Yahoo! Reports Second Quarter 2008 Financial Results

Highlights:
Revenues - $1,798 Million
Operating Income - $101 Million
Operating Income Before Depreciation, Amortization, and Stock-Based Compensation Expense - $427 Million

SUNNYVALE, Calif., July 22, 2008 - Yahoo! Inc. (Nasdaq: YHOO) today reported results for the second quarter ended June 30, 2008.

“Yahoo! is executing against its strategy, and we believe is well positioned for long-term growth and maximizing stockholder value,” said Jerry Yang, co-founder and chief executive, Yahoo! Inc. “Yahoo! Saw benefits in the second quarter from a number of the strategic initiatives that we have been delivering against, including the roll out of innovations in search and the announcement of a number of important partnerships. We are seeing validation that we have the right strategy as we continue to make transformational investments that position us to take advantage of pivotal trends driving growth on the Internet.”

Second Quarter 2008 Financial Results
• Revenues were $1,798 million for the second quarter of 2008, a 6 percent increase compared to $1,698 million for the same period of 2007.
• Marketing services revenues were $1,587 million for the second quarter of 2008, a 7 percent increase compared to $1,486 million for the same period of 2007.
o Marketing services revenues from Owned and Operated sites were $1,016 million for the second quarter of 2008, a 14 percent increase compared to $892 million for the same period of 2007.
o Marketing services revenues from Affiliate sites were $571 million for the second quarter of 2008, a 4 percent decrease compared to $594 million for the same period of 2007.
• Fees revenues were $211 million for the second quarter of 2008, a less than 1 percent decrease compared to $212 million for the same period of 2007.
• Revenues excluding traffic acquisition costs (“TAC”) were $1,346 million for the second quarter of 2008, an 8 percent increase compared to $1,244 million for the same period of 2007.
• Operating income for the second quarter of 2008 was $101 million, a 45 percent decrease compared to $185 million for the same period of 2007.
o Operating income for the second quarter of 2008 includes incremental costs of $22 million incurred for outside advisors related to Microsoft’s proposals to acquire all or a part of the Company, other strategic alternatives, the proxy contest, and related litigation defense costs.
• Operating income before depreciation, amortization, and stock-based compensation expense for the second quarter of 2008 was $427 million, a 10 percent decrease compared to $474 million for the same period of 2007.
o Operating income before depreciation, amortization, and stock-based compensation expense for the second quarter of 2008 includes incremental costs of $22 million incurred for outside advisors related to Microsoft’s proposals to acquire all or a part of the Company, other strategic alternatives, the proxy contest, and related litigation defense costs.
• Cash flow from operating activities for the second quarter of 2008 was $426 million, a 5 percent increase compared to $406 million for the same period of 2007.
• Free cash flow for the second quarter of 2008 was $231 million, a 30 percent decrease compared to $328 million for the same period of 2007.
• Net income for the second quarter of 2008 was $131 million or $0.09 per diluted share compared to $161 million or $0.11 per diluted share for the same period of 2007.
• Non-GAAP net income for the second quarter of 2008 was $139 million or $0.10 per diluted share compared to non-GAAP net income of $163 million or $0.12 per diluted share for the same period of 2007.

“Yahoo!'s transformation gained momentum in the second quarter as we announced new product initiatives and partnerships along with solid financial results,” said Sue Decker, president Yahoo! Inc. “We advanced our position with users by opening up Yahoo! through new innovative offerings like SearchMonkey and BOSS in search and have seen great improvements with Buzz in the freshness of content on our home page. Our commercial agreement with Google is another great example of our open strategy and we expect it will strengthen our competitive position as a leading provider of search and display advertising. On the advertising side, our growing list of major agency partners including Publicis, WPP, Havas and premier publishing partners including walmart.com, and CNET and Turner are great examples of our ability to be the partner of choice across search and display advertising. We remain confident that our efforts will lead to a stronger and more profitable Yahoo!.”

Second Quarter 2008 Segment Financial Results
• United States segment revenues for the second quarter of 2008 were $1,265 million, a 13 percent increase compared to $1,119 million for the same period of 2007.
• International segment revenues for the second quarter of 2008 were $534 million, an 8 percent decrease compared to $579 million for the same period of 2007.
• United States segment operating income before depreciation, amortization, and stock-based compensation expense for the second quarter of 2008 was $298 million, an 18 percent decrease compared to $362 million for the same period of 2007.
• International segment operating income before depreciation, amortization, and stock-based compensation expense for the second quarter of 2008 was $129 million, a 16 percent increase compared to $111 million for the same period of 2007.

“Despite a difficult economic environment, we posted solid results in line with the ranges we indicated in April,” said Blake Jorgensen, chief financial officer, Yahoo! Inc. “GAAP revenue was $1.8 billion, with operating cash flow on a normalized basis coming in at $449 million. Our diverse advertiser base and compelling value proposition for our customers were key factors behind Yahoo!’s strong second quarter performance.”

Cash Flow Information
In addition to free cash flow of $231 million for the second quarter of 2008, Yahoo! generated $191 million from the issuance of common stock as a result of the exercise of employee stock options. This was offset by $14 million used for acquisitions and $42 million used to acquire intellectual property rights. Cash, cash equivalents, and investments in marketable debt securities were $3,219 million at June 30, 2008 as compared to $2,848 million at March 31, 2008, an increase of $371 million.

Non-GAAP Financial Measures
Explanations of the Company’s non-GAAP financial measures and the related reconciliations to the GAAP financial measures the Company considers most comparable are included in the accompanying “Note to Unaudited Condensed Consolidated Statements of Income,” “Reconciliations to Unaudited Condensed Consolidated Statements of Income,” and “Reconciliation of GAAP Net Income and GAAP Net Income Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share.”

Quarterly Conference Call
Yahoo! will host a conference call to discuss second quarter results at 5:00 p.m. Eastern Time today. A live webcast of the conference call, together with supplemental financial information, can be accessed through the Company's Investor Relations website at yahoo.client.shareholder.com/results.cfm.

About Yahoo!
Yahoo! Inc. is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! is focused on powering its communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust.

Source: Yahoo! Inc.

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