Mozilla reports $338M revenue spike from settlement over Yahoo contract

The Firefox browser maker got a one-time financial boost in 2019 that masked a gloomy underlying trend: for the second year in a row, Mozilla's expenses outweighed revenue.

p1200653
Magdalena Petrova

Mozilla's revenue in 2019 shot up by almost 84% compared to the year before, but the bulk of that increase came from a one-time settlement the organization received from Yahoo and its successor, Verizon Media.

Without that financial shot in the arm, Mozilla's 2019 financials looked much grimmer; for the second year running, Mozilla's expenses outweighed revenue.

According to the 2019 financial statement released by the maker of the Firefox browser, Mozilla posted $338 million as "Other revenue," a new line item that had not appeared in prior years' reporting. Elsewhere, Mozilla implicitly tied that amount to an earlier contract with Yahoo, which was purchased by Verizon in 2017.

"In CY ((calendar year)) 2019, Mozilla Corporation generated $465M from royalties, subscriptions and advertising revenue, excluding one-time litigation settlement revenue," wrote Angela Plohman and Roxi Wen, Mozilla's executive vice president and CFO, respectively, in a post to the company's website.

Mozilla was a bit more forthcoming in the financial statement. "In 2019, the Corporation recognized $338.0 million of litigation settlement as revenue under Topic 606."

Six years ago, Mozilla declined to renew its deal with Google to make that search engine the default in Firefox. Instead, Mozilla signed a five-year contract with Yahoo for $375 million annually, considerably more than what Google had been paying.

But when Yahoo was sold to Verizon three years later for $4.5 billion, Mozilla took advantage of a clause in the Yahoo contract to nullify the remaining years. According to news reports, the new owner was required to pay Mozilla for the full length of the contract, or alternately, the difference between Yahoo's $375 million and whatever Mozilla got out of a new partner.

Mozilla's action triggered a lawsuit by Verizon (and a counter-suit by Mozilla) in late 2017. Nine months later, the cases were dismissed when the parties settled out of court. Terms of that settlement were not disclosed. But as Computerworld anticipated a year ago, the monetary settlement surfaced in the latest financial statement.

With the $338 million payment from Verizon, Mozilla's 2019 revenue was $826.6 million, an 84% year-over-year increase and easily the most the open-source developer has booked in a single year, beating the existing record by more than a quarter of billion dollars. Strike the settlement, however, and Mozilla's revenue was $490.6 million, just 9% higher than the year before and 13% lower than the 2017 peak.

Google paid Mozilla $397M in 2019

As in every year prior, the bulk of Mozilla's 2019 revenue — excluding the massive settlement — came from royalty payments, with the bulk of that generated by deals struck for Firefox's default search spot. Last year, 92% of all revenue derived from what Mozilla classified as royalties.

It was unclear how much of that $451 million in royalty payments stemmed from search deals. Traditionally, Mozilla has called out the percentage of all royalty that was produced by its various search deals. For 2019, Mozilla changed its reporting, saying that, "approximately 88% ... of Mozilla's royalty revenues from customers with contracts were derived from one customer in 2019 (emphasis added)."

That customer, the one that provided the overwhelming fraction of the $451 million in royalties, was, of course, Google, even though Mozilla did not speak its partner's name. By Mozilla's numbers, then, Google paid it around $397 million in 2019 for default place of pride in Firefox. That would have been more than Google paid before Mozilla dumped it for Yahoo — more even than Yahoo handed over each year.

Other 2019 revenue included an increase in money made from "subscriptions and advertising," as well as $5.7 million earned on Mozilla's investments and $9.7 million made from interest and dividends. The subscription and advertising revenue reached $14 million for the year, a 161% jump from 2018's $5.4 million (which in turn represented an 100% increase over 2017's number).

The boost from subscriptions and ads was notable because Mozilla has worked to diversify its revenue stream, including fees produced by its first-ever paying service, Mozilla VPN, which debuted in mid-2020.

Although Mozilla did not break out figures for the broader subscription and advertising line item, the company did say that the former was largely generated by Pocket Premium, a $45-a-year upsell that unlocks additional features for the save-sites-for-later-reading service. Some of the ad revenue stemmed from Firefox's new tab page, Mozilla said in its financial statement, which "places links to sponsored content when a new tab page is opened."

Expenses again exceed income

Expenses for Mozilla's 2019 ran to $495.3 million, or almost $5 million more than revenue (excluding the $338 million settlement from Verizon). It was the second consecutive year that expenses outweighed revenue and a 10-fold jump in the amount of the difference.

Most of Mozilla's expenses — 61%, down a percentage point from the year before — were for software development, which climbed from $278 million to $304 million, a 9% increase. The sharpest increase on the expense side, however, was the 44% gain on the "general and administrative" line item (often tagged as "G&A"), which went from $86 million (2018) to $124 million (2019).

Mozilla did cut some expenses. The "branding and marketing" line item, for example — which climbed the most in 2017 — was cut about 18%, from 2018's $53 million to 2019's $43.5 million. (That same item had been slashed by 23% in 2018.)

But Mozilla did pick up an extra chunk of change last year, which put its finances on even firmer ground. Cash, cash equivalents and investments totaled $785 million, up $303 million from 2018. That amount could keep Mozilla's lights on at its 2019 expense pace for 19 months — an increase of 7 months from the year prior — even if all revenue evaporated.

(About $557 million of that total would have been available with the following year, meaning through the end of 2020.)

Room, meet elephant

Absent from Mozilla's financial status update was any plain-English mention of the massive layoffs the organization conducted earlier this year.

Sometimes, Mozilla executives referenced the layoffs in their commentary — the second round, in August, eliminated about 250 positions, or 25% of the total at the time — using strikingly similar phrases like "In 2020 we restructured Mozilla Corporation," (Mitchell Baker, CEO of Mozilla Foundation) and "In 2020, the Corporation was reorganized (Plohman and Wen)."

But the layoffs, although they occurred this year, have connections to the 2019 financials — enough that one would have expected some sort of overt acknowledgement by Mozilla executives. When it canned 70 workers just three weeks into 2020, the organization said expectations for subscription revenue, and other income from sources outside search, had not been met. At the time, Baker told Mozilla employees that "We also agreed to a principle of living within our means, of not spending more than we earn for the foreseeable future." (When Mozilla laid off 250 in August, Baker said that pre-COVID plans had included "adjusting our finances to ensure financial stability over the long term.")

Clearly, Mozilla was feeling ill financial winds last year.

The other unspoken elephant in Mozilla's room remains the state of Firefox's usage health.

Firefox, which has only ever been competitive in the desktop browser market, lost 1.2 percentage points of user share in 2019, according to analytics vendor Net Applications. Firefox ended the year accounting for approximately 8.4% of global browser activity, compared with 9.6% at the end of 2018. (In the 11 months of 2020, Firefox has slipped further, to 7.2%.)

Compared to Google's Chrome, which led the rankings with a 66.6% share at the close of 2019 (and climbed to 69.3% in October 2020), Firefox is forever on the cusp of dissolution. Share is important to all browsers because the applications are revenue generators for their makers, one way or another. Mozilla's interest is particularly sharp because other major browser developers — Google, Microsoft and Apple — have numerous revenue streams.

But Firefox's shrinking share has not dissuaded Google from continuing to prop up Mozilla. As Plohman and Wen noted, "In 2020 Mozilla renewed its deal with Google," although the terms of that deal were not disclosed. (The new amount, assuming it's different, won't be visible until December 2022, when Mozilla publishes its 2021 financial report.)

Copyright © 2020 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon