YHOO_Q110EarningsPresentation_Final by karaswisher

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									Yahoo! Inc.
Q1’10 Financial Highlights
4.20.2010
Legal Notice



 Note:
 The matters discussed in this presentation contain forward-looking statements that involve risks and uncertainties concerning
 Yahoo!’s expected financial performance, and expected reimbursements from Microsoft, as well as Yahoo!’s strategic and
 operational plans. Actual results may differ materially from the results predicted, and reported results should not be considered
 as an indication of future performance. The potential risks and uncertainties include, among others, the impact of management
 and organizational changes; the implementation and results of Yahoo!'s ongoing strategic and cost initiatives; Yahoo!'s ability to
 compete with new or existing competitors; reduction in spending by, or loss of, marketing services customers; the demand by
 customers for Yahoo!'s premium services; acceptance by users of new products and services; risks related to joint ventures and
 the integration of acquisitions; risks related to Yahoo!'s international operations; failure to manage growth and diversification;
 adverse results in litigation, including intellectual property infringement claims; Yahoo!'s ability to protect its intellectual property
 and the value of its brands; dependence on key personnel; dependence on third parties for technology, services, content, and
 distribution; general economic conditions and changes in economic conditions; and transition and implementation risks
 associated with our search agreement with Microsoft Corporation. All information in this presentation is as of April 20, 2010.
 Yahoo! does not intend, and undertakes no duty, to update this information to reflect future events or circumstances. More
 information about potential factors that could affect Yahoo!’s business and financial results is included under the captions “Risk
 Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Yahoo!’s Annual
 Report on Form 10-K for the fiscal year ended December 31, 2009, which is on file with the Securities and Exchange
 Commission (“SEC”) and available on the SEC’s web site at www.sec.gov. Additional information will also be set forth in those
 sections in Yahoo!’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, which will be filed with the SEC in
 the second quarter of 2010.




                                                                    2
Quarterly Overview


           4/20/2010
Quarterly GAAP Revenue & TAC Rate Trends

                                                                                                                 $1,732
                           $1,580                       $1,573                      $1,575                                                   $1,597

                                                                                                               27%                                                      TAC % of
                           27%                         28%                         28%                                                       29%                      GAAP Revenue




Note: Traffic Acquisition Costs (“TAC”) consists of payments made to Affiliate sites that have integrated our advertising offerings into their website or their other offerings and payments made
to companies that direct consumer and business traffic to the Yahoo! website.

Note: Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP revenue less TAC. Please refer to supporting Table 1 for Revenue ex-
TAC Calculation by Segment. Throughout this presentation, we have rounded numbers as appropriate.




                                                                                                 4
Quarterly Revenue ex-TAC Trends

                                                                                                          $1,258
                           $1,156                      $1,136                    $1,131                                             $1,130




Note: Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP revenue less TAC. Please refer to supporting Table 1 for
Revenue ex-TAC Calculation by Segment.




                                                                                            5
Revenue and Revenue ex-TAC Comparisons

        $ in millions                                                                         Q1’09               Q4’09                Q1’10                           Q1’10
                                                                                                                                                             YOY           QOQ
        Revenues for Groups of Similar
        Services
          Marketing Services:
             Owned and Operated sites(1)                                                       $871.8               $971.3              $874.8                0%           (10%)
             Affiliate sites(2)                                                                  511.4                564.0               547.7               7%               (3%)
          Fees                                                                                   196.9                196.7               174.4             (11%)          (11%)
        Total Revenue                                                                       $1,580.0            $1,732.0             $1,597.0                 1%               (8%)


        Revenue ex-TAC
          United States                                                                        $897.8               $927.0              $842.8               (6%)              (9%)
          International                                                                          258.5                331.5               287.6              11%           (13%)
        Total                                                                               $1,156.2            $1,258.5             $1,130.4                (2%)          (10%)

Note: Revenue excluding traffic acquisition costs (Revenue ex-TAC) is a non-GAAP financial measure defined as GAAP Revenue less TAC. Please refer to supporting Table 1 for
Revenue ex-TAC Calculation by Segment.
(1) Refers to Yahoo!’s owned and operated (O&O) online properties and services.
(2) Refers to Yahoo!’s distribution network of third-party entities who have integrated Yahoo!’s advertising offerings into their websites or their other offerings.




                                                                                                   6
Adjusted GAAP Revenue Growth

Year/Year Growth                                                                        Q1’09                Q2’09                Q3’09               Q4’09                Q1’10

Reported GAAP Revenue Growth                                                               (13%)                (13%)               (12%)                  (4%)                    1%
Impact of:
  Currency(1)                                                                                   5%                   5%                  3%                (2%)                 (2%)
  Acquisitions/Divestitures(2)                                                                  5%                   2%                  2%                   2%                   0%
Total Impact                                                                                  10%                    7%                  5%                (0%)                 (2%)


Adjusted Growth Rate                                                                         (3%)                 (6%)                 (7%)                (5%)                 (1%)




(1) The currency impact reflects the impact on year-over-year reported GAAP revenue growth from changes in currency exchange rates.
(2) The acquisitions/divestitures impact reflects the contribution to reported GAAP revenue growth from acquisitions made in the prior 12 months and the loss of revenue related to the
    sale of Zimbra, Inc. in Q1’10.




                                                                                               7
GAAP Revenue Details
$ in millions                             Q1’09        Q2’09     Q3’09     Q4’09     Q1’10


O&O Search                                     $399      $359      $354      $370      $343
Year/Year Growth                                (3%)     (15%)     (19%)     (15%)     (14%)

O&O Display                                    $371      $393      $399      $503      $444
Year/Year Growth                               (13%)     (14%)      (8%)      (1%)      20%
Affiliate                                      $511      $520      $526      $564      $548
Year/Year Growth                               (16%)      (9%)      (6%)       6%        7%

O&O Listings & Other Marketing Services        $102      $106       $98       $98       $88
Year/Year Growth                               (22%)     (21%)     (24%)     (18%)     (14%)


Total Marketing Services                      $1,383   $1,378    $1,377    $1,535    $1,423
Year/Year Growth                               (12%)     (13%)     (12%)      (4%)       3%


Fees                                           $197      $195      $198      $197      $174
Year/Year Growth                               (20%)      (8%)     (11%)      (7%)     (11%)


Total Revenues                                $1,580   $1,573    $1,575    $1,732    $1,597
Year/Year Growth                               (13%)     (13%)     (12%)      (4%)       1%




                                          8
Operating Income Trends
                                                                                                                                                              (1)
                                                                                                                                                      $188




                                                                                                                            $119
                                         $101
                                                                                                 $91
                                                                      $76




 Operating Margin:                    6%                         5%                         6%                          7%                       12%

Note: Operating margin is calculated as operating income divided by revenues.
(1) Operating income for Q1’10 includes $43 million of net transition cost reimbursements from Microsoft. See Table 5 for presentation (and reconciliation) of Non-GAAP
operating income, which excludes certain items that the Company does not consider indicative of its ongoing operating performance.




                                                                                                9
Segment Data
        $ in millions                                                                                           Q1’09                    Q1’10                   Q1’10
                                                                                                                                                                  YOY
        United States Segment
           Revenues                                                                                                $1,187.9                $1,120.7                (6%)
           Direct Costs(1)                                                                                           (464.7)                  (413.4)             (11%)
           Contribution by Segment                                                                                   $723.2                   $707.3               (2%)
           Segment Contribution Margin(2)                                                                                61%                      63%               N/M


        International Segment
           Revenues                                                                                                  $392.1                   $476.3               21%
           Direct Costs(1)                                                                                           (214.6)                  (263.2)              23%
           Contribution by Segment                                                                                   $177.5                   $213.1               20%
           Segment Contribution Margin(2)                                                                                45%                      45%               N/M


        Combined Segments
           Revenues                                                                                                $1,580.0                 $1597.0                 1%
           Direct Costs(1)                                                                                           (679.2)                  (676.7)               0%
           Contribution by Combined Segments                                                                         $900.8                   $920.3                2%
           Combined Segment Contribution Margin(2)                                                                       57%                      58%               N/M


(1) Direct costs for each segment include TAC, other cost of revenues, and other operating expenses that are directly attributable to the segment such as employee compensation
expense, local sales and marketing expenses, and facilities expenses.
(2) Segment contribution margin is calculated as segment contribution divided by segment revenues.
Note: Please refer to supporting table 6, “Supplemental Financial Data.”
N/M = Not Meaningful

                                                                                            10
Free Cash Flow (FCF) Trends




(1) Microsoft search operating cost reimbursements and transition cost reimbursements were recognized on the income statement but not received as cash in the first quarter of 2010.

Note: Free Cash Flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based awards), less net
capital expenditures and dividends received. Please refer to supporting Table 2 for Free Cash Flow Calculation.




                                                                                             11
 Non-GAAP Net Income Per Share Trends




Note: Non-GAAP Net Income is a non-GAAP financial measure defined as net income (loss) attributable to Yahoo! Inc. excluding certain gains, losses, expenses, and their related tax effects that
we do not believe are indicative of our ongoing results. All per share amounts are based on fully diluted share counts.

Beginning in Q1’10, our presentation of Non-GAAP Net income no longer excludes stock-based compensation expense and its related tax effects. For comparison purposes, prior period amounts
have been revised to conform to the current presentation.

See Table 3 for Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. and GAAP Net Income Attributable to Yahoo! Inc. Per Share - Diluted to Non-GAAP Net Income and Non-GAAP
Net Income Per Share and Table 4 for Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. to Non-GAAP Net Income, with Details on Adjustments.




                                                                                                 12
Key Operational & Balance Sheet Metrics
    $ in millions except where noted                                          Q1’09                  Q2’09                   Q3’09                  Q4’09                  Q1’10


    Cash & Marketable Debt Securities                                             $3,691                 $4,197                 $4,503                 $4,518                  $4,244


    Accounts Receivable, net                                                         $913                   $907                   $907                $1,003                     $900
    DSO (in days)                                                                        52                     53                     53                     53                      51

    Current Deferred Revenue                                                         $406                   $417                   $413                   $411                    $352

    Ending Employees (ones)                                                       13,500                 13,000                 13,200                 13,900                  14,200


    Year/Year Growth
    Page Views                                                                          5%                     4%                     5%                     3%                     0%




Note: We periodically review and refine our methodology for monitoring, gathering, and counting Page Views to more accurately reflect the total number of Web pages viewed by users on Yahoo!
properties. Based on this process, from time to time we update our methodology to exclude from the count of Page Views interactions with our servers that we determine or believe are not the
result of user visits to our Owned and Operated sites.




                                                                                              13
Yahoo! and Microsoft Search Alliance
                                   Q1                     Q2 – Q4                          2010
                                                                                                                   Indicative
                                                                                                                  of long-term
                                                                                                               cost savings, not
                                                                                                                including 2010
                                                                                                                reinvestments



                                                     Going forward should
                                          $43 M      net to approximately
                                                              $0



   Net                             $78M           $75M - $85M per quarter

         Operating Cost                            Transition Cost
                                                                                             Transition Costs
         Reimbursements                            Reimbursements

 • Approximately $25M - $30M              •   Up to $150M of reimbursements        • Transition costs include
   per month for direct costs of              that Microsoft will pay to Yahoo!      sales training, customer migration,
   running Yahoo! Search                      over the next two years as             consulting, legal, retention and other
                                              specified in the agreement             costs incurred in connection with the
 • Monthly reimbursements will be
                                                                                     transition of search services to
   reduced as algo and paid               •   Payments relate to specific
                                              transition costs                       Microsoft
   search employees move to
   Microsoft                              •   1Q’10 includes reimbursements        • Transition costs and reimbursements
                                              for transition costs that occurred     are expected to be nearly
                                                                                     equal in 2Q-4Q’10
                                              in 2009 and 1Q’10




                                                              14
Business Outlook
  $ in millions                                                                        Q2’10                                                 FY’10
                                                                            Current Outlook                                       Current Outlook
  Revenues                                                                     $1,600-$1,680                                                      -

  Traffic Acquisition Costs (TAC)                                                     $475-$495                                                   -


  Total expenses(1) less TAC                                                          $970-$990                                     $3,850-$3,925


  Total expenses(1) less                                                              $750-$760                                     $2,970-$3,025
  TAC, D&A, and SBC

  Income from Operations                                                              $155-$195                                                   -



(1) Total expenses is calculated as cost of revenues plus total operating expenses.
Note: D&A refers to Depreciation & Amortization (D&A) and SBC refers to Stock-Based Compensation Expense (SBC).
The above business outlook is based on current information and expectations as of April 20, 2010. Yahoo! does not expect, and undertakes no obligation, to update
this business outlook prior to the release of the Company’s next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may
update this business outlook or any portion thereof at any time at its discretion.
Please refer to supporting Table 7 for calculations of total expenses less TAC, and total expenses less TAC, D&A and SBC.



                                                                                            15
Appendix



           4/20/2010
Table 1 – Revenue ex-TAC Calculation by Segment
Reconciliation of GAAP Revenue to Revenue ex-TAC


 $ in millions                                                Q1’09                  Q2’09           Q3’09       Q4’09       Q1’10

 United States
   GAAP Revenue                                                 $1,187.9                  $1,152.4    $1,143.2    $1,230.9    $1,120.7
   TAC                                                            (290.1)                  (290.5)     (294.7)     (304.0)     (277.8)
 US Revenue ex-TAC                                                 $897.8                  $861.9      $848.5      $927.0      $842.8


 International
   GAAP Revenue                                                    $392.1                  $420.5      $432.2      $501.0      $476.3
   TAC                                                            (133.7)                  (146.0)     (149.3)     (169.5)     (188.7)
 Int’l Revenue ex-TAC                                              $258.5                  $274.5      $283.0      $331.5      $287.6


 Worldwide
   GAAP Revenue                                                 $1,580.0                  $1,572.9    $1,575.4    $1,732.0    $1,597.0
   TAC                                                            (423.8)                  (436.6)     (444.0)     (473.5)     (466.5)
 Revenue ex-TAC                                                 $1,156.2                  $1,136.3    $1,131.4    $1,258.5    $1,130.4



Note: Revenue ex-TAC is a non-GAAP financial measure defined as GAAP Revenue less TAC.




                                                                                     17
Table 2 - Free Cash Flow Calculation
Reconciliation of Cash Flow from Operating Activities to FCF




 $ in millions                                                                                    Q1’09             Q2’09              Q3’09               Q4’09              Q1’10
 Free Cash Flow
   Cash Flow from Operating Activities                                                            $262.3            $341.8             $355.1             $351.1              $143.6
   Excess Tax Benefits from Stock-Based Awards                                                      22.1               45.1                 2.9               38.4               32.9
   Acquisition of Property & Equipment, Net                                                       (70.5)             (94.7)             (98.9)            (169.7)            (112.5)
   Dividends Received                                                                                    -           (26.1)               (1.5)                    -                    -
 Total                                                                                            $214.0            $266.0             $257.7             $219.7               $63.9




Note: Free Cash Flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based awards), less net
capital expenditures and dividends received. The excess tax benefits from stock-based awards, as reported on the statements of cash flows in cash flows from financing activities,
represent the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for options
exercised/awards released in current and prior periods.




                                                                                             18
Table 3 – Non-GAAP Net Income Per Share Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. and GAAP Net
Income Attributable to Yahoo! Inc. Common Stockholders Per Share - Diluted to
Non-GAAP Net Income and Non-GAAP Net Income Per Share - Diluted

in millions except per share amounts                                                             Q1’09               Q2’09            Q3’09          Q4’09              Q1’10



GAAP Net Income Attributable to Yahoo! Inc.                                                         $117.6           $141.4           $186.1          $153.0             $310.2
Adjustments                                                                                            5.6                4.0          (40.8)            47.2             (91.4)
Non-GAAP Net Income                                                                                 $123.1           $145.4           $145.3          $200.2             $218.8


GAAP Net Income Attributable to Yahoo! Inc. Common Stockholders                                      $0.08             $0.10           $0.13           $0.11              $0.22
Per Share - Diluted


Non-GAAP Net Income Per Share - Diluted                                                              $0.09             $0.10           $0.10           $0.14              $0.15


Diluted Shares Outstanding                                                                       1,406.5             1,414.3          1,424.9        1,417.0            1,413.4




Note: All per share amounts are based on fully diluted share counts. Please refer to supporting Table 4 for details on Adjustments.

Beginning in Q1’10, our presentation of Non-GAAP Net Income no longer excludes stock-based compensation expense and its related tax effects. For comparison purposes, prior period
amounts have been revised to conform to the current presentation.




                                                                                               19
Table 4 - Non-GAAP Net Income Calculation
Reconciliation of GAAP Net Income Attributable to Yahoo! Inc. to Non-GAAP Net Income, with
Details on Adjustments
$ in thousands                                                                                             Q1'09           Q2'09            Q3'09             Q4'09               Q1'10

GAAP Net income attributable to Yahoo! Inc.                                                            $     117,558 $        141,387 $        186,093 $        152,954       $     310,191


(a)                                                             (1)                                                 -                -          12,141           32,013             (43,300)
          Transition cost reimbursements from Microsoft, net


(b)       Incremental costs for advisors related to strategic alternatives and related                         3,709            2,596                 -                -                  -
                  (2)
          matters


(c)       Restructuring charges, net                                                                           4,801           65,002           16,689           40,409               4,412

(d)       Gain on sale of Gmarket investment                                                                        -         (66,684)                -                -                  -

(e)       Gain on sale of the Company's direct investment in Alibaba.com                                            -                -         (98,167)                                   -

(f)       Goodwill impairment charge                                                                                -                -                -                -                  -

(g)       Gain on sale of Zimbra, Inc.                                                                              -                -                -                -            (66,130)



(h)       Yahoo!'s non-cash gain related to Alibaba Group's initial public offering of                              -                -                -                -                  -
          Alibaba.com, net of tax, which is included in earnings in equity interests


(i)       Yahoo!'s non-cash loss related to the impairment of our direct investment in                              -                -                -                -                  -
          Alibaba.com, net of tax, which is included in earnings in equity interests



(j)       To adjust the provision for income taxes to reflect the tax impact of items (a) - (g)               (2,957)           3,103           28,516           (25,200)            13,668



Non-GAAP Net income                                                                                    $     123,111 $        145,404 $        145,272 $        200,176       $     218,841


 (1)   Non-GAAP Net income excludes reimbursements for prior periods. For the three months ended March 31, 2010 Yahoo! accrued $67 million of transition cost
       reimbursements from Microsoft for transition costs incurred by Yahoo! in 2009 and the first quarter of 2010, partially offset by $24 million of transition costs
       incurred by Yahoo! in the first quarter of 2010. No adjustment is made for the $35 million of search operating cost reimbursements from Microsoft accrued in the
       first quarter of 2010, because the underlying costs were incurred in the same period.
 (2)   Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google
       agreement, the proxy contest, and related litigation defense.

                                                                                                  20
Table 5 - Non-GAAP Operating Income Calculation
Reconciliation of GAAP Operating Income to Non-GAAP Operating Income, with Details on
Adjustments
$ in thousands                                                                                                Q1'09             Q2'09             Q3'09            Q4'09               Q1'10

GAAP Income from operations                                                                              $      100,685 $           75,753 $         91,499 $         118,755      $     188,021


(a)       Transition cost reimbursements from Microsoft, net (1)                                                        -                 -          12,141            32,013            (43,300)

(b)       Incremental costs for advisors related to strategic alternatives and related                             3,709             2,596                  -                  -               -
                  (2)
          matters

(c)       Restructuring charges, net                                                                               4,801            65,002           16,689            40,409              4,412


Non-GAAP Income from operations                                                                          $      109,195 $         143,351 $         120,329 $         191,177      $     149,133




  (1)   Non-GAAP Net income excludes reimbursements for prior periods. For the three months ended March 31, 2010 Yahoo! accrued $67 million of transition cost
        reimbursements from Microsoft for transition costs incurred by Yahoo! in 2009 and the first quarter of 2010, partially offset by $24 million of transition costs
        incurred by Yahoo! in the first quarter of 2010. No adjustment is made for the $35 million of search operating cost reimbursements from Microsoft accrued in the
        first quarter of 2010, because the underlying costs were incurred in the same period.
  (2)   Includes incremental costs for advisors related to Microsoft's proposals to acquire all or a part of the Company, other strategic alternatives, including the Google
        agreement, the proxy contest, and related litigation defense.




                                                                                                   21
Table 6 – Supplemental Financial Data
                    $ in millions                                                                                           Q1’09                    Q1’10


                    Revenues by Segment:
                        United States                                                                                        $1,187.9                $1,120.7
                        International                                                                                             392.1                    476.3
                        Total Revenues                                                                                       $1,580.0                $1,597.0


                    Direct costs by segment(1):
                        United States                                                                                           $464.7                  $413.4
                        International                                                                                             214.6                    263.2
                    Global Operating Costs(2)                                                                                     487.0                    501.8
                    Restructuring charges, net                                                                                        4.8                      4.4
                    Depreciation and amortization                                                                                 181.6                    165.2
                    Stock-based compensation                                                                                      126.7                      60.8
                         Income from Operations                                                                                 $100.7                  $188.0


(1)   Direct costs for each segment include TAC, other cost of revenues, and other operating expenses that are directly attributable to the segment such as employee compensation
      expense, local sales and marketing expenses, and facilities expenses.
(2)   Global operating costs include product development, service engineering and operations, marketing, customer advocacy, general and administrative, and other corporate expenses
      that are managed on a global basis and that are not directly attributable to any segment.




                                                                                             22
Table 7 – Reconciliations
                                                                                                                Q1'10A                      Q2'10E                     FY'10E
                                                                                                                (in millions)              (in millions)              (in millions)


 Total Expenses less TAC:
                                                                                                                                                                            (1)
        Total Expenses (GAAP Cost of Revenues + GAAP Total Operating Expenses)                          $         $1,409            $     1,445 - 1,485
                                                                                                                                                                            (1)
        Less: Traffic Acquisition Costs ("TAC")                                                                    ($467)                   (475 - 495)
        Total Expenses less TAC                                                                         $           $942            $        970 - 990         $     3,850 - 3,925


 Total Expenses less TAC, D&A, and SBC:
                                                                                                                                                                            (1)
        Total Expenses (GAAP Cost of Revenues + GAAP Total Operating Expenses)                          $         $1,409            $     1,445 - 1,485
                                                                                                                                                                            (1)
        Less: Traffic Acquisition Costs ("TAC")                                                                    ($467)                   (475 - 495)
                                                                                                                                                                            (2)
        Less: Depreciation and Amortization ("D&A")                                                                ($165)                   (160 - 165)
                                                                                                                                                                            (2)
        Less: Stock-Based Compensation Expense ("SBC")                                                              ($61)                    (60 - 65)
        Total Expenses less TAC, D&A, and SBC                                                           $          $716             $       750 - 760          $     2,970 - 3,025




Note: D&A refers to Depreciation & Amortization (D&A) and SBC refers to Stock-Based Compensation Expense (SBC).
(1)   We are unable to provide Total Expenses or TAC on a forward-looking basis for the full year.
(2)   We expect the sum of D&A and SBC for the full year to be approximately $880-$900 million.
The above business outlook for Q2’10 and FY’10 is based on current information and expectations as of April 20, 2010. Yahoo! does not expect, and undertakes no obligation, to
    update this business outlook prior to the release of the Company’s next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may
    update this business outlook or any portion thereof at any time at its discretion.




                                                                                               23

								
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