Analyst Conference Summary

conference date: July 17, 2007 @ 2:00 PM
for quarter ending: June 30, 2007 (2nd quarter 2007)

Forward-looking statements

Overview: Some progress on revenues but earnings dropped.

Basic data:

Revenues were $1.7 billion, up 8% from $1.6 billion year-earlier.

Net income was $161 million, down from $164 million year-earlier.

EPS $0.11, flat from year-earlier.

Cash and cash equivalents ended at $3.15 billion.

Guidance:

Revised to mid to low end of previous outlook for remainder of 2007. Slower growth in display, greater search affiliate decline. Q3 $1.170 to $1.310 billion revenue ex TAC. 32 to 34% margins, lowest for year. 36 to 38% full year margin. $35 million revenues ex-TAC from new acquisitions for rest of year. New Yahoo Japan structure will have impacts.

$1.25 to $1.27 billion full year free cash flow.

Conference Highlights:

Quarter results were consistent with expectations and previous guidance. Will invest to achieve long-term growth. We can win. No sacred cows. Will create value for advertisers and publishers.

Insights, openness, and being the partner of choice are the three strategic engines for growth. Near term priorities are: transform to drive greater growth and profitability. Will invest for this, including acquisitions. Will de-emphasize poor performing segments. Will make decisions faster. New high bar for Yahoo culture, including attracting talent.

Believes legacy issues hampering growth will soon be behind them. Could have done better with Overture; should have integrated it, rather than leaving it as a stand-alone. Did not address smaller advertisers properly. Want to make Yahoo easy for marketers and publishers.

Streamlining corporate structure starting last December. Search and display sales teams have been integrated.

Execution has improved over last 6 months. Marketing products (Panama) is going well, with real financial gains this quarter. Record RPS (revenues per search?). Panama in Japan turned on last week, will launch in UK in a few weeks, then rest of countries before year-end. SmartAds introduced.

Publishing partners: Right Media acquisition completed. Reporting and campaign management tools are ready. Improved results with eBay and newspaper consortium.

463 million users at end of quarter, up 16% over year-earlier. No 1 in several categories. Acquired Rivals.com for sports fans. Flickr has done well with international rollout and new features. Progress in mobile with Yahoo Go. Will be preloaded in many cell phones.

Operating income was $185 million, down 19% from $230 million year-earlier. Revenues excluding TAC (traffic acquisition costs) were $1.24 billion, up 11%. Gross profit was $1 billion, up 9%.

Non-GAAP net income was given as $238 million or $0.17 per share.

Income tax provision was $88 million with a tax rate of 41%.

Marketing services revenues were $1.5 billion, up 7% from year-earlier. Of that Yahoo owned and operated site revenue (O&O) was $887 million, up 18%. Affiliated site revenues were $599 million, down 5%.

Fee revenues were $212 million, up 12%.

U.S. segment revenues were $1.1 billion, up 5%. International was $579 million, up 15%.

Cash flow from operating activities was $406 million, down 6%. Free cash flow was $328 million, down 8%; will focus on this as a priority metric. $132 million was generated by exercise of employee stock options. $418 million was used for stock repurchases. $24 million was used for acquisitions.

Expects declines in affiliate business for rest of year. By year end will only represent 10% of ex-TAC revenue.

E-commerce business in Europe has experienced competitive pressure.

12,400 employees at end of quarter, up 700 sequentially, continuing to recruit aggressively.

Q&A:

Top 200 advertiser revenues? Will not provide that any more. Get better understanding from the figures splitting Yahoo from affiliate segment.

Branded inventory? Slower growth in display is not due to maturation of verticals. Due to competitive inventory out there at attractive (low) prices. Yahoo not traditionally set up for direct response campaigns, but improving that area.

Investment color? Growing head count, mainly in search and display. Right Media integration and scaling is a priority. Investing in newspaper partnerships. Can now do better investing internally than by further acquisitions.

Q3 trends to be seasonally weak.

We lead industry in behavioral targetting. Expects to extend that over time, including to search.

RPS growth rate? Was up between 15 and 20% year-over year. Assuming broadly similar trends in second half of 2007. Got good results sooner than expected, so does not expect further acceleration.

For inventory seeing strong pricing, but mix move to non-premium areas has reduced oveall pricing.

Believes partners are happy and can be built upon.

See Asia is an area for major growth over the next decade, but currently at very early stage, with good positioning for the future.

AT&T relationship? Their search queries are in O&O numbers. Nothing to announce at present about AT&T, but partnership is going pretty strong.

Pressure from new premium inventory (for ad placement) being created? Believes Yahoo can add value with improved technologies, so monetization will improve even as inventory grows.

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