TIM MORSE

CHIEF FINANCIAL OFFICER

FINANCIAL
OVERVIEW
Value Creation
Progress Since October 2009

Accelerate  Revenue  Growth   Improve  OM%  &  ROIC  to  15-­‐20%  

Grew  1Q10  revenue  vs.  1Q09   Expanded  1Q  margins  to  9%  
Outgrew  display  market  4Q  &  1Q     2Q  margin  guidance  10-­‐12%*  
Increased  RPS  qoq  4Q  &  1Q   Began  realizing  alliance  savings  
Stabilized  search  query  share   Reduced  SBC/D&A  run-­‐rate  
Improved  social  integraFon   Improved  tax  structure  
Signed  Zynga  &  Nokia  partnerships   Repurchased  ~$0.4B  stock  in  1Q  
Acquired  CiFzen  Sports   Completed  Zimbra  divesFture    
Signed  Associated  Content   Announced  proposed  sale  of  HotJobs  

*  Based  on  revenue  and  operaFng  income  outlook  provided  April  20,  2010  
2012 Financial Objectives Unchanged

Revenue   Accelerate  
Accelerate  
Revenue  
Revenue  
Growth  
Growth  

Margins   15-­‐20%  
18-­‐24%  OperaCng     ~3x    
Margin  Rate     2009

~20%   Return  
18-­‐24%   on  o  n    
Return   3-­‐4x9    
Returns  
Invested  Capital   200
Updating Objectives for 2010-2013

Revenue   Accelerate  
Accelerate    
7-­‐10%  
Revenue  
Revenue  
Growth  
Growth   cagr

 
18-­‐24%  OperaCng     4  pts  
Margins   abov  
e
Margin  Rate     prior

 
18-­‐24%  Return  on     4  pts  
Returns   abov  
e
Invested  Capital   prior
Financial Framework

Total  ValuaCon  

Cash   Core  Business   Asian  Assets  

Disciplined  M&A  funding   Grow  revenue  7-­‐10%    thru  ‘13   OperaFonal:  

OperaConal:  
~35%   ownership  
~35%   of  Yahoo!  
ownership   of  
Improved  integraFon   Limit  cost  to  2-­‐3%  cagr   Japan  
Yahoo!   Japan  
process…  ROIC  emphasis  
Reduce  capital  intensity   Strategic:    
OpportunisFc  share   ~40%  ownership  in  
repurchases   Alibaba  Group  
Yahoo! Japan - Illustration
Overview  –  Key  Data  Points  
Share  price  (5/21/10)  $355  
Ownership  (shares)  20M  
     Gross  value  $7.1B  
Tax  (40%)              (2.8)  
     Net  value  $4.3B  
EPS  contribuFon  ~20¢  
‘09  dividend  to  YHOO  $26M  
Book  carrying  value  $1.4B  
10¢  eps  gap...  at  best  
$4.3B:  YHOO  equivalents     -­‐   Hold  current  22.5  p/e*  =  $13.05  share  price  
Shares  (@  $15.30)  ~280M   -­‐   Expand  to  >26  p/e  =  $15.30  share  price  

Repurchase  uplik  (EPS)    ~10¢  

*$15.30  share  price,  consensus  68¢  eps  =  22  .5  p/e  raFo  
Yahoo! Japan - Illustration
Overview  –  Key  Data  Points  
Share  price  (5/21/10)  $355  
Ownership  (shares)  20M  
     Gross  value  $7.1B  
Tax  (40%)              (2.8)  
     Net  value  $4.3B  
Short-­‐term  plan…  more  than  double  2010  dividend  
-­‐   $60M  dividend  =  ~4%  return  
EPS  contribuFon  ~20¢   -­‐   ConFnue  to  push  higher  returns  in  2011+  
‘09  dividend  to  YHOO  $26M  
Book  carrying  value  $1.4B  

$4.3B:  YHOO  equivalents    

Shares  (@  $15.30)  ~280M  
Repurchase  uplik  (EPS)    ~10¢  
*$15.30  share  price,  consensus  68¢  eps  =  22  .5  p/e  raFo  
  
7-­‐10% 3  
0 1 0-­‐201
2  
CAGR

Revenue
2009 Revenue Profile

Other   O&O  Search   Search  

~$1.2B   ~$1.5B   ~$1.9B  
Other  
~$1.2B  

O&O  Display  
Affiliates   Display  
~$1.7B  
~$2.1B   ~$1.6B  

~$6.5B  GAAP   ~$4.7B  Ex-­‐TAC*  

*  Revenue  ex-­‐TAC  is  a  Non-­‐GAAP  measure  defined  as  GAAP  revenue  less  traffic  acquisiFon  (TAC).  TAC  was  $1.8B  in  2009  
2010-2013 Revenue Dynamics
HEADWINDS   TAILWINDS   Revenue  Ex-­‐TAC  
2010-­‐2013  CAGR  

•  Offline→online  shik  
Display   •   Web  fragmentaFon   •  Yield  opFmizaFon   13-­‐16%  
•  SoluFon  selling  

•  12%  SA  rev  share   •  High  single  digit  vol  growth  

Search   •  Y!J  search  fee  $(50)M   •  Search  Alliance  RPS  uplik  
3-­‐6%  

•  Broadband  roll-­‐off  $(85)M  

Other   •  Hot  Jobs  $(35)M  
•  LisFngs/leads  re-­‐investment   2-­‐4%  

 
7-­‐10%
Revenue Bridge (2010E-2013E)

7-­‐10%  
+6-­‐7%  

   AnalyFcs  &  insights  

(2-­‐3)%   +4-­‐5%      OpFmizaFon  tools  
   TargeFng  
   Search  rev  share      User  experience      Rich  ads  
   Broadband      Social  integraFon      New  ad  formats  
   Hotjobs      Mobile  
   Local  
   Video  

2010E   Headwinds   Volume   Yield   3  year  CAGR  

Investing for Revenue Growth
GROWTH  DRIVERS  
USER  BASE   ENGAGEMENT   ONLINE  SHIFT   MONETIZATION  

Social  

Mobile  

Video  

Local  

Content  OpCmizaCon  

Integrated  Search  

Emerging  Markets  

Insights  &  AnalyCcs  

Yield  Management  
VOLUME  +4-­‐5%   YIELD  +6-­‐7%  
  
2-­‐3% 3  
-­‐201
2010 R  
CAG

Cost Structure
 2008-2010 Cost Evolution (Excluding TAC)
Highlights  
$4.9B*   2008  –  2010E     ReposiFoning  cost  structure  vs.  ’08  
D&A  
Stock  Comp   $4.3B   (21)%   •  Product  Development…  flat  
~$3.9B  
Restructuring   $1.3  
•  Sales  &  MarkeFng…  (20)%  
$1.3   (31)%  
~  $0.9   •   G&A…  (30)%  
•  Bandwidth/Content…  (25)%  
(16)%     2010  Search  Alliance  cost  benefit  
Core   $3.6  
Spending   $3.0   ~  $3.0   acceleraFng  Yahoo!  transformaFon…  
•  Social  integraFon  
•  Search  experience  
•  Insights  capabiliFes  
2008   2009   2010E  
•  Plazorm  modernizaFon  

*  Excluding  $0.5B  goodwill  impairment.  Including  this  goodwill  impairment  charge,  total  expenses,  excluding  TAC,  for  2008  were  $5.4B.  On  a  GAAP  basis,  total  expenses  (GAAP  cost  of  revenues  +  GAAP  total  
operaFng  expenses)  were  $7.2B  and  $6.1B  for  2008  and  2009  respecFvely.  TAC  was  $1.8B  for  both  2008  and  2009.  
Why Does Transformation Require Investment?

Engineering  Resource  AllocaCon     55%  Maintenance  way  too  high…  

30%  innovaFon  way  too  low  
~30%  InnovaFon   •  ModernizaFon  key  to  future  
efficiency…  but  requires  short-­‐term  
resources  
~15%  ModernizaFon     2010  resource  addiFons  consistent  
with  innovaFon  &  modernizaFon  
objecFves  
•  Product  Development  ~45%  
~55%  Maintenance  &  Support   •  Data  Center  Engineering  ~25%  
•  Go-­‐to-­‐market  ~20%  
•  Customer/AdverFser  Support  ~10%  
Yahoo! Must Change Its Model

2010  

~30%  InnovaFon  

~15%  ModernizaFon  

~55%  Maintenance  &  Support  

Yahoo! Must Change Its Model

2013  

~60%  InnovaFon  

~40%  Maintenance  &  Support  

Cost Management Timeline

Phase  I   Phase  II   Phase  III  

Budget  Discipline   Self-­‐funding  Mentality   Simplify  and  Streamline   P&L  

DifferenFaFon   Right-­‐sourcing   Structural  Changes   Impacts  
Plan  for  Efficiency   Invest  for  ProducFvity   ConFnuous  Improvement   Over  Time  

2009   2010-­‐2011   2011-­‐2013  

Cost Strategy
ReposiConing  to  Self-­‐fund  Growth  
AnalyC
Comp

cs   2009   2010E   2013E  

liance
 

~$1B   ~$1.5B   ~$2B  

TransacConal  Cost  

~$2B   ~$1.5B   ~$1B  

2009  ~$3B*  

*  Based  on  2009  core  spending.  Core  spending  represents  total  expenses  (GAAP  cost  of  revenues  +  GAAP  total  operaFng  expenses),  which  was  $6.1B  in  2009  less  TAC,  depreciaFon  and  amorFzaFon,  
stock-­‐based  compensaFon,  and  restructuring  charges,  which  were  $1.8B,  $0.7B,  $0.4B  and  $0.1B,  respecFvely,  in  2009.  
Cost Tactics
Cost Bridge (2009-2013E)*

$0.9B   $(1.5)B  

$0.2B  
$0.3B  
$4.3B  
~$4.2B  
2009→2010E    
(10)%  
2010E→2013E    
~2-­‐3%  cagr  

2009   Wages   Volume   Investments   Efficiencies  &   2013E  

Search  Alliance  

*  Excludes  TAC.  On  a  GAAP  basis,  Total  Expenses  (GAAP  cost  of  revenues  +  GAAP  Total  OperaFng  Expenses)  were  $6.1B  and  TAC  was  $1.8B  for  2009  
Cost Initiative Overview
Investment   Cost  ReducCon  
Volume  &  Yield  IniCaCves  

Search  Alliance  
$0.9B   $(1.5)B  
Planorm  ModernizaCon  

Data  Center  ModernizaCon  

Right  Sourcing  

Other  Efficiency  AcCons  

SBC,  D&A,  Restructuring  

$0.9B   $1.5B  
 $0.9B   $(1.5)B  

Search Alliance Savings

CumulaCve  Savings  

 Impact  Summary*   $650  M  

Rev  Share  $(250)
M  
RPS
1  00MC  ostS  avnigs
65  0MO  peaF
rng  
nco
Ime   ~  $300  M  
$500M  
2010E   2013E  

  2010  savings  primarily  search  plazorm  infrastructure  reimbursements  

  Yahoo!  operaFng  costs  permanently  removed  as  plazorms  transiFon  
  Other  search  and  related  costs  to  be  reduced  2011-­‐2013  
  Data  center  decommissioning  begins  2011  and  expected  to  be  complete  by  2013  
  12%  rev  share  begins  as  each  individual  geography  transiFons  to  AdCenter  
*  Represents  expected  impact  following  full  implementaFon.  Rev  share  and  RPS  esFmates  are  based  on  2009  results  
 $0.9B   $(1.5)B  

Platform Modernization

  Data  plazorms   65%   Maintenance  &  Support  Resources  

  Ad  Systems   67%  
  Development/QA  
infrastructure   60%  

  Cloud  efficiencies   30%  

•  InnovaFon  &  flexibility   ReducCon  

•  Content  grid  
•  Development  Fme  
2010E   2013E  
 $0.9B   $(1.5)B  

Data Center Modernization

Leased     Owned  
Data  Centers   Data  Centers  

2007   2010E   2013E  

New  Footprint  
Power  Efficiency  2X  +  
Power  Cost  (/kwh)  70%  lower   ~35%  Lower  
Scale  (MW)  ~3X  bigger   Data  Center  
LocaCons  55%  fewer   Costs  by  2014  
Edge  Infrastructure  30%  faster  
 $0.9B   $(1.5)B  

Other Efficiencies
Right  Sourcing   Other  AcCons  
   Centers  of  excellence     Capital  expenditure  efficiency  
   Standardized  &  automated  processes     Content/partnership  cost  opFmizaFon  
   LocaFon  opFmizaFon     Purchasing  improvements/leverage  
CumulaCve  Savings  
$225M  
Low  Cost   30%   40%  
LocaCons   $160M  
$110M  
High  Cost  
LocaCons   70%  
60%  

2010E   2013E   2011E   2012E   2013E  

 $0.9B   $(1.5)B  

Capital Expenditures Declining

2007-­‐2008   2009-­‐2012E   2013-­‐2014E+  

Other   Other  
Other  
25%   25%  
Servers/   25%   Servers/  
Servers/  
Storage   Storage   Storage  
Data  Centers   50%  
Data  Centers   45%   40%  
35%   Data  Centers  
30%   25%  

~$640M   ~$570M   ~$470M  

Average  Spend   Average  Spend     Average  Spend  
Investing for Revenue Growth
GROWTH  DRIVERS  
USER  BASE   ENGAGEMENT   ONLINE  SHIFT   MONETIZATION  

Social  

Mobile  

Video  

Local  

Content  OpCmizaCon  

Integrated  Search  

Emerging  Markets  

Insights  &  AnalyCcs  

Yield  Management  
VOLUME  +4-­‐5%   YIELD  +6-­‐7%  
Investment & Return Summary*
Investment   Return  
$0.9B   $1.5B  
$275M   $500M  
Efficiency   Cost  ReducFon  
&  Scalability  
$625M  
$650M  
 
7-­‐10%  
t h
Search  Alliance  
Grow

$350M  
D&A,  SBC,  etc.  

*  Represents  esFmates  of  anFcipated  investments  and  returns  through  2013  

Wrap-up

  Making  progress…  execuFng    

on  a  clear  &  disciplined  plan  
  HarvesFng  inefficiencies    
to  self-­‐fund  growth  
  Strong  balance  sheet…    
working  to  improve  returns  
  InvesFng  in  innovaFon…    
to  improve  engagement    
and  grow  revenue