Yahoo! Reports Second Quarter 2008 Financial Results

Revenues - $1,798 Million

Operating Income - $101 Million

Operating Income Before Depreciation, Amortization, and
Stock-Based Compensation Expense - $427 Million
SUNNYVALE, Calif.--(Business Wire)--
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.

-- 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.

-- 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.

-- 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.

-- 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 out 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
http://yhoo.client.shareholder.com/results.cfm. In addition, an
archive of the webcast can be accessed through the same link. An audio
replay of the call will be available for one week following the
conference call by calling (888) 286-8010 or (617) 801-6888,
reservation number: 75564274.

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.
Yahoo! is headquartered in Sunnyvale, California. For more
information, visit pressroom.yahoo.com or the Company's blog, Yodel
Anecdotal.

Owned and Operated sites refer to Yahoo!'s owned and operated
online properties and services.

Affiliate sites refer to Yahoo!'s distribution network of
third-party entities who have integrated Yahoo!'s advertising
offerings into their websites or their other offerings.

This press release and its attachments include the
following financial measures defined as non-GAAP financial measures by
the Securities and Exchange Commission ("SEC"): revenues excluding
traffic acquisition costs or TAC; operating income before
depreciation, amortization, and stock-based compensation expense (also
referred to as operating cash flow); free cash flow; and non-GAAP net
income and non-GAAP net income per share. These measures may be
different from non-GAAP financial measures used by other companies.
The presentation of this financial information is not intended to be
considered in isolation or as a substitute for the financial
information prepared and presented in accordance with generally
accepted accounting principles ("GAAP"). See "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" included in
this press release for further information regarding these non-GAAP
financial measures.

This press release and its attachments contain forward-looking
statements that involve risks and uncertainties concerning Yahoo!'s
expected financial performance (including without limitation the
statements and information in the Business Outlook section and the
quotations from management in this press release), 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 expected benefits of the
commercial agreement with Google may not be realized, including as a
result of actions taken by United States or foreign regulatory
authorities and the response or acceptance of the agreement by
publishers, advertisers, users, and employees; the implementation and
results of Yahoo!'s ongoing strategic initiatives; the impact of
organizational changes; 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; potential continuing uncertainty arising in
connection with Microsoft's various proposals to acquire all or a part
of Yahoo!; the possibility that Microsoft or another person may in the
future make other proposals, or take other actions which may create
uncertainty for our employees, publishers, advertisers, and other
business partners; and the possibility of significant costs of
defense, indemnification, and liability resulting from stockholder
litigation relating to such proposals. All information set forth in
this press release and its attachments is as of July 22, 2008. 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 the Company'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 the Company's Annual Report on Form 10-K for
the year ended December 31, 2007, as amended, and the Quarterly Report
on Form 10-Q for the quarter ended March 31, 2008, which are on file
with the SEC and available at the SEC's website 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 June 30,
2008, which will be filed with the SEC in the third quarter of 2008.

Yahoo! and the Yahoo! logos are trademarks and/or registered
trademarks of Yahoo! Inc. All other names are trademarks and/or
registered trademarks of their respective owners.

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Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share amounts)

Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2007 2008 2007 2008
----------- ----------- ---------- -----------

Revenues $1,697,920 $1,798,085 $3,369,770 $3,615,687

Cost of revenues 683,012 765,911 1,396,649 1,520,994

---------- ---------- ---------- ----------
Gross profit 1,014,908 1,032,174 1,973,121 2,094,693
---------- ---------- ---------- ----------

Operating
expenses:
Sales and
marketing 390,430 404,899 757,849 829,490
Product
development 281,086 314,719 520,586 620,325
General and
administrative 133,258 188,811 288,423 359,891
Amortization of
intangibles 25,177 23,224 52,279 46,964
Strategic
workforce
realignment
costs, net - - - 16,885
---------- ---------- ---------- ----------
Total operating
expenses 829,951 931,653 1,619,137 1,873,555
---------- ---------- ---------- ----------

Income from
operations 184,957 100,521 353,984 221,138

Other income, net 30,736 24,674 66,187 48,336
---------- ---------- ---------- ----------

Income before
income taxes,
earnings in
equity interests,
and minority
interests 215,693 125,195 420,171 269,474

Provision for
income taxes (87,732) (47,693) (180,090) (104,666)
Earnings in equity
interests (1) 32,106 54,927 61,255 509,709
Minority interests
in operations of
consolidated
subsidiaries 500 (1,214) 1,655 (1,139)
---------- ---------- ---------- ----------

Net income $ 160,567 $ 131,215 $ 302,991 $ 673,378
========== ========== ========== ==========

Net income per
share - diluted
(2) $ 0.11 $ 0.09 $ 0.21 $ 0.46
========== ========== ========== ==========

Shares used in per
share calculation
- diluted 1,403,819 1,399,277 1,410,779 1,393,821
========== ========== ========== ==========

Stock-based
compensation
expense was
allocated as
follows:
Cost of revenues $ 2,357 $ 3,549 $ 4,364 $ 6,829
Sales and
marketing 52,110 56,306 102,378 121,844
Product
development 64,451 46,442 112,751 94,524
General and
administrative 9,861 16,871 49,292 37,260
Strategic
workforce
realignment
expense
reversals - - - (12,284)
---------- ---------- ---------- ----------
Total stock-
based
compensation
expense $ 128,779 $ 123,168 $ 268,785 $ 248,173
========== ========== ========== ==========

------------------------------------------------------------------

Supplemental
Financial Data
(See Note)
------------------
Revenues excluding
TAC $1,243,766 $1,345,969 $2,426,842 $2,698,027
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense (or
operating cash
flow) $ 473,629 $ 427,046 $ 933,664 $ 860,179
Free cash flow (3) $ 328,193 $ 230,999 $ 696,943 $ 877,511
Non-GAAP net
income per share $ 0.12 $ 0.10 $ 0.22 $ 0.21

------------------------------------------------------------------

(1) The six months ended June 30, 2008 includes Yahoo!'s net non-cash
gain of $401 million recorded in the first quarter of 2008
related to Alibaba Group's initial public offering of
Alibaba.com, net of tax.

(2) The impact of outstanding stock awards of entities in which the
Company holds equity interests that are accounted for using the
equity method reduced the Company's diluted earnings per share by
$0.02 for the six months ended June 30, 2008.

(3) The six months ended June 30, 2008 includes a $350 million one-
time payment from AT&T Inc. recorded in the first quarter of
2008.

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Yahoo! Inc.
Note to Unaudited Condensed Consolidated Statements of Income

This press release and its attachments include the non-GAAP financial
measures of revenues excluding traffic acquisition costs or TAC,
operating income before depreciation, amortization, and stock-based
compensation expense, free cash flow, non-GAAP net income, and non-
GAAP net income per share, which are reconciled to GAAP revenue,
income from operations, cash flow from operating activities, net
income, and net income per share, respectively, which we believe are
the most comparable GAAP measures. We use these non-GAAP financial
measures for internal managerial purposes, when publicly providing
our business outlook, and to facilitate period-to-period comparisons.
We describe limitations specific to each non-GAAP financial measure
below. Management generally compensates for limitations in the use of
non-GAAP financial measures by relying on comparable GAAP financial
measures and providing investors with a reconciliation of the non-
GAAP financial measure to the most directly comparable GAAP financial
measure or measures. Further, management uses non-GAAP financial
measures only in addition to and in conjunction with results
presented in accordance with GAAP. We believe that these non-GAAP
financial measures reflect an additional way of viewing aspects of
our operations that, when viewed with our GAAP results, provide a
more complete understanding of factors and trends affecting our
business. These non-GAAP measures should be considered as a
supplement to, and not as a substitute for, or superior to, GAAP
revenue, income from operations, cash flow from operating activities,
net income, and net income per share calculated in accordance with
GAAP.

Revenues excluding TAC is defined as GAAP revenue less TAC. TAC
consists of payments made to Affiliate sites and payments made to
companies that direct consumer and business traffic to the Yahoo!
website. We present revenues excluding TAC: (1) to provide a metric
for our investors to analyze and value our Company and (2) to provide
investors one of the primary metrics used by the Company for
evaluation and decision-making purposes. We provide revenues
excluding TAC because we believe it is useful to investors in valuing
our Company. One of the ways investors value companies is to apply a
multiple to revenues. Since a significant portion of the GAAP
revenues associated with our sponsored search offerings is paid to
our Affiliate sites, we believe investors find it more meaningful to
apply multiples to revenues excluding TAC to assess our value as this
avoids "double counting" revenues that are paid to, and being
reported by, our Affiliate sites. Further, management uses revenues
excluding TAC for evaluating the performance of our business, making
operating decisions, budgeting purposes, and as a factor in
determining management compensation. A limitation of revenues
excluding TAC is that it is a measure which we have defined for
internal and investor purposes that may be unique to the Company, and
therefore it may not enhance the comparability of our results to
other companies in our industry who have similar business
arrangements but address the impact of TAC differently. Management
compensates for these limitations by also relying on the comparable
GAAP financial measures of revenues, cost of revenues, and gross
profit, each of which includes the impact of TAC.

Operating income before depreciation, amortization, and stock-based
compensation expense (also referred to as operating cash flow) is
defined as income from operations before depreciation, amortization
of intangible assets, and stock-based compensation expense (including
the compensation of Terry Semel, who served as our chief executive
officer through June 18, 2007 and whose compensation after June 1,
2006 consisted almost entirely of stock-based compensation). We
consider this measure to be an important indicator of the operational
strength of the Company. We exclude depreciation and amortization
because while tangible and intangible assets support our businesses,
we do not believe the related depreciation and amortization costs are
directly attributable to the operating performance of our business.
This measure is used by some investors when assessing the performance
of our Company. In addition, because of the variety of equity awards
used by companies, the varying methodologies for determining stock-
based compensation expense, and the subjective assumptions involved
in those determinations, we believe excluding stock-based
compensation enhances the ability of management and investors to
understand the impact of stock-based compensation expense on our
operating income. We do not include depreciation, amortization, and
stock-based compensation expense in our internal measures or in the
measures used by the Company to formulate our business outlook
presented with our quarterly financial information to investors. A
limitation associated with the non-GAAP measure of operating income
before depreciation, amortization, and stock-based compensation
expense is that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating
revenues in our businesses. Management evaluates the costs of such
tangible and intangible assets through other financial measures such
as capital expenditures. A further limitation associated with this
measure is that it does not include stock-based compensation expense
related to the Company's workforce. Management compensates for these
limitations by also relying on the comparable GAAP financial measure
of income from operations, which includes depreciation, amortization,
and stock-based compensation expense.

Free cash flow is a non-GAAP measure defined as cash flow from
operating activities (adjusted to include excess tax benefits from
stock-based compensation), less net capital expenditures and
dividends received. We consider free cash flow to be a liquidity
measure which provides useful information to management and investors
about the amount of cash generated by the business after the
acquisition of property and equipment, which can then be used for
strategic opportunities including, among others, investing in the
Company's business, making strategic acquisitions, strengthening the
balance sheet, and repurchasing stock. A limitation of free cash flow
is that it does not represent the total increase or decrease in the
cash balance for the period. Management compensates for this
limitation by also relying on the net change in cash and cash
equivalents as presented in the Company's unaudited condensed
consolidated statements of cash flows prepared in accordance with
GAAP which incorporates all cash movements during the period.

Non-GAAP net income is defined as net income excluding certain gains,
losses, expenses, and their related tax effects that we do not
believe are indicative of our ongoing operating results. Previously,
in reporting results for 2006 and 2007, for comparative purposes,
stock-based compensation expense calculated in accordance with
Statement of Financial Accounting Standard No. 123 (revised 2004),
"Share-based Payment," and its related tax effects were excluded in
calculating non-GAAP net income. No such adjustment is made to non-
GAAP net income numbers reported in this press release and its
attachments since net income amounts reported in 2007 and 2008 in
each case include stock-based compensation expense. We consider non-
GAAP net income and non-GAAP net income per share to be profitability
measures which facilitate the forecasting of our operating results
for future periods and allow for the comparison of our results to
historical periods. A limitation of non-GAAP net income and non-GAAP
net income per share is that they do not include all items that
impact our net income and net income per share for the period.
Management compensates for this limitation by also relying on the
comparable GAAP financial measures of net income and net income per
share, both of which include the gains, losses, expenses and related
tax effects that are excluded from non-GAAP net income and non-GAAP
net income per share.
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Yahoo! Inc.
Reconciliations to Unaudited Condensed Consolidated Statements of
Income
(in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2007 2008 2007 2008
----------- ----------- ----------- -----------
Revenues for groups of
similar services :
Marketing services:
Owned and Operated
sites $ 892,290 $1,015,705 $1,711,834 $1,981,381
Affiliate sites 593,742 571,251 1,242,817 1,178,019
---------- ---------- ---------- ----------
Marketing services 1,486,032 1,586,956 2,954,651 3,159,400
Fees 211,888 211,129 415,119 456,287
---------- ---------- ---------- ----------
Total revenues $1,697,920 $1,798,085 $3,369,770 $3,615,687
========== ========== ========== ==========

Revenues by segment:
United States $1,118,514 $1,264,523 $2,219,271 $2,571,933
International 579,406 533,562 1,150,499 1,043,754
---------- ---------- ---------- ----------
Total revenues $1,697,920 $1,798,085 $3,369,770 $3,615,687
========== ========== ========== ==========

Revenues excluding
traffic acquisition
costs ("TAC"):
GAAP revenue $1,697,920 $1,798,085 $3,369,770 $3,615,687
TAC (454,154) (452,116) (942,928) (917,660)
---------- ---------- ---------- ----------
Revenues excluding
TAC $1,243,766 $1,345,969 $2,426,842 $2,698,027
========== ========== ========== ==========

Revenues excluding TAC
by segment:
United States:
GAAP revenue $1,118,514 $1,264,523 $2,219,271 $2,571,933
TAC (182,825) (270,875) (400,650) (548,291)
---------- ---------- ---------- ----------
Revenues excluding
TAC $ 935,689 $ 993,648 $1,818,621 $2,023,642
========== ========== ========== ==========

International:
GAAP revenue $ 579,406 $ 533,562 $1,150,499 $1,043,754
TAC (271,329) (181,241) (542,278) (369,369)
---------- ---------- ---------- ----------
Revenues excluding
TAC $ 308,077 $ 352,321 $ 608,221 $ 674,385
========== ========== ========== ==========

Operating income
before depreciation,
amortization, and
stock-based
compensation expense
(or operating cash
flow):
Income from
operations $ 184,957 $ 100,521 $ 353,984 $ 221,138
Depreciation and
amortization 159,893 203,357 310,895 390,868
Stock-based
compensation
expense 128,779 123,168 268,785 248,173
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense $ 473,629 $ 427,046 $ 933,664 $ 860,179
========== ========== ========== ==========

Operating income
before depreciation,
amortization, and
stock-based
compensation expense
by segment (or
operating cash flow):
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense - United
States $ 362,337 $ 297,869 $ 703,855 $ 613,032
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense -
International 111,292 129,177 229,809 247,147
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense $ 473,629 $ 427,046 $ 933,664 $ 860,179
========== ========== ========== ==========

United States:
Income from
operations $ 116,895 $ 21,711 $ 209,724 $ 70,876
Depreciation and
amortization 129,893 168,458 251,646 321,641
Stock-based
compensation
expense 115,549 107,700 242,485 220,515
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense - United
States $ 362,337 $ 297,869 $ 703,855 $ 613,032
========== ========== ========== ==========

International:
Income from
operations $ 68,062 $ 78,810 $ 144,260 $ 150,262
Depreciation and
amortization 30,000 34,899 59,249 69,227
Stock-based
compensation
expense 13,230 15,468 26,300 27,658
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization, and
stock-based
compensation
expense -
International $ 111,292 $ 129,177 $ 229,809 $ 247,147
========== ========== ========== ==========

Free cash flow:
Cash flow from
operating
activities (3) $ 405,603 $ 425,838 $ 840,303 $1,212,143
Acquisition of
property and
equipment, net (144,676) (175,897) (262,695) (315,690)
Dividends received (15,156) (18,942) (15,156) (18,942)
Excess tax benefits
from stock-based
awards 82,422 - 134,491 -
---------- ---------- ---------- ----------
Free cash flow (3) $ 328,193 $ 230,999 $ 696,943 $ 877,511
========== ========== ========== ==========

(3) The six months ended June 30, 2008 includes a $350 million one-
time payment from AT&T Inc. recorded in the first quarter of 2008.

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Yahoo! Inc.
Reconciliation of GAAP Net Income and GAAP Net Income Per Share to
Non-GAAP Net Income and Non-GAAP Net Income Per Share
(in thousands, except per share amounts)

Three Months Ended
June 30,
------------------------
2007 2008
---------- -----------

GAAP Net income $ 160,567 $ 131,215
========= ==========

(a) Incremental costs 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 - 22,300

(b) To adjust the provision for income taxes
to reflect the tax impact of item (a)
above for the three months ended June
30, 2008 - (8,854)

(c) To adjust the provision for income taxes
to reflect an effective tax rate of
39.7% and 42.5% for the three months
ended June 30, 2007 and 2008,
respectively 2,102 (6,138)

--------- ----------
Non-GAAP Net income $ 162,669 $ 138,523
========= ==========

GAAP Net income per share - diluted $ 0.11 $ 0.09
========= ==========

Non-GAAP Net income per share - diluted $ 0.12 $ 0.10
========= ==========

Shares used in per share calculations -
diluted 1,403,819 1,399,277
========= ==========

Six Months Ended
June 30,
------------------------
2007 2008
---------- -----------

GAAP Net income $ 302,991 $ 673,378
========= ==========

(a) Incremental costs 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 - 36,156

(b) Strategic workforce realignment costs,
net (comprised of $29 million in pre-tax
cash charges, offset by $12 million in
related stock-based compensation expense
reversals) (4) - 16,885

(c) To adjust the provision for income taxes
to reflect the tax impact of items (a)
and (b) above for the six months ended
June 30, 2008 - (20,350)

(d) To adjust the provision for income taxes
to reflect an effective tax rate of
39.7% and 42.5% for the six months ended
June 30, 2007 and 2008, respectively 13,282 (12,053)

(e) Yahoo!'s net 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
(4) - (401,090)

--------- ----------
Non-GAAP Net income $ 316,273 $ 292,926
========= ==========

GAAP Net income per share - diluted (2) $ 0.21 $ 0.46
========= ==========

Non-GAAP Net income per share - diluted $ 0.22 $ 0.21
========= ==========

Shares used in per share calculations -
diluted 1,410,779 1,393,821
========= ==========

(2) The impact of outstanding stock awards of entities in which the
Company holds equity interests that are accounted for using the
equity method reduced the Company's diluted earnings per share by
$0.02 for the six months ended June 30, 2008.

(4) The event occurred in the first quarter of 2008.

*T

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*T
Yahoo! Inc.
Business Outlook

The following business outlook is based on current information
and expectations as of July 22, 2008. Yahoo!'s business outlook
as of today is expected to be available on the Company's
Investor Relations website throughout the current quarter.
Yahoo! does not expect, and undertakes no obligation, to update
the business outlook prior to the release of the Company's next
quarterly earnings announcement, notwithstanding subsequent
developments; however, Yahoo! may update the business outlook or
any portion thereof at any time at its discretion.

Three Months Year
Ending Ending
September 30, December 31,
2008 (6) 2008 (7)
--------------- ---------------

Revenues (in millions): $1,780 - $1,980 $7,350 - $7,850
=============== ===============

Operating income before
depreciation, amortization,
and stock-based compensation
expense (or operating cash
flow) (5) outlook (in
millions):
Income from operations $65 - $85 $525 - $595
Depreciation and
amortization 200 - 220 800 - 840
Stock-based compensation
expense 140 - 160 500 - 540
--------------- ---------------
Operating income before
depreciation, amortization,
and stock-based
compensation expense (or
operating cash flow) $405 - $465 $1,825 - $1,975
=============== ===============

(5) Refer to Note to Unaudited Condensed Consolidated Statements of
Income.
(6) This outlook for the three months ending September 30, 2008
excludes any incremental costs 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.
(7) This outlook for the year ending December 31, 2008 excludes any
impact of the Company's strategic workforce realignment,
including $29 million of such costs incurred through June 30,
2008, and incremental costs 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, including $36 million of such
costs incurred through June 30, 2008.

*T

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*T
Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2007 2008 2007 2008
----------- ----------- ------------ -----------

CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $ 160,567 $ 131,215 $ 302,991 $ 673,378
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation 103,002 125,913 197,511 243,470
Amortization of
intangible
assets 56,891 77,444 113,384 147,398
Stock-based
compensation
expense 128,779 123,168 268,785 260,457
Stock-based
strategic
workforce
realignment
expense
reversals - - - (12,284)
Tax benefits from
stock-based
awards 96,964 31,133 164,655 31,133
Excess tax
benefits from
stock-based
awards (82,422) - (134,491) -
Deferred income
taxes (48,539) 7,891 (90,839) 37,527
Earnings in
equity interests (32,106) (54,927) (61,255) (509,709)
Dividends
received 15,156 18,942 15,156 18,942
Minority
interests in
operations of
consolidated
subsidiaries (500) 1,214 (1,655) 1,139
(Gains)/losses
from sale of
investments,
assets, and
other, net 4,379 (603) 1,522 (3,910)
Changes in assets
and liabilities,
net of effects
of acquisitions:
Accounts
receivable,
net 3,151 (3,544) 43,365 23,636
Prepaid
expenses and
other (25,877) 2,697 (12,519) (1,749)
Accounts
payable 98 4,891 31,078 (39,452)
Accrued
expenses and
other
liabilities 18,883 8,381 (15,839) 54,616
Deferred
revenue 7,177 (47,977) 18,454 287,551
---------- ---------- ----------- ----------
Net cash provided
by operating
activities 405,603 425,838 840,303 1,212,143
---------- ---------- ----------- ----------

CASH FLOWS FROM
INVESTING
ACTIVITIES:
Acquisition of
property and
equipment, net (144,676) (175,897) (262,695) (315,690)
Purchases of
marketable debt
securities (422,752) (856,710) (993,039) (889,467)
Proceeds from sales
and maturities of
marketable debt
securities 616,756 193,736 1,344,752 570,278
Acquisitions, net
of cash acquired (24,432) (13,558) (36,011) (179,847)
Purchase of
intangible assets (13,344) (42,302) (19,914) (51,160)
Other investing
activities, net - 2,796 - (7,639)
---------- ---------- ----------- ----------
Net cash provided
by (used in)
investing
activities 11,552 (891,935) 33,093 (873,525)
---------- ---------- ----------- ----------

CASH FLOWS FROM
FINANCING
ACTIVITIES:
Proceeds from
issuance of common
stock, net 131,803 190,875 203,725 317,445
Repurchases of
common stock (418,175) - (1,013,181) (79,236)
Structured stock
repurchases, net - - (250,000) -
Excess tax benefits
from stock-based
awards 82,422 - 134,491 -
Tax withholdings
related to net
share settlements
of restricted
stock awards and
restricted stock
units (3,708) (4,119) (3,708) (56,612)
Other financing
activities, net - (74) - (74)
---------- ---------- ----------- ----------
Net cash (used in)
provided by
financing
activities (207,658) 186,682 (928,673) 181,523
---------- ---------- ----------- ----------

Effect of exchange
rate changes on cash
and cash equivalents 7,237 (10,420) 11,218 17,299

Net change in cash
and cash equivalents 216,734 (289,835) (44,059) 537,440
Cash and cash
equivalents,
beginning of period 1,309,078 2,341,205 1,569,871 1,513,930
---------- ---------- ----------- ----------

Cash and cash
equivalents, end of
period $1,525,812 $2,051,370 $ 1,525,812 $2,051,370
========== ========== =========== ==========

Supplemental schedule
of acquisition-
related activities:

Cash paid for
acquisitions $ 25,894 $ 13,796 $ 41,767 $ 180,342
Cash acquired in
acquisitions (1,462) (238) (5,756) (495)

---------- ---------- ----------- ----------
$ 24,432 $ 13,558 $ 36,011 $ 179,847
========== ========== =========== ==========

Fair value of
common stock and
vested stock-based
awards issued in
connection with
acquisitions
$ - $ - $ 35,004 $ -
========== ========== =========== ==========

*T

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Yahoo! Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)

December 31, June 30,
2007 2008
------------ -----------

ASSETS
Current assets:
Cash and cash equivalents $ 1,513,930 $ 2,051,370
Short-term marketable debt securities 487,544 1,019,641
Accounts receivable, net 1,055,532 1,041,874
Prepaid expenses and other current assets 180,716 191,445
---------- ----------
Total current assets 3,237,722 4,304,330

Long-term marketable debt securities 361,998 148,313
Property and equipment, net 1,331,632 1,415,801
Goodwill 4,002,030 4,150,966
Intangible assets, net 611,497 615,597
Other long-term assets 503,945 216,042
Investments in equity interests 2,180,917 3,138,598
---------- ----------

Total assets $12,229,741 $13,989,647
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 176,162 $ 136,754
Accrued expenses and other current
liabilities 1,006,188 1,062,918
Deferred revenue 368,470 478,352
Short-term debt 749,628 -
---------- ----------
Total current liabilities 2,300,448 1,678,024

Long-term deferred revenue 95,129 276,099
Other long-term liabilities 28,086 23,004
Deferred and other long-term tax liabilities,
net 260,993 332,428
Minority interests in consolidated
subsidiaries 12,254 13,393
Stockholders' equity 9,532,831 11,666,699
---------- ----------

Total liabilities and stockholders' equity $12,229,741 $13,989,647
========== ==========
*T

Yahoo! Inc.
Diana Wong, 408-349-4391 (Media Relations)
dianaw@yahoo-inc.com
Cathy La Rocca, 408-349-5188 (Investor Relations)
cathy@yahoo-inc.com

Copyright Business Wire 2008