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Financial Overview

Financial Overview. TIM MORSE. Value Creation. Operational Framework. }. Credibility. Leverage Key Strengths. Continue to Improve and Evolve. Fix Now. Best-in-Class Properties Reach and Scale Science and Know-how Re-aligned Cost Structure Search Agreement Rich Data People.

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Financial Overview

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  1. Financial Overview TIM MORSE

  2. Value Creation

  3. Operational Framework } Credibility Leverage Key Strengths Continue to Improve and Evolve Fix Now Best-in-Class Properties Reach and Scale Science and Know-how Re-aligned Cost Structure Search Agreement Rich Data People Product Innovation User Insights Brand Value Engagement  $ Search Experiences Editorial as Competitive Advantage • Execution • Growth • M&A • Complexity • Global Platforms • Focus, Prioritization, Accountability

  4. Value Creation Innovation Monetization Execution • Business Priorities • Growth • Margin Expansion • Disciplined Resource Allocation • Capital Efficiency

  5. Financial Framework Total Yahoo! Valuation Core Business Asian Assets Cash Build Execution Machine Simplify Focus on ROI Expand Margins Maximize Free Cash Flow Fund M&A Offset Equity Dilution Operational:Share in Yahoo! Japan success Strategic: Participate in China growth through Alibaba

  6. Revenue

  7. Revenue: 2009E Next-GenExperience MonetizeInsights O&O Display ~$1.7B O&O Search~$1.5B Fees, Listings & Other ~$1.2B Affiliates~$2.0B MaintainValue Proposition PortfolioManagement Revenue Ex-TAC Please note: 2009 revenue segments calculated using 2009 actuals through Q3’09 plus the midpoint of Q4’09 revenue guidance.

  8. Revenue Levers International UU growth Better utilized existing inventory Behavioral targeting Easy to do business with Rich ads Editorial click enhancement Insights-ROI Video INNOVATION MONETIZATION Search volume User experience EXECUTION Content optimization Pricing accuracy Marketplace design Multi-objective optimization Web analytics Matching relevance Offline-online behavioral convergence Intelligent supply and demand shaping Yield optimization

  9. #3 • #1 • #2 • Win in Display Revenue Growth Priorities Revenue Opportunity 5% of U.S. Ad Revenue Share Shift =$650 million1 • Grow Search Volume & RPS • Improve Monetization of International Audience Close 50% of RPS Gap in U.S. = ~$300 million2 Increase International ARPU by 50% = $500+ million annually3 Note 1: Source Veronis Suhler Stevenson Communications Industry Forecast (2009). Note 2: Source: Internal Yahoo! Estimates. RPS gap compared to market leader. Note 3: Source: Internal Yahoo! Estimates.

  10. Cost Optimization

  11. Cost Management Overview Phase I Phase II Phase III • Budget Discipline • Differentiation • Plan for Efficiency • Self-funding Mentality • Right-sourcing • Invest for Productivity • Simplify and Streamline • Structural Changes • Continuous Improvement P&L impacts over time

  12. Differentiating Costs Fund ROI Traditional View Compliance Support Transactional Breakworkforcecosts intoactionablecategories Analytical Workforce Be Lean Development ~$3B

  13. Repositioning Cost Structure Engineers & Salespeople Low-cost Centers of Excellence Global Functions & Priorities Cost Optimization @ Scale $ $ Resource Optimization Organizational Efficiency Automation & Standardization Low-cost DCs & Flattened Networks System & Platform Investments Cloud Deployment & Tech Refresh $ $ Better Infrastructure Utilization Smarter Solutions

  14. Structural Opportunities Engineering Productivity Up to 2xOutput 1x Output

  15. Structural Opportunities Geographic Resources HighCost LowCost HighCost LowCost Undifferentiated, Organic Differentiated, Planned

  16. Structural Opportunities Infrastructure

  17. Structural Opportunities Internal “Plumbing” B B A A Convoluted, Complex Lean, Simple

  18. Impact of Search Agreement Regulatory Clearance Algo Transition U.S. Paid Search Transition International Paid Search Transition Early 2010 Within 12 months Within 12 months Within 24 months 2010 Modeling 2011-12 Modeling • No revenue sharing • All basic Algo and Paid Search costs funded by Microsoft after regulatoryclearance • 1st of 3 $50M payments to Yahoo! • Upfront transition costs • Revenue sharing begins as each market rolls out • Headcount transitions completed and remaining Yahoo! support cost rationalized • 2nd and 3rd $50M payments to Yahoo! Will guide & report together Please note: Additional detail on the terms of the agreement can be found in Yahoo!’s 8-K dated July 29, 2009.

  19. Financial Metrics

  20. “New” Financial Metrics Profitability • GAAP Operating Income • GAAP Net Income & EPS “New” “New” • Operating Margin Rate • Return on Invested Capital Efficiency Cash Generation • GAAP Cash Flows from Operating Activities • Free Cash Flow

  21. GAAP Operating Income GAAP Net Income & EPS $941M $732M $589M $413M 51¢ 41¢ 1 2 GAAP Operating Margin Rate Return on Invested Capital 15% 14% 6% 5% 1 1 1. Amount shown by dotted line is non-GAAP and excludes a goodwill impairment charge of $488 million. In 2008, GAAP Operating Income was $13 million, GAAP Operating Margin was 0.2% and Return on Invested Capital was 0%. 2. 2008 GAAP Net Income includes a $401 million non-cash gain related to Alibaba Group’s initial public offering of Alibaba.com. Note: Operating Margin is calculated as Operating Income / Revenues. Return on Invested Capital represents Operating Income After Tax divided by Average Invested Capital; it is calculated as: (Operating Income x (1 – Effective Tax Rate)) / (2-yr average of Stockholders’ Equity + Interest Bearing Debt – Cash & Cash Equivalents – Investments in equity interests). Effective Tax Rate is calculated as (Provision for income taxes) / (Income before provision for income taxes, earnings in equity interests, and minority interests).

  22. 2010-2012 Financial Objectives Revenue Accelerate Revenue Growth ~3x 2009 Margins 15-20% Operating Margin Rate 3-4x 2009 Returns 15-20% Return on Invested Capital

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