Yahoo 2014 Annual Report Download - page 86

for the EMEA segment would have been lower than we reported by $10 million; and revenue ex-TAC
for the Asia Pacific segment would have been higher than we reported by $27 million. Using the
foreign currency exchange rates from the year ended December 31, 2013, direct costs for the
Americas segment for the year ended December 31, 2014 would have been higher than we reported
by $2 million; direct costs for the EMEA segment would have been lower than we reported by $3
million; and direct costs for the Asia Pacific segment would have been higher than we reported by $6
million.
Investment Exposure
We are exposed to investment risk as it relates to changes in the market value of our investments.
We have investments in marketable securities and equity instruments of public and private
companies. As of the date of the Alibaba Group IPO, we no longer account for our remaining
investment in Alibaba Group using the equity method and no longer record our proportionate share
of Alibaba Group’s financial results in the consolidated financial statements. Instead, we now reflect
our remaining investment in Alibaba Group as an available-for-sale equity security on the
consolidated balance sheet and adjust the investment to fair value each quarterly reporting period
with changes in fair value recorded within other comprehensive income (loss), net of tax. The change
in the classification of our investment in Alibaba Group from an equity method investment to an
available-for-sale marketable security exposes our investment portfolio to increased equity price risk.
The fair value of the equity investment in Alibaba Group will vary over time and is subject to a variety
of market risks including: company performance, macro-economic, regulatory, industry, and systemic
risks of the equity markets overall.
Our cash and marketable securities investment policy and strategy attempts primarily to preserve
capital and meet liquidity requirements. A large portion of our cash is managed by external managers
within the guidelines of our investment policy. We protect and preserve invested funds by limiting
default, market, and reinvestment risk. To achieve this objective, we maintain our portfolio of cash
and cash equivalents and short-term and long-term investments in a variety of liquid fixed income
securities, including both government and corporate obligations and money market funds. As of
December 31, 2013, net unrealized gains and losses on these investments were not material. As of
December 31, 2014, net unrealized losses on these investments were $5 million.
A sensitivity analysis was performed on our marketable equity security portfolio to assess the
potential impact of fluctuations in stock price. Hypothetical declines in stock price of ten percent,
twenty percent, and thirty percent were selected based on potential near-term changes in the stock
price that could have an adverse effect on our marketable equity security portfolio. As of
December 31, 2014, the fair value of our marketable equity security portfolio was approximately $40
billion. Declines in stock prices of ten percent, twenty percent and thirty percent would result in a $4
billion, $8 billion and $12 billion decline, respectively, in the total value of our marketable equity
security portfolio.
We performed a separate sensitivity analysis on our Hortonworks warrants for which we estimate fair
value using the Black-Scholes model. We have held all other inputs constant and determined the
impact of hypothetical declines in stock price of ten percent, twenty percent, and thirty percent,
based on potential near-term changes in the stock price that could have an adverse effect on the fair
value of the warrants and result in a loss recorded to the consolidated statements of income. As of
December 31, 2014, the fair value of the Hortonworks warrants was approximately $98 million.
Declines in stock prices of ten percent, twenty percent and thirty percent would result in a
$10 million, $20 million and $30 million decline, respectively, in the total value of the Hortonworks
warrants.
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