and growth opportunities and to drive enhanced profitability in the business.
On acquisitions we have seen a lot of speculation around what we might do. We have worked hard to become a preferred acquirer and we think it is important as we transition the business to continue to look for great opportunities to smartly deploy capital. As you know we approach acquisitions in three different categories; talent acquisitions, which essentially are group hires, building block acquisitions where we want the technology and the people and they generally align with one of search communications or digital content and larger strategic acquisitions. Our strategic acquisitions we are looking for businesses that can really accelerate us forward in mobile, video native or social and usually multiple elements thereof.
Flurry is a great example of this with more than 600,000 applications with the Flurry STK integrated and more than 2.1 trillion app sessions seen last year. Flurry gives us unique advantages and insights in mobile and they give us the platform for syndicating our native Gemini ads and BrightRoll ads on mobile. Flurry really touches three of the four MaVeNS. Flurry is mobile video and native. However, despite speculation to the contrary we don't consider larger acquisitions; Flurry, BrightRoll or Tumblr sized or larger unless they really align with mobile, video, native or social. We will continue to be very disciplined in this regard.
I will now turn it over to Ken who will discuss our Q4 and annual financial results in more detail.
Ken Goldman
Thanks Marissa and I will now start by highlighting our Q4 and full year 2014 performance, following with a discussion of our financial details and then closed with our forward-looking guidance. Looking back in our Q4 full year 2014 performance I am pleased by significant steps we have made delivering share value by improving our operations, executing our transformative investments and prudently allocating our capital. Q4 GAAP revenue was $1.253 billion and revenue ex-TAC was $1.179 billion at or above the high end of our guidance range.
Adjusted EBITDA also exceeded our expectations at $409 million in the quarter as we continue to actively manage our cost base. And for the full year 2014, GAAP revenue and revenue ex-TAC were $4.618 billion and $4.4 billion respectively. We saw a modest 1% year-over-year decline in both metrics as revenue from our transformative investments of mobile social video and native, MaVeNS become more meaningful to offset the larger headwinds from our legacy PC businesses.
In Q4 and full year 2014 these four businesses together delivered strong revenue growth of 100% and 95% on year-over-year basis. GAAP mobile revenue surpassed $250 million in Q4 representing 23% quarter-over-quarter growth while full year GAAP mobile revenue was well above the $700 million figure we highlighted on the last earnings call. And our native ads business also showed significant progress with GAAP revenue of over $100 million in Q4.
Let me talk about capital return. We continued our strong commitment to capital return in Q4 as we repurchased 22 million shares in the open market for $980 million at an average price of $45.26. And also in the quarter we entered into a second accelerated share repurchase agreement under which we acquired $16 million shares for $800 million. This brings our total share repurchases for the full year to $4.2 billion with $102 million shares we purchased at an average price of $40.94.
In terms of our commitment to return at least half of the $6.1 billion of after-tax Alibaba proceeds to our shareholders we have aggressively bought back nearly $3 billion of our stock in just four months consisting of $2.8 billion from the closing of Alibaba's IPO through the end of 2014 and approximately $120 million quarter-to-date. Since the beginning of Q2, 2012 our significant buyback activity has seen us repurchase 354 million shares, totaling $9.7 billion to-date representing approximately 29% gross reduction at our initial share base, at an overall average price of $27.44. This has been extremely accretive for our shareholders and our diluted share count was $963 million for Q4. At the end of the quarter it was approximately $952 million down 8% from a year ago and down 22% from the beginning of Q2, 2012 on a net basis.
In Q4 we created additional capital by continuing to monetize our IP assets through patent sales resulting in $35 million of cross benefits. This brings a total cash value from ongoing IP monetization efforts to approximately $575 million since 2012. We also realized $56 million cash value from our Japanese yen hedges in Q4 resulting also in total realized value of $538 million from hedging our balance sheet investment in Yahoo! Japan.
We would like to congratulate Hortonworks on their successful IPO as we hold equity of the company on a balance sheet, which is valued approximately $200 million. Moving forward we will continue to be good stewards as we evaluate the best ways to allocate capital and drive shareholder value.
Now let's go through our fourth quarter and full year 2004 results in greater detail and later I'll close with our forward-looking guidance. As a reminder I will focus most of the discussion around non-GAAP results which excludes stock-based compensation expense of $103 million and $420 million and restructuring charges of $33 million and $103 million for Q4 and full year 2014 respectively.
Non-GAAP results also exclude a gain on Hortonworks’ equity of $98 million and goodwill impairment charges of $88 million for both Q4 and full year and the related tax impacts from all of these items. You can find a complete reconciliation between the GAAP and non-GAAP results in our earnings slides on our Investor Relations website.
Now starting with the financial highlights for Q4 as seen on slide five. As I mentioned earlier Q4 GAAP revenues was $1.253 billion and revenue ex-TAC was $1.179 billion. Search revenue ex-TAC was flat year-over-year while display revenue ex-TAC was down 5%. The adjusted EBITDA was $409 million in the quarter. Non-GAAP operating income was $256 million, well above our guidance range and earnings and equity interest was $102 million down versus prior years, as we no longer account for Alibaba investment under the equity method.
Non-GAAP EPS was $0.30 and our Q4 average fully diluted share count decreased 7% versus the prior year to 963 million shares. Free cash flow was $78 million for the quarter. The decline was primarily caused by temporary shifts in working capital relative to the prior year including prepaid and accrued expenses and also the impact of the BrightRoll acquisition. Our cash and marketable securities balance was $10.2 billion, which were down from the prior quarter as a result of a significant buyback activity in Q4. And lastly our headcount ended the quarter at approximately 12,500 with no significant increase from Q3 despite adding the headcount from the BrightRoll acquisition. We will aggressively manage our headcount operating expenses with the goals of increasing profitability and EBITDA overtime.
Now moving to the full year review as seen in slide six, 2014 revenue ex-TAC was $4.4 billion slightly down from 2013. Search revenue ex-TAC grew 5% year-over-year while display revenue ex-TAC declined 4% year-over-year. The adjusted EBITDA was $1.36 billion, decline of 30% versus prior year as we made investments in our sales and product organizations to support our growth initiatives in the MaVeNS area. As we have stated previously, managing our cost structure is important to us and it has received continuous attention throughout the year.
I am particularly pleased with our ongoing efforts to unlock the value in our IP assets with patent sales and licensing programs in 2015. That resulted in $98 million of total cost benefits and a Q2 transaction for patent licenses resulting in $400 million of fee revenue, which is being recognized over a five year period, actually nearly $500 million in total value. We recognized of $103 million of restructuring expense in the year related to office consolidations and cost initiatives to improve our operating efficiency and reduced expenses.
In Q4, we announced several initiatives in Asia-Pac regions to streamline our operations and improve our funds from collaboration. Non-GAAP operating income was $755 million down 19% from the prior year. Non-GAAP EPS was $1.57, a 3% improvement over 2013 and finally free cash flow was $590 million for the year, was down due to the decline in EBITDA and increase in capital expenses and working capital adjustments as noted.
Now let me walk through the financial results for Q4. Beginning with search, GAAP revenue grew 1% while revenue ex-TAC was flat year-over-year. Click revenue grew 18% year-over-year representative of our gross revenue growth. We saw a larger percentage of our traffic coming from channels that incur a higher TAC including mobile and other distribution partners. Bridging from click driven revenue growth to revenue ex-TAC year-over-year, approximately 13% of the delta was due to the increase in TAC and 5% due to other factors. Global paid clicks returned to double-digit growth, up 10%. This was mostly driven by the Americas region where we saw accelerated growth in the holiday season through monetization initiatives including product ads which ramped significantly in Yahoo! Properties.
Global PPC was up 7%. We continued to see favorable traffic mix come from the higher monetizing segments. Some of the deceleration was caused by lower PPC in the Americas as our Q4 monetization efforts optimized towards clicks. Regarding the Mozilla deal, we are very pleased with the significant impact it has to our search volume share. The Americas region saw search click driven revenue increased 20% year-over-year driven by clicks growing 23%, offset by PPC decline modestly of 2%. Much of this growth came from the higher TAC distribution partners.
Now moving to display, GAAP display revenue declined 4% and revenue ex-TAC declined 5% year-over-year in the quarter. The GAAP revenue trend showed improvement as we gained revenue momentum from our transformative investments. Our programmatic audios [ph] platform, EM Plus [ph] is now globally available, while our native ads continue to show strong growth in the quarter. Ads sold showed healthy growth in Q4 at 17%, as we continue to increase our native and mobile inventory year-over-year.
The PPA decline of 20% offset the volume increase in Q4. The year-over-year decline is mainly a result of the mix shift away from higher priced premium inventory. Native ad continued to grow and accounted for 43% of ads sold in the quarter. Our native ads PPA grew over 20% from Q3 to Q4 driven by improved optimizations of our formats and placements. We closed our acquisition of BrightRoll in late Q4 and expect positive contributions to our video and display growth in 2015.
The Flurry team continues to execute our mobile advertising and we look forward to sharing additional plans at our upcoming mobile developer conference next month.
For revenue detail by region please refer to slide 10. Americas revenue ex-TAC was flat year-over-year, APAC revenue ex-TAC was down 7%, up 4% on a constant currency basis and EMEA revenue ex-TAC declined 7% or 5% on a constant currency basis.
Now moving to expenses, traffic acquisition costs were up 12% compared to the prior year. The main drivers for this increase TAC were TAC payments for acquired properties and the continued rollout of our Gemini search platform. Non-GAAP total operating expenses were $923 million for the quarter, which were up 6% versus the prior year. Depreciation and amortization has remained consistent with the past several quarters at approximately $150 million per quarter. Our cash operating expense was $770 million, an improvement of $30 million versus our expectations and 90% less than prior quarter. However, excluding impact of patent sales from both years our cash operating expense is up a modest 2% year-over-year.
Workforce continues to drive expenses as we invest in our tactical workforce. We have worked hard to find ways to offset our investments with prudent cost initiatives in other areas. For example in Q4 we've realized significant savings in data center efficiencies and continued reduction in contractors and other outside search providers showing approximately $40 million.
For GAAP total operating expenses in Q4, stock-based compensation was $103 million, $3 million lower versus the prior quarter and restructuring costs were $33 million and we had a goodwill impairment charge of $88 million. The EBITDA was $409 million in Q4 with a margin of 35% based upon based on revenue ex-TAC. And non-GAAP operating income was $256 million for the quarter resulting in a margin of 22% on a revenue ex-TAC basis. Quickly running out the income statement, we had a gain of $98 million resulting from our investment in Hortonworks, earnings and equity interest was $102 million. As a reminder, the reduction from last quarters is due to removal of Alibaba earnings and equity interest following their IPO and is more indicative of the forward look.
Turning to the balance sheet, at the end of Q4 and the year we had $10.2 billion in cash and marketable securities and as stated previously cash tax related to the Alibaba IPO proceeds are expected to be approximately $3.3 billion and will be paid in Q1. Adjusting for this tax payment and convertible and other data of $1.3 billion our net cash balance at the end of the year was approximately $5.7 billion. The change in cash balance from Q3 to Q4 was primarily driven by free cash flow of $78 million, adversely impacted by working capital movements and the accounting for BrightRoll, acquisitions of $545 million primarily for BrightRoll and cash utilized for share repurchases activity for the quarter of $1.6 billion.
Now let me cover guidance; as we look to the first quarter of the year and going forward, we are committed to sustainably growing our business. I am pleased with the plans we have in place to drive shareholder value, both through our Ali Baba investment as well as through our MaVeNS businesses. We also recognize we have much work ahead to sustainably grow both revenues and profit going forward. Our guidance assumes that we continue to make steady progress in our core business into Q1 and over 2015. We will increase our focus on GAAP revenue and expect this to lead to growth in revenue ex-TAC as we sign more partnerships and grow our business in BrightRoll and Gemini search.
In the short term our guidance accounts for: In the Americas we brought our new sales leadership and realigned our efforts to some near-term transitionary effects. Additionally the Olympics in 2014 makes for a tougher comp in Q1. In EMEA we announced the restructuring of our organization reducing nearly one third of our headcount which will lead to longer term efficiencies but that pose some near term challenges. And we expect to be tracking to comparable revenue levels in Asia-Pacific with the exception of foreign exchange changes.
Q4 Non-GAAP cash expenses were approximately $800 million on a normalized basis. We expect Q1 to be comparable but with the addition of BrightRoll, resulting in a number somewhat higher. Looking ahead we would like to get back to the quarterly range of $800 million or less, inclusive of our recent acquisitions.
Specifically for Q1 guidance we expect the following: GAAP revenue range of $1.11 billion to $1.15 billion; revenue ex-TAC in the range of $1.02 billion to $1.06 billion; EBITDA in the range of $200 million to $240 million and non-GAAP operating income in the range of $50 million to $90 million. We have taken significant steps to deliver shareholder value. We have made progress in our transformative investments to set up a strong platform for growth while continuing to demonstrate our disciplined stewardship of capital.
I would now turn it back to Marissa.
Marissa Mayer
In closing we are all here to turn an iconic company to greatness. Today we announced a solid quarter of progress towards that end as well as the plan for a major transaction on behalf of the company and our shareholders. I am very proud of both and we stand ready to take your questions.
Question-and-Answer Session
A - Michael Santoli
Thank you Marissa. Thank you. That brings us to the Q&A portion of our live earnings event. [Operator Instructions]. Please limit yourself to one question. The first question will come from Doug Anmuth of JPMorgan.
Doug Anmuth
Great, thanks for taking the question. Just wanted to clarify several things about search in particular. Can you give us some thoughts around just how are you are thinking about Microsoft and your relationship there as you come up on the five year mark later this quarter? And then secondly on the Mozilla partnership, can you just talk about how’s that structured, and if that’s a little bit more straight kind of rev share, if it’s more of a guaranteed amount here? And then also how do you think about that deal as search in general just moves more toward mobile versus desktop? Thanks.
Marissa Mayer
Sure. I will go ahead and start off on the Microsoft part of the question. The search alliance reaches its halfway point later in Q1 and there are provisions in the agreement that allow us to consider how we might adjust our relationships. At this point we are actively exploring with Microsoft how we might forward as well as exploring different models for different platforms.
On Mozilla overall we haven’t disclosed the financial arrangement between the two companies. As I mentioned in my remarks as well it’s about 3% to 5% of the North America search market and the overall, the volume’s been fantastic and the teams are just terrific to work with. That said it’s a really significant partnership and will always take time to equilibrate and tune our performance with the Mozilla traffic. And so we are very hopeful about it but at this point really too early to tell.
Michael Santoli
Next question comes from Heath Terry of Goldman Sachs.
Heath Terry
Great, thanks. Marissa I was wondering if you can give us a sense when you look at where your native advertising product is now, how you are soft of benchmarking yourself against the other, particularly in mobile, major platforms that are out there and what you see as being kind of the critical steps that you have got to take to close the GAAP there, particularly if you can kind of provide some additional color around the re-organization of the sales growth that you referenced in your comments earlier?
Marissa Mayer
Sure. Overall we are really pleased with Gemini. They saw about $300 million worth of business this year. If I had to just take a look what I think we need to accomplish in 2015 one, we need better targeting. The more personalized these ads are they are price on a CPC basis the more clicks we get on those ads the better they perform for both with our advertisers and for us in terms of revenue. We also need to explore additional formats. When we started out with Gemini we were doing text only ads. We have since have been adding various image ads, now some product ads as well as some video ads and I think that these new forms are something that really help us take the Gemini ads and adapt them to something that’s really truly native as we move across different products and platforms.
And finally, I also think it’s important for us to get distribution such that we don’t Gemini ads and our native only on Yahoo! and Tumblr but we also can run them across other sites and Flurry is a great distribution channel for us here. We are really forward to integrating Gemini into the Flurry STK. So when new approximately developer brings to the market a new app, first question they ask is analytics, the next question that they ask is really how can I make money from my application and so if we actually have that ad network easily and readily available in the APIs in the Flurry STK we think this is an easy way for us to distribute more Gemini ads as well as our BrightRoll video ads and native and video ads are really the way that people prefer to monetize mobile, particularly apps.
And more broadly on the search reorganization point we are really excited to have Lisa and Kathy and Kevin onboard. I don’t think that the re-organization that we have deployed during those new hires really changes things with regards to native ads other than native ads are a trend that are here to stay. They’re now big part of our product portfolio and there has been some adjustment as our sales force has really gotten familiar with the product and understood which advertisers to bring that product to, how to optimize them and ultimately provide better performance on the campaigns. But we really need a lot of process there and so overall I think that the re-org as per my view point is I would say somewhat perpendicular to our progress on native ads, which I think the team’s already done a great job transitioning.
Heath Terry
Great, thank you.
Michael Santoli
We will take the next question from Mark Mahaney of RBC Capital Markets.
Mark Mahaney
Thanks. Congrats on the spin-off deal. I know there was a lot of work involved in that. It also seemed like an opportune or great opportunity to also set it up with Yahoo! Japan. I know you talked about a little bit more but could you again clarify why that wouldn’t have been included. Was there just a reluctance on part of that entity to do that deal? And then real briefly on search there is also the Apple Safari opportunity that’s out there and I guess Marissa, the question for you is this an opportunity for Yahoo! to really reengage in search. You know there is a lot of turns here but there is a lot of different directions. Do you want to make much more of an investment push into search then we’ve seen from Yahoo! in the last two or three years? Thank you.
Ken Goldman
Hey, Mark, Ken Goldman, yeah. I think the - thanks for the question. I would say it this way. One, is we wanted to make sure we looked at the $40 billion and optimized that. And so that was the very, very high priority. And we didn’t complicate it. So it wasn’t really that we couldn’t get approvals per se. It was much more to make sure we did the Alibaba and did it right. There are differences between the two and I would even say that I would say, interesting enough if you think about the 7.7 billion that Marissa talked about that we say by selling last year above the IPO, that’s actually greater than the current total value of Yahoo! Japan, just to put things in prospective.
So we thought given the different aspects of YJ, the different facts we have operating relationships with them, our joint venture relationships with them, they are non-U.S. therefore non-SEC registrant, we felt the additional complexity would just make it harder to get a clean transaction done and so we are not saying we won’t do something. All we are saying is we want to get this done seamlessly and as cleanly as we possibly can.
Marissa Mayer
And I will take the question on the Safari deal. The Safari platform is basically one of the premiere search engine in the world, if not the premiere search engine in the world. We are definitely in the search distribution business. I think we stated that really clearly in the past and I think with Mozilla and also in addition we brought Amazon and eBay onboard with smaller distribution partnerships in Q4, we are in search distribution business and anyone who is in that business needs to be interested in the Safari deal.
The Safari users are among the most engaged and lucrative users in the world and it’s something that we would really like to be able to provide. We work really closely with Mozilla to ultimately bring to their users an experience that they designed and that they feel really suit those users and we welcome the opportunity with any other partner to do the same, particularly one with Apple’s volume and end user base.
Mark Mahaney
Thank you Marissa. Thank you Ken.
Michael Santoli
Next question will come from Anthony DiClemente at Nomura.
Anthony DiClemente
Thank you. You talked about the growth in those MaVeNS businesses and how those could more than or would more than offset a decline in legacy PC display revenue in 2015 this year. Just wondering Marissa are there any aspects of this transition from legacy to the new businesses that you think are cannibalistic, i.e. that you are potentially innovating your way towards a further acceleration in that decline of the legacy business, I mean perhaps rightfully so? But just wanted to hear are those on sort of separate tracks or are they in some ways related as you work out the math?
And then second question for Ken, on the guidance just on the first quarter adjusted EBITDA, wondering if you could tell us some of the drivers of adjusted EBITDA margin there? I know you alluded to a couple in your prepared remarks but we’re just trying to figure out it implies about a 20% margin for the first quarter and could that or is that anyway representative of what ’15 margins would be because that would imply some contraction. So if you could just fill us a little more there that would be much appreciated. Thanks.
Marissa Mayer
So also in the legacy business decline, I would say that overall what we’ve seen is the MaVeNS businesses are not cannibalistic to traditional PC advertising. Generally these types are advertisers who buy a mobile, video, native or social ad, the type of ad production they need to do, the type of audience they’re looking for, the way they want to interact with those users is pretty fundamentally different than banner ads.
What we have seen that there has been a buying pressure and that some are cannibalistic to that traditional PC business, is the move towards programmatic and so when an advertisement for example moves from being sold through a premium channel to a programmatic channel that certainly causes some cannibalization overall of revenue. And we have seen particularly on search, not as much on display that when we move a user from a PC search to a mobile search they do monetize - that search monetizes at a slightly lower rate. We’ve been making improvements there, we still aren’t to a point on search where mobile search has the same revenue per search as say a PC search. We’re getting closer to that on display but I think that overall in terms of cannibalistic movement of the MaVeNS certainly on the display side is much more about programmatic versus premium.
Anthony DiClemente
Thank you.
Ken Goldman
Yeah, relative to the guidance, I’d have you think about it this way, one is we know Q1, if you take Q4, where I said expense is about $800 million normalized and you add BrightRoll you can get to $20 million to $30 million more. I then said that we expect to bring expenses down closer to $800 million or less over the year. So the theory or the way we see margins improving is that over the year growing revenue and continuing to manage expenses we do know I said actually a couple of quarters ago we have brought in some outside help in terms of looking at our expenses. We’re continuing to do that. We will continue to execute on expense efficiencies. So I don’t want to give specific guidance here for the rest of the year other than to say that we do expect expenses to go down for a while, certainly from Q1 and given revenue increasing that’s really the basis for seeing increasing margins as the year goes on.
Anthony DiClemente
Thanks Ken, thanks Marissa.
Michael Santoli
We take the next question from Justin Post of BoFA Merrill Lynch.
Justin Post
A couple of, first Marissa, can you just talk a little bit about the advantages of partnering with Yahoo! for search, just kind of what the high level Yahoo! brings that maybe someone else can’t, or to the extent you can? And then Ken, a couple of things maybe just walk us through the IRS process, I apologize if I missed that, whether that hurdle is remaining and also what the Q4 ending share count would be? Thank you.
Marissa Mayer
Well certainly on search and across the board we pride ourselves on being the best partner in Silicon Valley. We work across the board with Google, Microsoft, Apple, Facebook, Twitter, we have different Samsung, we have different partnerships with all of these different providers and it’s not easy, they can’t look at each other but we work well with them. And one of the reasons we work well with them is we try and be as flexible in our approach to partnerships as we can be. We really, especially when approaching a search partnership we acknowledge that these users belong to that distribution partner and they should be able to present search the way that they really want search ultimately presented. And so we work with the partner as we did with Mozilla, to really design the best possibly user experience that they feel really suits their users, their values, their environment.
And I think overall internally we’ve been really investing in features on top of web search and so when we look at things like Search My World, which ultimately takes for example data from your email and brings those results right on to your social [ph] page I’ve given examples on past calls, like for example slide 18 really is, is really great to see those kinds of features on the search results page, it’s now something that Yahoo! can do reasonably exclusively because of our large base of Yahoo! Mail users.
And also looking towards and think about what mobile search should be in the future, because what we’ve done a lot to optimize PC search, the pace that we’re really investing the most is in mobile search and there today we have a very traditional HTML based approach. But we’ve really been trying to think about how do we do with the best possible job answering queries on the phone and when you look at, for example acquisitions like Aviate, which is growing nicely. We have that offered as an application.
We really think that mobile search can take into much more account your context, your location, your particular information and so we’re really hoping as we present the mobile search to come up with a more app based experience and more in that suits the mobile area better and we think that an area that partners will respond to.
Ken Goldman
Yeah, let me - my memory shows me correctly I think what I said is that we have 952 million fully diluted shares at quarter end. I think that for the quarter itself the weighted average is something like that at 933. On the rulings and so forth and first of all I actually do want to do a little call out here, my own tax department in our group has worked very hard in this as well, for a number of years on this project and I would just say I don’t want to get too specific other than to say we have worked with both the conversation with SEC and having them we’ll have them with the IRS overtime as well. We will get opinions on this.
So we’re very active in our discussions. We have been very thoughtful in the ATB that we selected to meet the requirements there and so it’s our assumption that at the end of this we will have a private letter ruling that allows us to go forward. So we’re very cognizant of the actions we have to take. We are in the process of taking many of those and again the goal here is to be able to complete this in Q4 this year.
Michael Santoli
Next question from Ron Josey of JMP Securities.
Ron Josey
Great, thanks for taking the question. On programmatic, Marissa you mentioned that was helpful on the display business on desktop. I'm wondering what BrightRoll, Flurry, AD Manager Plus, is anything else that needed for you all in your programmatic strategy. And then since we’re talking display a quick follow up looks like display TAC jumped in 4Q a little bit. Wondering if that was a new affiliate or partner or is that just sort of the right run rate going forward? Thank you.
Marissa Mayer
So I think that when you look across the different ad technology tax what we’ve actually been working to do is basically consolidate as you may have seen recently we had an announcement that we’re shutting down our Right Media platform in favor of the Yahoo! Ad exchange and the Yahoo! Ad Manager Plus and so we’ve really been trying to get to rather than having many different platforms, none of which work together, all of which have different brand names, really getting to a few consolidated entities. And so I think as we look to integrate BrightRoll in particular as well as Flurry, taking those ad networks and really getting them to be one specific set of tools and one offering that’s really clean and easily understandable, that would be really what we’re endeavoring to do in our ad technology moving forward.
So I think we feel good about what we have in our ad technology stack. I think that there’s certainly some rationalization that we need to do to make sure that buying ads on Yahoo! is really easy for our advertisers but that’s really where the focus would be.
Ken Goldman
You asked about TAC, I think I actually talked about that somewhere in my comments. The reality is that really relates to some of the acquisitions that we have made, Flurry and so forth. So and I did indicate, as I was discussing Q1 guidance that TAC will be going up. So you should assume, remember I also discussed that we’re going to think through focusing on GAAP revenue and that overtime we will have more TAC. And GAAP revenue, the growth in GAAP revenue we believe will lead to also the growth of ex-TAC overtime.
Ron Josey
Great thank you.
Michael Santoli
We take next question from Mark May of Citi.
Mark May
Thanks for taking my question. One on expenses and search, regarding the near term potential changes to your search business, we’ve heard some concern out there that while there may be structures that enable you to improve the yield of search, that it might also require some additional upfront investments. So I guess the question is do you think there is a solution that provides you with the improved optimized monetization of your search but with minimal hit to margins? Thanks.
Marissa Mayer
I think that overall I would here focus on the relationship with Microsoft, and as I said earlier we are in active discussion with Microsoft and we are really exploring a number of different avenues and so I think it would be pretty immature today to discuss anything like margins and totally really understand what changes we may see and what this period of consideration and contemplation of the contract ultimately will yield.
Did you have question also Mark on expenses?
Mark May
No, really to your search business
Ken Goldman
Okay, got it.
Mark May
To the extent that you decided to take another TAC to bring it in-house or maybe bringing in another partners, other alternatives rather than sort of a renewed deal with Microsoft should we be thinking about any impact on expenses not contemplated?
Ken Goldman
I think it’s little too early to try to hypothesize as to what might happen there. So I think we will leave it to the kind of guidance that I’ve provided.
Michael Santoli
Nest question is from Stephen Ju of Credit Suisse.
Stephen Ju
Hey, thanks. Congrats Marissa and Ken on getting this SpinCo transaction executed. So just quickly on Tumblr, Marissa what do you attribute the sequential growth in users there, and which your mobile app users I guess now are growing at 33%, how many of the 460 million are active users are now app only? And secondarily can you talk a little bit about where you are in terms of data driven user customization perspective to drive more relevant and I guess targeted ads in your native ads to drive the expected [indiscernible] higher and I guess offset the price spread erosion on your display business, thanks.
Marissa Mayer
Sure, we think that the sequential growth in users that we saw on Tumblr is really because we have much better composition to it. If you look back at Tumblr’s growth stats what you tend to see is every time there has been an improvement in terms of how well you can compose or how well you can present your blog we saw a real burst in this in mobile. Last year Tumblr we did a mobile app to make composing on the phone much easier and much more beautiful, so you could actually be mobile only. Previously it was really, something where you set up your blog on PC and then work on it on mobile. And we know whenever we make changes in premise the composition tool there it not only causes users to use the platform more they are already on it but it also attracts new users to it.
In terms of mobile usage I don’t have and we haven’t this broken out in the past mobile only users, but I can say that what we have today is more half of the users on Tumblr, use mobile to engage or participate on Tumblr and we have internal goals this year really around trying to grow that number significantly, such that the vast majority of users on Tumblr at least engages at some points using mobile. And on the native ads and what it will take to ultimately improve the targeting and therefore soften price per click erosion what we really doing is adding more information sources. The more we understand you the better job we can do targeting ads towards you.
So over the past year for example if you look at our stream on the homepage we use the same targeting technology for those articles as we do for the ads contained therein. And over the past two year we’ve got a lot of new information sources. So for example the sports team I follow, the business that I follow on Yahoo Finance pulling out data over. We are also looking for signed end users, can we access with their permission some of the information coming from Yahoo! mail. These are all things that we are working on as well as re-targeting of other sites and so these are all areas of investment and each of them has brought with it a gain in native price per ad. And I should note that we are starting to see this turnaround, the native price per ad actually grew 20% quarter-over-quarter from Q3 to Q4.
Gemini really over performed our expectations in Q4 and that’s what really we are seeing at the end of the Q3 that we had about $0.25 billion business plus or minus 10% and we actually closed the year at about $300 million in revenue. And that nice upside to price really was driven in part because of the improvement in price per ad in Gemini which is driven by these targeting improvements.
Stephen Ju
Thank you.
Michael Santoli
We take the next question from Carlos Kirjner of Sanford Bernstein.
Carlos Kirjner
Thank you. Two questions, I think we understand why you are behind in video but what prevents you from capturing more revenue from native mobile and social today? What are the constraints and what gives you the confidence that you addressed them? And secondly just a clarification on the Tumblr number, when you say that more than half of the $460 million the audience use the app or use mobile do you mean they are using their app and they are logged on authenticated users? Thank you?
Marissa Mayer
Our native mobile and social, there are two key ways to grow. I would say the first really is on Yahoo! O&O is about growing our engagement, getting more apps installed. This is something we’ve worked on really intensively. We have a great growth team here at Yahoo! in our mobile group and they’ve really studied how can we get more users downloading our apps and using them every day in the first place and how can we take the users who already have those apps and use things like push notifications ultimately get them re-engaged. And so we’ve been working very hard on our engagement and that certainly goes for mobile, native and social. The more engaging we make the platforms on an O&O basis the better off we will be.
In terms of off network, mobile native and social advertisements it’s really around distribution and that’s one of the reasons we were so excited about the Flurry acquisition. Flurry brings with it access to 1.6 billion smart devices. They see [ph] more smart devices than any other company on the planet from what we can tell and the opportunity there to work with the mobile app developers that integrate Flurry and for those who want to monetize their applications, making native and video ads or native Gemini ads as well as our BrightRoll video ads available to that huge number of mobile applications and their reach is something that’s really exciting us and can really accelerate our revenue in mobile native and social.
And so that’s really where the focus is, how can we get better off network distribution through Flurry and also how can we improve our engagement on applications that will naturally drive up native mobile and social on the core Yahoo! platform. And on Tumblr we are referring to them through the 50% of the people who use our dashboard view, who basically blog posts are actually now doing so through the application. And so the audience numbers of 460 million actually include blog readers as opposed to blog posters and so they are - we couldn’t look at it, it basically maps the overall trend on how much traffic is on PC versus mobile as a whole because in essence as a blog reader you are simply reading a webpage and reading that content.
We are proud to have our contributor that brought you that Tumblr page on our network but when we are talking about mobile users it’s really about the very engaged bloggers that are on Tumblr and more than half of those are using the app to do their blog posts, that will be in the dashboard.
Michael Santoli
Our last question today will come from Eric Sheridan of UBS
Eric Sheridan
Thanks for taking the questions. You’ve talked a little bit about allocating capital going forward to growth and potentially to M&A. When you look out across sort of the digital landscape and think about the position you have at the MaVeNS assets right now where do you think some of the strategic positions that might be addressed by Yahoo! longer term and how you might either allocate organic or sort acquisition capital to them?
And Ken with respect to the SpinCo transaction I want to understand if you needed to reach to any specified levels in terms of evaluation of operating size for the legacy business that would have to go with the SpinCo and how that might impact the operating results going forward, thanks?
Marissa Mayer
Well, as I said earlier we are really proud of the MaVeNS businesses. The fact that we have basically grown to more than $1.1 billion of revenue from essentially from nothing in just two years makes us incredibly proud. So we are really happy with our position overall in terms of how well our applications are performing, how well these new ad formats are performing. I think when I look at across the acquisition space or even what we might allocate people to internally our goal is we want to make sure that we have at least one app for each user and for each user it might be different, where go to app. You’ve heard us talk about on past calls that we are really working to grow our daily active users in comparison to monthly active users. We want to have fewer what we would call in sort of marketing segmentation exercise, fewer tourists and more fanatics who are using product all the time.
And so when we look across the space that we’ve might invest in we are looking not only at our core confidence in the past, which are off course are online search communications, digital content and what we might do in that space to really become part of the users every day, but we also want to think about what is something that we might build or acquire and use. That could be something ultimately in the messaging space. Obviously we’ve had Yahoo! Messenger for a number of years, what does that look like in the mobile space. We make some nice small acquisitions in Q4 of MessageMe and Cooliris, both of which had very good technology and just great user interfaces in the messaging space and so we would like to see how we might build out our communications offering more there.
And that’s really where I would say the goal is, how do we get more DAUs and improve our DAU to MAU ratio and the obvious ways to do that is to build on our core competencies but in particular to build on communication, which of course has a native aspect, a social aspect and a mobile aspect in all parts of today and builds on our strength of email and some of our client-based messaging on the PC.
Ken Goldman
I think you asked a question about what the ATB would be and I think I already said in my comments is that it would be - we have selected and we haven’t communicate there on yet but I did say it would be approximately $50 million of EBITDA, that once - again this none of this will occur until the end of the year, as we said around Q4. So if you think about Q4 and then go into 2016 it would affect it by about $50 million of EBITDA, that we will - a business that we will move over to the SpinCo.
Michael Santoli
And that concludes Yahoo’s fourth quarter and full year 2014 earnings video webcast. Thanks for joining us this afternoon and we’ll see you next quarter.
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