Yahoo Takes Home Big Gains With This Method
Bloomberg reports that Yahoo! Inc. (NASDAQ:YHOO) took home $165 million in gains in the second quarter due to strategic steps the company took to defend itself against fluctuation in the Japanese yen. Yahoo’s total benefit from these currency hedges now stands at $438 million.
In a regulatory filing, the Sunnyvale, California-based Yahoo reported that it had recorded a pretax gain of $270 million in the first quarter and $3 million last year. Yahoo uses forward contracts to reduce foreign-exchange risk related to its stake in Yahoo Japan Corp. (YAHOY.PK).
Yahoo Chief Executive Officer Marissa Mayer decided to hedge against the yen last December, with forward contracts that mature at nine to fifteen months. Forward contracts allow for the right to purchase currency for a certain price at a prearranged date. In this way, a forward contract helps protect the holder if there is a change in the currency’s value.
Yahoo explained, “If the Japanese yen depreciates at maturity from the forward contract execution rates, we will receive a cash settlement, which may be material.” It continued, “We have elected to apply net investment hedge accounting and expect the hedges to be effective.”
According to the Yahoo filing, the estimated value of the forward contracts was $3.5 billion at the end of June. Yahoo stated that it has also agreed to pay $40 million in cash along with stock-based compensation worth about $41 million to Tumblr Inc. founder David Karp over the next four years in order to retain him. Yahoo also gave out an additional $29 million in stock options and restricted stock to several unnamed Tumblr employees over the next four years.
Yahoo bought the blogging website Tumblr this past June, and, along with Tumblr, Yahoo also acquired nine other companies in the first two quarters of 2013 for a total of $54 million.
On Friday, Yahoo shares rose a little less than 1 percent to close at $27.68 in New York. On the year, Yahoo has risen 39 percent to the 19 percent gain seen by the Standard & Poor’s 500 Index.