Yahoo! Reports Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091020006622/en

Company Exceeds Revenue Outlook

Maintains Strong Balance Sheet with over $4.5 Billion in Cash and Marketable
Debt Securities
SUNNYVALE, Calif.--(Business Wire)--
Yahoo! Inc. (NASDAQ:YHOO) today reported revenues of $1,575 million for the
quarter ended September 30, 2009, a decrease of 12 percent from the third
quarter of 2008 and slightly above the second quarter of 2009. Excluding the
impact of currency rate fluctuations and divested business lines, revenues for
the third quarter of 2009 would have declined 7 percent compared to the third
quarter of 2008.

Net income per diluted share for the third quarter of 2009 was $0.13, compared
to $0.04 for the third quarter of 2008. Non-GAAP net income per diluted share
for the third quarter of 2009 and 2008 was $0.15.

"With revenue coming in above our guidance and flat sequentially, we had a solid
third quarter that signals our major businesses have stabilized," said Yahoo!
chief executive officer Carol Bartz. "With new products like Yahoo! homepage,
our brand revitalization campaign and expansion in the Middle East through
Maktoob.com, our execution is improving and we're focused on what we do best -
being the center of people's online lives."

Financial Highlights

GAAP Results (in millions, except percentages and per share amounts)
Q3 2008 Q3 2009 Change
Revenues $1,786 $1,575 (12%)
Income from operations $70 $91 30%
Net income $54 $186 244%
Net income per diluted share $0.04 $0.13 225%

Non-GAAP Results (in millions, except percentages and per share amounts)
Q3 2008 Q3 2009 Change
Operating cash flow $410 $384 (6%)
Non-GAAP net income $213 $213 0%
Non-GAAP net income per diluted share $0.15 $0.15 0%

"In the third quarter we saw strength in key areas of our business," said Yahoo!
chief financial officer Tim Morse. "Our efforts to reposition Yahoo! are still
in the early stages, but we`re confident that our investments in the business
will enable us to capitalize on growth opportunities as the economy recovers."

Revenues

* Marketing services revenues declined 12 percent and fees revenues declined 11
percent, compared to the third quarter of 2008.
* Marketing services revenues were flat and fees revenues increased 2 percent,
compared to the second quarter of 2009.
* Marketing services revenues from Owned and Operated sites were $851 million
for the third quarter of 2009, a 15 percent decrease compared to $1,002 million
for the same period of 2008. The decrease was primarily driven by a 19 percent
decline in search advertising revenue and an 8 percent decline in display
advertising revenue.
* Marketing services revenues from Affiliate sites were $526 million for the
third quarter of 2009, a 6 percent decrease compared to $561 million for the
same period of 2008.

Cash Flow and Cash Balance

* Cash flow from operating activities for the third quarter of 2009 was $355
million, a 2 percent increase compared to $347 million for the same period of
2008.
* Free cash flow for the third quarter of 2009 was $258 million, a 20 percent
increase compared to $215 million for the same period of 2008.
* Cash, cash equivalents, and investments in marketable debt securities were
$4,503 million at September 30, 2009 compared to $3,522 million at December 31,
2008, an increase of $981 million.

Business Outlook

GAAP revenue for the fourth quarter of 2009 is expected to be in the range of
$1,600 million to $1,700 million. Non-GAAP operating income before depreciation,
amortization, and stock-based compensation expense for the fourth quarter of
2009 is expected to be in the range of $400 million to $450 million. Income from
operations for the fourth quarter of 2009 is expected to be in the range of $135
million to $155 million.

Conference Call

Yahoo! will host a conference call to discuss third quarter 2009 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: 13691765.

Note Regarding Non-GAAP Financial Measures

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 diluted share. These measures may be different than
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"). Explanations of the
Company`s non-GAAP financial measures and reconciliations of these financial
measures 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," "Reconciliation of GAAP Net Income and GAAP Net Income
Per Diluted Share to Non-GAAP Net Income and Non-GAAP Net Income Per Diluted
Share" and "Business Outlook."

About Yahoo!

Yahoo! attracts hundreds of millions of users every month through its innovative
technology and engaging content and services, making it one of the most
trafficked Internet destinations and a world class online media company.
Yahoo!'s vision is to be the center of people's online lives by delivering
personally relevant, meaningful Internet experiences. Yahoo! is headquartered in
Sunnyvale, California. For more information, visit http://pressroom.yahoo.com or
the company's blog, Yodel Anecdotal (http://yodel.yahoo.com).

"Owned and Operated sites" refers to Yahoo!`s owned and operated online
properties and services.

"Affiliate sites" refers 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 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 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 uncertainty
resulting from our pending agreement with Microsoft Corporation. All information
set forth in this press release and its attachments is as of October 20, 2009.
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, 2008, and Quarterly Report on Form
10-Q for the quarter ended June 30, 2009, which are on file with the SEC and
available on 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 September 30, 2009, which will be filed with the SEC in the fourth
quarter of 2009.

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.

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

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2009 2008 2009

Revenues $ 1,786,426 $ 1,575,399 $ 5,402,113 $ 4,728,338

Cost of revenues 772,277 708,898 2,293,271 2,122,088

Gross profit 1,014,149 866,501 3,108,842 2,606,250

Operating expenses:
Sales and marketing 396,982 286,382 1,226,472 887,880
Product development 323,172 306,696 943,497 904,137
General and administrative 199,593 155,421 559,484 431,070
Amortization of intangibles 24,228 9,814 71,192 28,734
Restructuring charges, net - 16,689 16,885 86,492
Total operating expenses 943,975 775,002 2,817,530 2,338,313

Income from operations 70,174 91,499 291,312 267,937

Other income, net (1) 8,881 105,390 48,129 182,360

Income before income taxes and earnings in equity interests 79,055 196,889 339,441 450,297

Provision for income taxes (50,577 ) (77,727 ) (151,532 ) (182,490 )
Earnings in equity interests (2) 27,762 68,654 537,471 181,744

Net income 56,240 187,816 725,380 449,551

Less: Net income attributable to noncontrolling interests (1,892 ) (1,723 ) (3,031 ) (4,513 )

Net income attributable to Yahoo! Inc. $ 54,348 $ 186,093 $ 722,349 $ 445,038

Net income attributable to Yahoo! Inc. common stockholders per share - diluted $ 0.04 $ 0.13 $ 0.51 $ 0.31
(3)

Shares used in per share calculation - diluted 1,397,522 1,424,854 1,385,570 1,415,220

Stock-based compensation expense was allocated as follows:
Cost of revenues $ 4,283 $ 2,688 $ 11,112 $ 8,930
Sales and marketing 51,060 30,150 172,904 115,698
Product development 55,372 57,964 149,896 163,889
General and administrative 21,884 23,628 59,144 65,159
Restructuring expense reversals - - (12,284 ) (7,600 )

Supplemental Financial Data:
Revenues excluding TAC $ 1,325,312 $ 1,131,428 $ 4,023,339 $ 3,424,021
Operating income before depreciation, amortization, and stock-based $ 410,378 $ 384,468 $ 1,270,557 $ 1,178,890
compensation expense (or operating cash flow)
Free cash flow (4) $ 215,344 $ 257,696 $ 1,092,855 $ 737,725
Non-GAAP net income per share - diluted $ 0.15 $ 0.15 $ 0.49 $ 0.46

(1) The three and nine months ended September 30, 2009 includes Yahoo!'s gain on sale of the Company's direct investment in Alibaba.com of $98 million recorded during the third quarter of 2009.

(2) The nine months ended September 30, 2008 includes Yahoo!'s 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. The three and nine months ended September 30, 2008 also includes Yahoo!'s non-cash loss of $30 million recorded in the third quarter of 2008 related to an other-than-temporary impairment of our direct investment in Alibaba.com, net of tax.

(3) 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 $0.01 for the nine months ended September 30, 2008.

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

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 (also referred
to as operating cash flow), free cash flow, non-GAAP net income, and non-GAAP
net income per diluted share, which are reconciled to GAAP revenue, income from
operations, cash flow from operating activities, net income, and net income per
diluted 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 diluted 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/(loss)
from operations before depreciation, amortization of intangible assets, and
stock-based compensation expense. 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 expense 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 financial 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 and further adjusted to exclude stock-based
compensation expense. In our calculation of non-GAAP net income and non-GAAP net
income per diluted share, we have excluded stock-based compensation expense and
its related tax effects. 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 expense enhances the ability of
management and investors to understand the impact of stock-based compensation
expense on net income and net income per diluted share. We also consider
non-GAAP net income and non-GAAP net income per diluted 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 diluted
share is that they do not include all items that impact our net income and net
income per diluted 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 diluted 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 diluted share.

Yahoo! Inc.
Reconciliations to Unaudited Condensed Consolidated Statements of Income
(in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2009 2008 2009
Revenues for groups of similar services:
Marketing services:
Owned and Operated sites $ 1,002,032 $ 851,382 $ 2,983,360 $ 2,581,445
Affiliate sites 560,690 525,966 1,738,762 1,556,934
Marketing services 1,562,722 1,377,348 4,722,122 4,138,379
Fees 223,704 198,051 679,991 589,959
Total revenues $ 1,786,426 $ 1,575,399 $ 5,402,113 $ 4,728,338

Revenues by segment:
United States $ 1,276,766 $ 1,143,173 $ 3,844,297 $ 3,483,496
International 509,660 432,226 1,557,816 1,244,842
Total revenues $ 1,786,426 $ 1,575,399 $ 5,402,113 $ 4,728,338

Revenues excluding traffic acquisition costs ("TAC"):
GAAP revenue $ 1,786,426 $ 1,575,399 $ 5,402,113 $ 4,728,338
TAC (461,114 ) (443,971 ) (1,378,774 ) (1,304,317 )
Revenues excluding TAC $ 1,325,312 $ 1,131,428 $ 4,023,339 $ 3,424,021

Revenues excluding TAC by segment:
United States:
GAAP revenue $ 1,276,766 $ 1,143,173 $ 3,844,297 $ 3,483,496
TAC (286,397 ) (294,714 ) (834,688 ) (875,393 )
Revenues excluding TAC $ 990,369 $ 848,459 $ 3,009,609 $ 2,608,103

International:
GAAP revenue $ 509,660 $ 432,226 $ 1,557,816 $ 1,244,842
TAC (174,717 ) (149,257 ) (544,086 ) (428,924 )
Revenues excluding TAC $ 334,943 $ 282,969 $ 1,013,730 $ 815,918

Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow):
Income from operations $ 70,174 $ 91,499 $ 291,312 $ 267,937
Depreciation and amortization 207,605 178,539 598,473 564,877
Stock-based compensation expense 132,599 114,430 380,772 346,076
Operating income before depreciation, amortization, and stock-based compensation expense $ 410,378 $ 384,468 $ 1,270,557 $ 1,178,890

Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow) by segment:
Operating income before depreciation, amortization, and stock-based compensation expense - United States $ 288,248 $ 259,029 $ 896,879 $ 819,966
Operating income before depreciation, amortization, and stock-based compensation expense - International 122,130 125,439 373,678 358,924
Operating income before depreciation, amortization, and stock-based compensation expense $ 410,378 $ 384,468 $ 1,270,557 $ 1,178,890

United States:
Income from operations $ 2,549 $ 4,214 $ 69,024 $ 16,488
Depreciation and amortization 171,446 152,489 493,087 495,150
Stock-based compensation expense 114,253 102,326 334,768 308,328
Operating income before depreciation, amortization, and stock-based compensation expense - United States $ 288,248 $ 259,029 $ 896,879 $ 819,966

International:
Income from operations $ 67,625 $ 87,285 $ 222,288 $ 251,449
Depreciation and amortization 36,159 26,050 105,386 69,727
Stock-based compensation expense 18,346 12,104 46,004 37,748
Operating income before depreciation, amortization, and stock-based compensation expense - International $ 122,130 $ 125,439 $ 373,678 $ 358,924

Free cash flow:
Cash flow from operating activities (4) $ 347,091 $ 355,140 $ 1,559,234 $ 959,283
Acquisition of property and equipment, net (167,228 ) (98,903 ) (482,918 ) (264,058 )
Dividends received - (1,483 ) (18,942 ) (27,628 )
Excess tax benefits from stock-based awards 35,481 2,942 35,481 70,128
Free cash flow (4) $ 215,344 $ 257,696 $ 1,092,855 $ 737,725

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

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

Three Months Ended
September 30,
2008 2009

GAAP Net income attributable to Yahoo! Inc. $ 54,348 $ 186,093

(a) Stock-based compensation expense 132,599 114,430

(b) Incremental costs for advisors 36,555 -
related to the strategic
alternatives and related matters
(5)

(c) Restructuring charges, net - 16,689

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

(e) To adjust the provision for (46,122 ) 6,736
income taxes to exclude the tax
impact of items (a) through (d)
above for the three months ended
September 30, 2009 and 2008,
respectively

(f) To adjust the provision for 5,855 (12,900 )
income taxes to reflect an
adjusted effective tax rate
(calculated excluding the full
year impact of items (a) through
(d) above) of 37% for both the
three months ended September 30,
2008 and 2009, respectively

(g) Yahoo!'s non-cash loss related 30,188 -
to the impairment of our direct
investment in Alibaba.com, net
of tax, which is included in
earnings in equity interests

Non-GAAP Net income $ 213,423 $ 212,881

GAAP Net income attributable to Yahoo! Inc. common stockholders per share - $ 0.04 $ 0.13
diluted

Non-GAAP Net income per share - diluted $ 0.15 $ 0.15

Shares used in non-GAAP per share calculation - diluted 1,397,522 1,424,854

Nine Months Ended
September 30,
2008 2009

GAAP Net income attributable to Yahoo! Inc. $ 722,349 $ 445,038

(a) Stock-based compensation expense 393,056 353,676
(6)

(b) Incremental costs for advisors 72,712 -
related to the strategic
alternatives and related matters
(5)

(c) Restructuring charges, net 16,885 86,492

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

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

(f) To adjust the provision for (129,542 ) (47,348 )
income taxes to exclude the tax
impact of items (a) through (e)
above for the nine months ended
September 30, 2008 and 2009,
respectively

(g) To adjust the provision for (19,811 ) (18,406 )
income taxes to reflect an
adjusted effective tax rate
(calculated excluding the full
year impact of items (a) through
(e) above) of 37% and 34% for
the nine months ended September
30, 2008 and 2009, respectively

(h) Yahoo!'s non-cash loss related 30,188 -
to the impairment of our direct
investment in Alibaba.com, net
of tax, which is included in
earnings in equity interests

(i) Yahoo!'s non-cash gain related (401,090 ) -
to Alibaba Group's initial
public offering of Alibaba.com,
net of tax, which is included in
earnings in equity interests

Non-GAAP Net income $ 684,747 $ 654,601

GAAP Net income attributable to Yahoo! Inc. common stockholders per share - $ 0.51 $ 0.31
diluted (3)

Non-GAAP Net income per share - diluted $ 0.49 $ 0.46

Shares used in non-GAAP per share calculation - diluted 1,385,570 1,415,220

(3) 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 $0.01 for the nine months ended September 30, 2008.

(5) 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. These costs were immaterial for the three and nine months ended September 30, 2009.

(6) The stock-based compensation restructuring expense reversals are included in restructuring charges net, item (c), for the nine months ended September 30, 2008 and 2009.

Yahoo! Inc.
Business Outlook

The following business outlook is based on current information and expectations as of October 20, 2009. 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
Ending
December 31,
2009 (7)

Revenues (in millions): $ 1,600 - 1,700

Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow) (8) outlook (in millions):
Income from operations $ 135 - 155
Depreciation and amortization 170 - 190
Stock-based compensation expense 95 - 105
Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow) $ 400 - 450

(7) This business outlook for the three months ending December 31, 2009 excludes pre-closing transaction costs related to our search agreement with Microsoft Corporation and any restructuring charges arising from our ongoing cost initiatives.
(8) Refer to Note to Unaudited Condensed Consolidated Statements of Income.

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

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2009 2008 2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56,240 $ 187,816 $ 725,380 $ 449,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 128,997 138,541 372,467 412,043
Amortization of intangible assets 78,608 39,208 226,006 145,019
Stock-based compensation expense, net 132,599 114,430 380,772 346,076
Non-cash restructuring charges - 790 - 7,257
Tax benefits from stock-based awards 21,066 (30,230 ) 52,199 (13,694 )
Excess tax benefits from stock-based awards (35,481 ) (2,942 ) (35,481 ) (70,128 )
Deferred income taxes 4,973 18,939 42,500 43,680
Earnings in equity interests (27,762 ) (68,654 ) (537,471 ) (181,744 )
Dividends received from equity investee - 1,483 18,942 27,628
(Gain)/loss from sale of investments, assets, and other, net 6,275 (94,727 ) 11,640 (166,970 )
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 22,786 9,180 46,422 172,442
Prepaid expenses and other (35,934 ) (3,894 ) (41,581 ) 724
Accounts payable 3,856 16,585 (35,596 ) (53,036 )
Accrued expenses and other liabilities 46,546 56,841 101,162 (82,537 )
Deferred revenue (55,678 ) (28,226 ) 231,873 (77,028 )
Net cash provided by operating activities 347,091 355,140 1,559,234 959,283

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net (167,228 ) (98,903 ) (482,918 ) (264,058 )
Purchases of marketable debt securities (392,246 ) (1,357,160 ) (1,281,713 ) (3,530,766 )
Proceeds from sales of marketable debt securities 48,829 27,005 248,130 83,164
Proceeds from maturities of marketable debt securities 356,913 666,183 727,890 2,106,020
Proceeds from sales of marketable equity securities - 145,207 - 265,194
Acquisitions, net of cash acquired (29,349 ) (17,773 ) (208,958 ) (17,773 )
Purchase of intangible assets (15,824 ) (7,063 ) (66,984 ) (28,814 )
Other investing activities, net (112 ) 3,738 (7,989 ) 3,652
Net cash used in investing activities (199,017 ) (638,766 ) (1,072,542 ) (1,383,381 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 13,958 3,433 331,403 74,485
Repurchases of common stock - (90,778 ) (79,236 ) (90,778 )
Excess tax benefits from stock-based awards 35,481 2,942 35,481 70,128
Tax withholdings related to net share settlements of restricted stock awards
and restricted stock units (8,456 ) (19,371 ) (65,068 ) (45,989 )
Other financing activities, net - - (74 ) -
Net cash provided by financing activities 40,983 (103,774 ) 222,506 7,846

Effect of exchange rate changes on cash and cash equivalents (96,677 ) 37,404 (79,378 ) 58,046

Net change in cash and cash equivalents 92,380 (349,996 ) 629,820 (358,206 )
Cash and cash equivalents, beginning of period 2,051,370 2,284,086 1,513,930 2,292,296

Cash and cash equivalents, end of period $ 2,143,750 $ 1,934,090 $ 2,143,750 $ 1,934,090

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

December 31, September 30,
2008 2009

ASSETS
Current assets:
Cash and cash equivalents $ 2,292,296 $ 1,934,090
Short-term marketable debt securities 1,159,691 1,967,508
Accounts receivable, net 1,060,450 907,029
Prepaid expenses and other current assets 233,061 268,459
Total current assets 4,745,498 5,077,086

Long-term marketable debt securities 69,986 601,469
Property and equipment, net 1,536,181 1,394,558
Goodwill 3,440,889 3,500,920
Intangible assets, net 485,860 365,405
Other long-term assets 233,989 127,476
Investments in equity interests 3,177,445 3,353,040

Total assets $ 13,689,848 $ 14,419,954

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 151,897 $ 102,122
Accrued expenses and other current liabilities 1,139,894 990,680
Deferred revenue 413,224 413,412
Total current liabilities 1,705,015 1,506,214

Long-term deferred revenue 218,438 144,471
Capital lease and other long-term liabilities 77,062 83,612
Deferred and other long-term tax liabilities, net 420,372 503,448
Total liabilities 2,420,887 2,237,745

Total Yahoo! Inc. stockholders' equity 11,250,942 12,159,677
Noncontrolling interests 18,019 22,532
Total equity 11,268,961 12,182,209

Total liabilities and equity $ 13,689,848 $ 14,419,954

Yahoo! Inc.
Dana Lengkeek, 408-349-1130 (Media Relations)
danal@yahoo-inc.com
Cathy La Rocca, 408-349-5188 (Investor Relations)
cathy@yahoo-inc.com

Copyright Business Wire 2009