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Article by DailyStocks_admin    (12-22-08 06:59 AM)

Filed with the SEC from Dec 04 to Dec 10:

Yahoo! (YHOO)
Billionaire investor Carl Icahn reported ownership of 75,605,124 shares (5.45%), after buying 6,778,804 between Nov. 24 and Nov. 26. at $9.80 to $10 a share.
Icahn, who is a director of Yahoo!, believes that the Internet portal's shares are undervalued. He has had discussions with Microsoft (MSFT) regarding a possible merger. But there currently are no understandings between Microsoft and Yahoo!

BUSINESS OVERVIEW

Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!,” the “Company,” “our,” “we,” or “us”), 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. We seek to provide Internet services that are essential and relevant to these communities of users, advertisers, publishers, and developers. Publishers, such as eBay Inc. (“eBay”), WebMD, Cars.com, Forbes.com, and the Newspaper Consortium (our strategic partnership with a consortium of over 20 leading United States (“U.S.”) newspaper publishing companies), are a subset of our Affiliates and are primarily Websites and search engines that attract users by providing content of interest, presented on Web pages that have space for advertisements.

To users, we provide owned and operated online properties and services (“Yahoo! Properties,” “Offerings,” or “Owned and Operated sites”). We also extend our marketing platform and access to Internet users beyond Yahoo! Properties through our distribution network of third-party entities (referred to as “Affiliates”) who have integrated our advertising offerings into their Websites (referred to as “Affiliate sites”) or their other offerings.

Our offerings to users currently fall into five categories — Front Doors; Search; Communications and Communities; Media; and Connected Life. The majority of our offerings are available in more than 20 languages.

We focus on expanding our communities of users and deepening their engagement on Yahoo! Properties to enhance the value of our users to advertisers and publishers and thereby increase the spending of advertisers through our Owned and Operated and Affiliate sites. We believe that we can expand our communities of users by offering compelling Internet services and effectively integrating search, community, personalization, and content to create a powerful user experience. We leverage our user relationships and the social community the users create to enhance our online advertising potential, as well as our fee-based services.

To advertisers and publishers, we provide a range of marketing solutions and tools that enable businesses to reach users who visit Yahoo! Properties and our Affiliate sites.

To developers, we provide an innovative and easily accessible array of Web Services and Application Programming Interfaces (“APIs”), technical resources, tools, and channels to market.

We generate revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. Additionally, although many of our user services are free, we do charge for a range of premium services that we offer. We classify these revenues as either marketing services or fees revenues.

Yahoo! was developed and first made available in 1994 by our founders, David Filo and Jerry Yang, while they were graduate students at Stanford University. We were incorporated in 1995 and are a Delaware corporation. We are headquartered in Sunnyvale, California, and have offices in more than 20 countries, provinces, or territories in which Yahoo! conducts business by offering products or services to local audiences.

Yahoo! has embarked on a transformation to meet the needs of our users, advertisers, publishers, and developers. From our original goal as a guide to the Web, our goal today is to build the most open, robust, and vibrant online ad network on the Web to reach the largest and most engaged community of online users. We are currently focusing on three primary strategic multi-year objectives that will be the core of our strategy and operations for the next few years: become the starting point for users on the Internet; establish Yahoo! as the “must buy” for advertisers; and deliver industry-leading platforms that attract developers.

Management and Board of Directors Changes

During 2007, we made key changes to our executive leadership. Our Board of Directors (the “Board”) appointed Jerry Yang, Yahoo! co-founder and long-time board member, to succeed Terry Semel as Chief Executive Officer. The Board also named Susan Decker as President and Blake Jorgensen, co-founder of Thomas Weisel Partners, as Chief Financial Officer. Terry Semel served as non-executive Chairman of the Board until January 31, 2008. Roy Bostock was elected to serve as non-executive Chairman of our Board on January 31, 2008. Aristotle Balogh joined the Company as our new Chief Technology Officer on February 6, 2008 to lead Yahoo!’s global engineering organization and manage all technical operations.

2007 HIGHLIGHTS

The following are some of our key accomplishments during 2007 directed at furthering our objective of providing essential and relevant Internet services to users, advertisers, publishers, and developers:

Users — Engagement Services and Offerings


• Acquired Zimbra, Inc., a provider of e-mail and collaboration software, expanding Yahoo!’s mail offerings and presence in universities, small and medium-sized businesses, and service provider partners.

• Acquired Rivals.com, a leading online destination for college and high school sports and recruiting information, expanding community offerings and open publishing capabilities on Yahoo! Sports.

• Launched the next generation of Yahoo! Mail, with unlimited storage and the ability to send instant messages (“IM”) and text messages to mobile phones in the United States (“U.S.”), Canada, India, and the Philippines from within the e-mail experience.

• Launched Yahoo! Search Assist, among the most advanced assistance technology on the Web that integrates audio, video, and photos directly into search results and provides real-time query suggestions and related topics and concepts.

• Launched Yahoo! Go for Mobile 2.0, an innovative application that significantly enhanced the mobile Internet experience for consumers through a unique product design, the ability to personalize with content from the entire Internet, and an all new mobile search.

• Introduced My Yahoo!, our free personalized start page, which features more robust content and a larger variety of personalization options, including color, layout, and drag and drop functionality. Powered by a new front and back end, the new My Yahoo! reflects months of user feedback and most requested features. My Yahoo! leads the personalized Web pages in its category in both unique visitors and time spent.

Advertisers — Marketing Solutions and Tools


• Acquired Right Media Inc. (“Right Media”), an online advertising exchange that is an integral piece of the Company’s strategy to build the industry’s leading advertising and publishing network. The acquisition is a key step in Yahoo!’s efforts to change how publishers connect to their audiences in one open advertising community.

• Acquired BlueLithium Inc., an online global ad network, complementing Yahoo!’s leading advertising tools and capabilities through its offerings of direct response products and extending Yahoo!’s ability to deliver powerful data analytics, advanced targeting, and innovative media buying strategies to advertisers.

• Launched the second phase of Panama, our search marketing system, by introducing its new ranking model to all of our major domestic and international markets. The new ranking model allows ads to be ranked by quality and keyword bid price.

• Introduced Yahoo! Smart Ads in the travel and auto categories as an innovative advertising platform providing marketers and advertisers with customization, relevance, and targeting capabilities with display ads.

• Combined Yahoo!’s search and display advertising sales teams in the U.S. to better serve all our advertisers’ marketing objectives from brand awareness to direct response.

• Launched a syndicated advertising partnership with Vodafone as its exclusive partner in the United Kingdom. Through the partnership, Yahoo! provides mobile display advertisements in Vodafone’s Live! Portal, mobile TV application, and mobile games.

Publishers — Alliances and Partnerships


• Entered into a multi-year search and advertising distribution agreement with WebMD and significant display advertising agreements with Cars.com, Forbes.com, and Ziff-Davis Media, in addition to entering into an agreement to provide display and video advertising services on Comcast.net to build Yahoo!’s network of premium publishers.

• Entered into a multi-year partnership with Viacom Inc. to provide search tools and contextual advertising for Viacom’s broadband sites including MTV, VH1, Comedy Central, and Nickelodeon television networks.

• Expanded the Newspaper Consortium to include over 20 newspaper publishing companies and more than 550 daily and weekly newspapers at the end of 2007. The partnership encompasses co-branding of the Yahoo! HotJobs careers platform with the newspapers’ career listings businesses; the enhancement of newspaper online advertising revenues using Yahoo!’s display advertising technology; leveraging the strengths of the newspapers’ local sales forces and Yahoo!’s national online sales force; integration of Yahoo!’s paid search technology across newspaper sites; and distribution of high-quality newspaper content across the Yahoo! network.

• Expanded our strategic partnership with eBay that focuses on multiple areas of cooperation including algorithmic search, payment processing, and display advertising. Through this agreement, Yahoo! serves as the exclusive third-party seller of both paid search and display advertising for eBay in the U.S.

• Expanded our global mobile services with nine new partnerships across Asia Pacific and entered into new and expanded agreements to distribute our mobile offerings including Yahoo! oneSearch, Yahoo! Go 2.0, and Yahoo! Mail with more than 20 leading mobile operators and key handset original equipment manufacturers (“OEMs”) including Research in Motion, Nokia, Motorola, Apple, America Movil, Telefonica, and Globe.

We expect to continue to acquire or make investments in companies, products, services, and technologies in the future. See Note 3 — “Acquisitions” of the notes to the consolidated financial statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our acquisitions.

Our accomplishments are possible because of our dedicated, highly skilled, and talented employees. We believe that Yahoo! attracts among the most highly qualified and accomplished scientists, engineers, design specialists, marketers, and professionals. We seek to recruit and retain people who thrive on the opportunity Yahoo! provides to engage in technically challenging and innovative products that benefit our users across a range of areas.

WHAT WE OFFER OUR USERS

Our offerings to users on Yahoo! Properties currently fall into five categories: Front Doors, Search, Communications and Communities, Media, and Connected Life.

Front Doors

Our Front Doors offerings provide a navigation hub, a personalized start page, known as My Yahoo!, and a Web-browser add-on to users. Each of these is provided free of charge and acts as a starting point into Yahoo! Properties and the Web. Our Front Doors offerings generate revenues primarily from display advertising.

Our Front Doors offerings include Yahoo! Front Page, My Yahoo!, and Yahoo! Toolbar:

Yahoo! Front Page (www.yahoo.com) serves as a free navigation hub and starting point into the Yahoo! Properties. Among many available features on the page are the ability to perform a Web search, read the latest news, link to Yahoo! Websites, and view promotions from Yahoo!’s advertisers and publishers.

My Yahoo! is our free, personalized start page that allows registered members to create a personal profile and organizes and delivers information of personal interest to our users via a user-customized interface. Through personalization, the My Yahoo! platform allows us to deliver targeted advertising and transaction-based services on behalf of our advertisers and publishers.

Yahoo! Toolbar is a free Web browser add-on that enables users to conveniently access Yahoo! Properties from anywhere on the Web and provides free security services to enhance the user experience. In 2007, we released updated versions of the Internet Explorer toolbar and the Firefox toolbar, with improved features and the latest bookmarks functionality.

Search

Our Search offerings are often the starting point for our users navigating the Internet and searching for information, whether from their computer or a mobile device. In Search, our goal is to provide the most valued and trusted search experience for users, advertisers, and publishers. In the emerging areas of social search and media, our goal is to create the most desirable and relevant communities, large and small, to enable people to connect and exchange knowledge, insights, and experiences with each other. Social search and media enable users to leverage their network of friends, interests, and other trusted information sources to improve everyday Web browsing and searching experiences. Yahoo! generates revenues primarily from users clicking on sponsored search links, paid inclusion, and directory.

Our Search offerings include the following:


• Search — Yahoo! Search

• Local — Yahoo! Yellow Pages; Yahoo! Maps; and Yahoo! Local

• Shopping — Yahoo! Shopping and Kelkoo, S.A.

• Travel — Yahoo! Travel

• Personals — Yahoo! Personals

• Answers — Yahoo! Answers

Search

Yahoo! Search , our proprietary algorithmic search technology, provides users with a free comprehensive and highly relevant online search experience with search results sorted based on relevance to the user’s search query. Yahoo! Search discovers and processes content (including Web pages, documents, images, videos, and audio clips) on the Internet to give users a comprehensive, up-to-date, and relevant search experience. Pages on the Internet are ranked according to their relevance to a particular query by analyzing document features, including text, title and description accuracy, source, associated links, and other unique document characteristics. For example, if the user enters the phrase “hybrid car” into the Yahoo! Search box, the Yahoo! search technology will search its indexed Web pages and return links to what it identifies as the most relevant Websites regarding “hybrid car” on the Internet. A single search gives immediate results from a database that is updated frequently to capture newly created and changing pages, including late breaking news and timely events. The search might also return results from Yahoo! Answers, Yahoo! Video, or Flickr.

In 2007, Yahoo! Search launched Yahoo! Search Assist, its assistance technology that helps users refine searches to get straight to the answers they are looking for by offering suggested search terms. The size of the Yahoo! Search index, a measure of how much content from across the Web is searchable, continued to grow significantly making it among the largest search engines available, delivering a comprehensive, up-to-date, and relevant search experience.

To further extend our reach in social search products, we now provide users with easy ways to remember, search, organize, and share their favorite Websites and Web pages. Through the popular social bookmarking Website del.icio.us, users are able to access, manage, and share their favorite pages on the Internet from any computer.

Local

Our Local offerings include three individual search properties whose primary services are available free to users: Yahoo! Yellow Pages, Yahoo! Maps, and Yahoo! Local.

Yahoo! Yellow Pages enables users to quickly connect to local and national merchants in the U.S. through business address and phone listings. Yahoo! Yellow Pages generates revenues from our advertisers and publishers by serving sponsored business listings at the top of the search results page.

Yahoo! Maps provides interactive maps with zooming, real time traffic conditions, and accident reports, together with integrated driving directions. In 2007, we enhanced our offering with a new display format, customizable printed directions, and improved driving directions. We also released Yahoo! Maps in several additional countries, including Canada, France, India, Germany, and the United Kingdom, as well as a Spanish language version in the U.S. Yahoo! Maps generates revenues by showing display advertising on the site, as well as running “Business Locator” advertisements that automatically search for a particular business in the map view.

Yahoo! Local is a stand-alone offering, using content and technology from other properties such as Yahoo! Yellow Pages and Yahoo! Maps to help users find local business listings, recommendations, events, and user reviews. In 2007, we introduced a new layout focused on building our community of users and encouraging contribution of user-generated content, including reviews, helpfulness ratings, comments, and photos. The “City Guides” page was developed to surface popular listings, events, and information in the user’s local area. Yahoo! Local generates revenues from our advertisers and publishers by serving “Featured Listings” placements on our search results page, as well as offering “Enhanced Listings” with enhanced content on a business listings page.

Shopping

Yahoo! Shopping provides comprehensive search functionality and comparison-shopping tools for users to find, research, compare, and buy products online. This property also provides a full suite of merchant ratings, product review, and research tools compiled by user-generated and third-party sources. Kelkoo provides product search functionality and an online comparison shopping service with operations in 10 European countries and also powers the Yahoo! Shopping services in Australia and Taiwan. Yahoo! Shopping generates revenues from merchants when users click-through to their Websites and/or through a revenue share of the final selling value when users purchase products. A “click-through” occurs when a user clicks on an advertisers’ listing.

Travel

Yahoo! Travel is a comprehensive online travel research and booking site for users to find, compare, and conveniently purchase travel products such as airline tickets, hotel rooms, car rentals, vacation packages, and cruises. Yahoo! Travel also includes Yahoo! Trip Planner, a social media product that allows users to document their personal travel experiences with others. Yahoo! Travel generates revenues from our travel partners when users click-through to their Websites and/or through a revenue share of the booking value when users make travel arrangements on Yahoo! Travel.

Personals

Yahoo! Personals is a leading online dating service. It allows users, free of charge, to post a profile and search for others with whom to communicate within the Yahoo! Personals community. Users can also send short one-time messages to others to communicate their interest without charge. With a paid subscription, Yahoo! Personals’ users can e-mail and use Yahoo! Messenger to communicate with others in the Yahoo! Personals community. The standard Yahoo! Personals subscription service serves a large population of people with a user experience that is tailored to meet the communication needs of today’s online daters. In 2007, Yahoo! Personals was redesigned to deliver a fresh new look and provide easier access to mail and search results. Yahoo! Personals generates revenues primarily from premium user subscription fees.

Answers

Yahoo! Answers is an online community where anyone can ask and answer questions on any topic. It is a living repository for relevant information made up of real life experiences, advice, and opinions. Yahoo! Answers connects people to the information they are seeking with those who know it. Yahoo! Answers provides a global platform where users around the world share their experience and insight. Yahoo! Answers generates revenues primarily from display advertisements on the site.

Communications and Communities

Communications and Communities offerings provide a wide range of communication services to users and small businesses across a variety of devices and through our Yahoo! Broadband alliances. We offer some services free of charge to our users and also provide some of our services on a fee or subscription basis.

Our Communications and Communities offerings include the following:


• Communications — Yahoo! Mail; Zimbra Mail; and Yahoo! Messenger

• Communities — Yahoo! Groups; Yahoo! 360 o ; and Flickr

Communications

Yahoo! Mail is a free service available in over 20 languages that provides users with a full-featured e-mail functionality and experience including industry-leading spam and virus protection, unlimited free storage, significant attachment size capacity, advanced search capabilities, and robust address book functionality. In addition to our basic e-mail service, for a subscription fee, we offer Yahoo! Mail Plus, a premium mail service providing a number of premium features, including access via e-mail applications such as Outlook, enhanced spam protection, additional attachment size capacity, and a display ad-free interface. In 2007, we released for general availability a new version of Yahoo! Mail that provides a faster experience with enhanced functionality, such as drag and drop e-mail organization and message previews. Yahoo! Mail generates revenues primarily from display advertising and premium user fees.

Zimbra Mail is a messaging and collaboration application for enterprise, service provider, education, and government environments. The powerful Web application integrates e-mail, contacts, shared calendar, and online documents into a single interface. In addition, the service offers seamless compatibility with other clients like Microsoft Outlook, Apple desktop suite, and Mozilla Thunderbird, and a mobility solution that works across a range of devices from the Blackberry to the iPhone. Zimbra Mail generates revenues by selling technology license fees for the application.

Yahoo! Messenger instant messaging service provides a free, interactive, and personalized way for people to connect and share experiences with their friends, family, and colleagues on a real-time basis. Yahoo! Messenger’s communications suite integrates leading Yahoo! services including Games, Music, Flickr, and Search. Yahoo! Messenger allows users to stay connected to each other through text IM, e-mail, voice, video, or mobile messaging. Yahoo! Messenger generates revenues primarily from display advertising.

Communities

Yahoo! Groups is a free service that enables people with shared interests to meet and stay connected and informed. The service provides members with shared access to information such as message archives, photo albums, event calendars, and polls. Yahoo! Groups generates revenues primarily from display advertising.

Yahoo! 360 o is a free service providing users with an integrated experience, seamlessly bringing together popular communications, content, and community services such as Yahoo! Messenger, Flickr, Yahoo! Music, and Yahoo! Groups with sharing tools for recommending favorite movies, restaurants, music, and more. Yahoo! 360 o generates revenues primarily from display advertising.

Flickr is an online photo management and sharing application that makes it easy for people to upload, store, organize, and share their photos with the people that matter most to them. In addition to the basic service, Flickr offers a premium service with unlimited storage, uploads, and an ad-free browsing and sharing interface. Flickr generates revenues primarily from premium account fees and display advertising.

Media

Our Media offerings deliver content that is available without charge to our users, and also provide content on a fee or subscription basis.

Our Media offerings include the following:


• Information — Yahoo! News; Yahoo! Finance; Yahoo! Sports; and Rivals.com

• Entertainment — Yahoo! Music; Yahoo! Movies and Yahoo! TV; Yahoo! Games; Yahoo! Video; and omg!

• Lifestyles — Yahoo! Autos; Yahoo! Real Estate; Yahoo! Food; Yahoo! Tech; Yahoo! Kids; and Yahoo! Health

Information

Yahoo! News aggregates news stories from news providers such as the Associated Press, Reuters, Agence France-Presse (AFP), ABC News, CBS, CNN, and Fox News. Through Yahoo! News, users receive free up-to-the-minute news coverage with video, text, photos, and audio from multiple sources and points of view. Yahoo! News provides aggregated content for over 20 topical sections, including World News, US News, Elections, Health, Travel, and Business. In 2007, we launched People of the Web featuring original news coverage on the Internet about interesting people. Local news coverage was further expanded in 2007 bringing local news headlines from Yahoo!’s Newspaper Consortium partners to Yahoo!’s local news section. In 2007, Yahoo! acquired BuzzTracker, a news site that automatically generates news pages for a multitude of topics, both broad and narrow. The acquisition increases Yahoo!’s technological capabilities used to track a wide number of individual news topics.

Yahoo! Finance provides a comprehensive set of financial resources that range from investment and company information to personal financial management tools. Free tools are provided to help users manage their personal finances as well as gather data, news, and information for making informed investment decisions. Company conference call transcripts, analyst research reports, and real-time streaming quotes are available through Yahoo! Finance for a fee. Financial news and video coverage were further expanded in 2007 through relationships with a number of providers, including Fox Business News, CNBC, and Portfolio.

Yahoo! Sports provides a fast, live, and interactive online experience for sports fans across all major sports and all levels, from professional to high school and college. Yahoo! Sports offers original free and fee-based fantasy games, up-to-the-minute news, real-time statistics and scoring, broadcast programming, integrated shopping, and an online sports community. Yahoo! Sports has content and marketing relationships with professional sports organizations and media outlets including the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Players Inc., Major League Baseball Players’ Association, Stats, Inc., and the Associated Press. Yahoo! Sports also produces its own original content, including sports stories from its team of exclusive writers and editors and video programming, which includes its SportStream and Fantasy Football Live shows, both of which are offered free to the viewer.

Rivals.com is a leading online provider of college and high school sports and recruiting information, primarily focused on football and basketball, that we acquired in 2007. Rivals.com maintains a network of more than 150 individual Websites.

Entertainment

Yahoo! Music offers a wide selection of free services, including music videos, streaming audio, Internet radio, exclusive artist features, and music news. Yahoo! Music also offers fee-based music services including premium Internet radio and music subscription services. Nissan Live Sets offers exclusive artist features, incorporating original artist performances with social networking elements, allowing users to submit photos, blog, and interact with the artists. In 2007, Yahoo! Music launched a free lyrics site on the Web allowing users to view selected lyrics, as well as new features such as local upcoming concert listings, increased personalization with audio and video playlists, exclusive content, and blogs from industry leaders.

Yahoo! Movies and Yahoo! TV offers free entertainment services which include exclusive video content such as trailers, clips and never-before-seen extras, entertainment news, photo galleries, and reviews. Yahoo! Movies features paid-for film promotions for major movie studios, including Disney, Fox, Sony, Universal, and Warner Brothers. Yahoo! Movies also provides coverage of the Oscars and other Red Carpet events. Yahoo! TV partners with key television networks, producers, and content creators to provide users a deeper, more engaging experience with their favorite programs, including guides to Fall TV, the Emmy Awards, and other high-profile television events.

Yahoo! Games offers free classic board, card, arcade, and word games along with downloadable games, Web games, game strategy guides, shopping guides, gaming news, tournaments, and leagues. The site also reviews the latest and most popular computer and console videogames, and features video content such as newly-released videogame trailers and exclusive video game walkthroughs. Our integration of games with Yahoo! Messenger allows users to see what games their friends are playing and join the game through Yahoo! Messenger. Yahoo! Games also offers a variety of fee-based premium game downloads and services.

Yahoo! Video is an online video destination that enables users to find, view, and share a broad array of professional and user-generated videos. The site also enables individual users and partners to upload video content directly to Yahoo! Video, where it can then be accessed by other users. The site is free and users can upload an unlimited amount of video content.

omg! is Yahoo!’s celebrity news site launched in June 2007. The site contains celebrity news and gossip, photo galleries and features, as well as interactive user polls. Content is provided by major news sources including Associated Press and Reuters as well as entertainment partners, X17, and Access Hollywood.

Lifestyles

Yahoo! Autos enables users to research, price, and compare cars online. Information and services available free of charge to our users include vehicle pricing, specification and option information, used car listings, expert reviews, user reviews and ratings, car comparisons, financing calculators, and new car quotes from dealers. We earn fees on a per lead basis for transactions completed between our users and automotive manufacturers and dealers. In 2007, we re-launched our used car listings section with a new partner, Cars.com.

Yahoo! Real Estate provides information and services for users who are looking to buy, sell, or rent a home. Users are able to search across multiple property types such as existing homes, new homes, apartment rentals, foreclosures, and classifieds. Yahoo! Real Estate offers decision-support tools such as interactive maps, home valuation tools, financial calculators, and content about local neighborhoods, schools, home loans, foreclosures, and finding a real estate agent. Yahoo! Real Estate generates revenues from partners who pay to list their properties on our site.

Yahoo! Food is a one-stop online food destination. The site contains free recipes, chef and restaurant information, food video segments, and select blogs dedicated to food topics. Content is provided by recognized authorities and personalities in the food space. Yahoo! Food generates revenues primarily from display advertising.

Yahoo! Tech offers users a variety of free information on consumer electronics, including product comparisons and consumer reviews. Yahoo! Tech was developed with the simple philosophy of making technology easy for all Yahoo! users, especially those without a deep understanding of technology and gadgets. Yahoo! Tech generates revenues primarily from display advertising.

Yahoo! Kids is a free entertainment and educational Internet guide designed for children ages six to twelve. Yahoo! Kids offerings include games, reference materials, and movie information. Additionally, Yahoo! Kids includes a “study zone” section with resources for classroom and after class exploration. Yahoo! Kids generates revenues primarily from display advertising.

Yahoo! Health is a comprehensive healthcare destination. Yahoo! Health provides free information on healthy living, medical conditions, clinical trials, diet, and fitness. The site contains online community tools, complete with groups focused on popular health topics, as well as blogs provided by recognized experts. Yahoo! Health generates revenues primarily from display advertising.

Connected Life

Our Connected Life offerings include co-branded broadband, Yahoo! Mobile, Yahoo! Digital Home, and Yahoo! Desktop. Connected Life offers services designed to provide consumers with easy access to the open Internet and their Yahoo! content and communities across a variety of Internet-enabled devices including mobile, televisions, and personal computers (“PCs”).

Yahoo! Mobile’s goal is to connect people to Internet content via mobile devices and become the premier mobile Internet starting point for users, advertisers, and publishers. Throughout 2007, Yahoo! Mobile focused on creating experiences specifically built for the mobile environment by reinventing mobile search, creating open mobile platforms, and driving mobile advertising opportunities. In early 2007, Yahoo! launched oneSearch, a reinvention of mobile search that provides instant answers and relevant information. oneSearch is currently available in 20 countries. Over the course of the year, Yahoo! Mobile forged over 20 strategic partnerships for oneSearch with leading mobile operators around the world including Telefonica, America Movil, 3 Group, and Globe Telecom Inc. In 2007, we launched Yahoo! Go 2.0 in 17 countries across Europe, Asia, and the Americas. We generate fees revenues by distributing Yahoo! services through mobile operators and advertising revenues by selling mobile search and display advertising to Yahoo! advertising customers.

We grew our mobile advertising leadership with the launch of global display advertising in 20 countries and the expansion of search advertising in the U.S., United Kingdom, and Japan. We launched syndicated advertising on Vodafone as its exclusive partner in the United Kingdom. We have become the partner of choice to more than 30 clients, including Coca-Cola, Adidas, Hewlett Packard, Ford, Sony, Procter & Gamble, Hilton, and Paramount.

Yahoo! Digital Home is focused on creating the best consumer experiences around open content for television and other devices. In 2007, Yahoo! executed a multi-year development deal with Intel to develop an application for a new Intel digital home set top hardware device and to build consumer services to run on the new application. Other Yahoo! Digital Home initiatives include the launch of Sony’s Bravia Internet Video Link application in the U.S., Canada, and Mexico, and the availability of Yahoo! Sports for TV Major League Baseball to deliver contextual Internet content to enhance the television viewing experience. Yahoo! Digital Home generates revenues primarily from search and display advertising.

Yahoo! Desktop services make it easy for users to keep up-to-date on and to interact with their Yahoo! services and other Internet-based information on their PC desktop without using an Internet browser. Yahoo! Widgets is a platform that allows consumers to take advantage of more than 4,400 lightweight applications that may reside on a user’s PC desktop to perform a wide variety of tasks and provide access to an array of information. In 2007, we released Yahoo! Widgets 4.5, making it easier for consumers to discover Widgets and for developers to create them. Yahoo! Desktop generates revenues primarily from search and display advertising.

We also generate revenues from some of our marketing services and product offerings as discussed below.

HOW WE GENERATE REVENUES

As part of our strategy to provide the most efficient and effective marketing services for advertisers and publishers, we are committed to providing a comprehensive set of Internet marketing solutions. There is an ongoing growth in the advertising market and an increasing shift in advertisers’ and publishers’ use of online media, as communities shift toward the Internet from traditional media. We are committed to capitalizing on this shift and helping advertisers and publishers create and execute Internet marketing solutions that both enable users to interact with our advertisers’ and publishers’ brands as well as provide valuable insights to our advertisers and publishers about their customer base. We utilize our continuing research of the marketplace and our understanding of our users and their interests to offer a suite of targeted marketing services for our advertisers and publishers to meet the full range of their needs from brand building to consumer awareness, direct marketing, lead generation, commerce services, and ad inventory monetization. Our offerings enable marketers to display their advertisements in different formats and in different locations on Yahoo! Properties and on our Affiliate sites and to optimize their performance against their marketing objectives.

Advertisers and publishers can display advertisements on the pages that are viewed by users across Yahoo! Properties and on our Affiliate sites. Yahoo! offers a broad range of tools available for online display advertising, including rich media, video, and targeting. We work with our advertisers and publishers to maximize the effectiveness of their campaigns by optimizing advertising formats and placement on Yahoo! Properties or our Affiliate sites. We also use our targeting capabilities to help advertisers and publishers reach their desired communities by placing contextually relevant advertising on both our Owned and Operated sites and the sites of our Affiliate partners.

We generate revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. The majority of our marketing services revenues is from sales of online display advertising. Revenues are generated from several offerings including: the display of rich media advertisements, display of text-based links to an advertiser’s Website, listing-based services, and commerce-based transactions.

We recognize revenues from the display of graphical advertisements (“display advertising”) on Yahoo! Properties and on Affiliate sites as “impressions” are delivered. An “impression” is delivered when an advertisement appears in pages viewed by users. We also recognize revenues from the display of text based links to the Websites of our advertisers (“search advertising”) which are placed on Yahoo! Properties and on Affiliate sites. We recognize revenues from these arrangements as “click-throughs” occur.

Marketing services revenues also include listings and transaction revenues. Listings revenues are generated from a variety of consumer and business listings-based services, including access to the Yahoo! HotJobs database and classified advertising such as Yahoo! Autos, Yahoo! Real Estate, and other services. We recognize listings revenues when the services are performed. Transaction revenues are generated from facilitating commercial transactions through Yahoo! Properties, principally from Yahoo! Travel and Yahoo! Shopping. We recognize transaction revenues when there is evidence that qualifying transactions have occurred, for example, when travel arrangements are booked through Yahoo! Travel.

Fees revenues consist of revenues generated from a variety of consumer and business fee-based services, including Internet broadband services, royalties received from joint venture partners, premium mail, music and personals offerings, as well as services for small businesses. We recognize fees revenues when the services are performed.

In 2006, we formed a strategic partnership with the Newspaper Consortium enabling the newspapers to provide advertisers who buy ads in any of the consortium’s newspapers the ability to also post their ads on Yahoo!’s advertising network. In 2007, we expanded the partnership to include over 20 leading U.S. newspaper publishing companies and more than 550 daily and weekly newspapers. We believe this arrangement will continue to expand a powerful local and national advertising marketplace, enabling advertisers to reach a larger, broader audience, and enabling newspapers to increase their overall monetization. In addition, Yahoo! places ads from Yahoo!’s advertisers on these newspapers’ sites. For these advertising services, we earn revenue as “impressions” are delivered.

We also provide advertising through a series of search offerings that enable advertisers to display text-based links to their Websites on Yahoo! Properties, as well as on our Affiliate sites. These advertisements are displayed in response to different user actions — when a keyword is used in a search query initiated by a user or when specific content is being viewed by a user on Yahoo! Properties or on our Affiliate sites. For example, if a user searches using the keyword “television” in the Yahoo! Search box or the search box on the Website of one of our Affiliate sites, two sets of results will appear based upon algorithmic and sponsored search technology. Links to Websites for related advertisers will appear alongside the algorithmic search results. As another example, if the user is reading an article about interest rates, he or she may be presented with advertising links to Websites for mortgage-related advertisers. For these advertising services, we earn revenues when click-throughs occur.

As a result of the acquisition of Right Media in 2007, Yahoo! expanded its advertising marketplace to enable advertisers and publishers to find and utilize ad inventory in an open auction. We generate revenues from this exchange, by charging a fee to all exchange clients that participate in a transaction. Through the exchange, advertisers can select and bid on multiple display advertising opportunities across various publishers, enabling them to expand the reach and performance of their campaigns. Publishers can select which inventory they place into the open auction, increasing the potential monetization for their entire inventory. We expect the exchange to be a key component of Yahoo!’s future growth in marketing services by providing more options to advertisers and publishers as well as creating an even larger, more vibrant advertising marketplace.

In addition to offering marketing services to advertisers and publishers, we also provide the following services:

Yahoo! Broadband has partnered with a number of broadband Internet access providers to provide a suite of Internet services for their customers including portal, search, display advertising, and mail services. We have strategic partnerships with AT&T Inc. (“AT&T”) and Verizon Communications, Inc. in the U.S., BT Telecommunications PLC (“BT”) in the United Kingdom, and Rogers Cable Inc. (“Rogers”) in Canada. We also launched a broadband partnership with Telecom New Zealand in mid-2007. We renewed contracts with Rogers and BT in late 2007, which will be in effect in early 2008.

We have structured new Broadband Internet access partnerships to reflect current market dynamics and placed BT, Rogers, and AT&T among our key ad network partners with a revenue sharing model.

Yahoo! HotJobs is one of the leaders in the online recruiting industry, providing comprehensive solutions for employers, staffing firms, and job seekers. Yahoo! HotJobs’ tools and advice put job seekers in control of their career search and make it easier and more cost-effective for recruiters and employers to find qualified candidates compared to traditional methods. Yahoo! HotJobs enables job seekers to create an online resume and to search and apply for jobs, and provides access to newsletters, online forums, and salary research, free of charge. Yahoo! HotJobs generates revenues from employers and staffing firms that pay to access our database of job seekers and use our tools to post, track, and manage job openings.

Yahoo! Small Business provides a comprehensive and integrated suite of fee-based online services including Yahoo! Domains, Yahoo! Web Hosting, Yahoo! Business Mail, and our e-commerce platform called Yahoo! Merchant Solutions. By integrating one of the leading hosting solutions with business critical services and information, Yahoo! enables our Small Business Partners to easily get online, sell online, and market and promote online. Yahoo! Small Business generates revenues primarily from user subscription fees.

GLOBAL BUSINESS

We measure our business geographically based on two segments: the United States and International. Additional information required by this item is incorporated herein by reference to Note 15 — “Segments” of the notes to the consolidated financial statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

We provide services in more than 20 languages in more than 30 countries, regions, and territories, including localized versions of Yahoo! in Argentina, Australia, Austria, Brazil, Canada, China, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Philippines, Russia, Scandinavia (Denmark, Norway, Sweden), Singapore, Spain, Switzerland, Taiwan, Thailand, the United Kingdom and Ireland, the United States, and Vietnam.

Outside of native English speaking countries, we provide some of our most popular starting point services through Yahoo! Asia (our English Language portal to Southeast Asia), Yahoo! Chinese (United States Chinese language site), Yahoo! Telemundo (United States Hispanic site), Yahoo! Canada en Français (French Canadian site), and Yahoo! en Català (part of Yahoo! Spain’s Catalan language offerings).

We own a majority or 100 percent interest in all of these international operations (except in Australia, New Zealand, China, and Japan where we have joint ventures and/or minority interests). We have established a network of offices worldwide to facilitate the development of the business globally and we continue to tailor our services and tools with local content and in local languages to meet the needs of our community of users, advertisers, publishers, and developers.

Revenue is primarily attributed to individual countries according to the international online property that generated the revenue.

SALES

We maintain three primary channels for selling our marketing services: direct, online, and telesales. Our direct advertising sales team focuses on selling our marketing services and solutions to leading advertising agencies and marketers in the U.S. We have combined our display and search marketing sales teams under common leadership to better respond to advertisers who are increasingly using both forms of advertising on Yahoo! Properties to achieve their desired marketing goals. Our online channel operates and is fulfilled by a self-service program that enables advertisers to place targeted text-based links to their Websites on Yahoo! Properties as well as on our Affiliate sites. Our telesales channel focuses on sales of marketing services to small-and medium-sized businesses.

We employ sales professionals in locations across the U.S., including Atlanta, Boston, Chicago, Dallas, Detroit, Hillsboro, Los Angeles, Miami, New York, San Francisco, and Sunnyvale. Our sales organization consults regularly with agencies and advertisers on design and placement of online advertising, and provides customers with measurements and analysis of advertising effectiveness as well as effective consumer insights that can be turned into marketing campaigns. In addition to our geographic sales structure, we have industry focused sales teams for automotive, consumer packaged goods, entertainment, finance, retail, pharmaceuticals, sports, technology, telecommunications, and travel. In the international markets, we have either our own internal sales professionals or we have established sales agency relationships in more than 30 countries.

No individual customer represented more than 10 percent of our revenues in 2005, 2006, or 2007.

MARKETING

The Yahoo! brand is one of the most widely recognized in the world. Maintaining and growing that brand enables us to attract, retain, and more deeply engage users, advertisers, publishers, and developers. We believe a great brand begins with a great product, services, and content. Yahoo! marketing engages in each step of product and services development, deployment, and management and content design to understand our offerings and how best to market them to our communities of potential and existing users. Our marketing communications’ efforts help accelerate product momentum, awareness, adoption, and engagement. We use online, television, print, radio, and outdoor advertising, and we leverage our global online network and our distribution partnerships to market our products and services to the right people at the right time. With continued investment in global brand and product marketing, we believe we can continue to attract and engage users, advertisers, publishers, and developers.

COMPETITION

We operate in the Internet products, services, and content markets, which are highly competitive and characterized by rapid change, converging technologies, and increasing competition from companies offering communication, information, and entertainment services integrated into other products and media properties.

We compete for users, advertisers, publishers, and developers with many other providers of online services, including Web businesses where expertise in a particular market segment may provide a competitive advantage and with social media and networking competitors. Ad networks (such as Google Inc.’s “Google” Ad sense, Ad.com, and Valueclick), which create specialized marketing solutions for specific advertiser or publishers segments, also compete with us for a share of marketing budgets.

We compete with companies to attract users and developers to Yahoo! Properties as well as attract advertisers and publishers to our marketing services. We expect the market to become increasingly competitive as online marketing continues to grow and gain acceptance on a global basis. The principal competitive factors relating to attracting and retaining users include the usefulness, accessibility, integration, and personalization of the online services that we offer, the quality and relevance of our search results, and the overall user experience on Yahoo! Properties.

The principal competitive factors relating to attracting advertisers and publishers are the reach, effectiveness, and efficiency of our marketing services as well as the creativity of the marketing solutions that we offer. Reach is the audience and/or demographic that the Yahoo! network can access. Effectiveness for advertisers is delivering against advertisers targets, measuring those achievements against those targets and optimizing for these across the Yahoo! network. Effectiveness for publishers is our advertising technology platforms and the monetization we are able to offer through our marketing services. Efficiency is simplifying the buying and reporting process across our entire network of Yahoo! and Partner properties for our advertisers and publishers.

Our most significant competition is from Google, Microsoft Corporation (“Microsoft”), and Time Warner’s America Online business (“AOL” or “America Online”). In addition, we compete with Facebook and News Corp., owner of MySpace, for users, developers, and advertisers. We also compete with many large traditional media companies such as Disney, CBS, and NBC as they increasingly focus on capturing advertising dollars from their online properties.

In international markets, we also compete with local portals that are predominantly supported by local telecommunication providers or local providers of specific locally designed and marketed Internet services, some of which may have a potential competitive advantage due to an existing direct billing relationship with their users.

Additional information regarding competition is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

PRODUCT DEVELOPMENT

Yahoo! continually enhances, expands, and launches products and features to meet evolving user, advertiser, and publisher needs for technological innovation and a deeper, more integrated experience.

Most of our software products and features are developed internally. However, we purchase technology and license intellectual property rights when the opportunity is strategically aligned, operationally compatible and economically advantageous. We believe that Yahoo! is not materially dependent upon licenses and other agreements with third parties relating to product development.

Yahoo! launched its new search marketing system, known as Project Panama, in the fourth quarter of 2006. This system provides advertisers with additional tools for budgeting, testing, and optimizing their marketing campaigns. This new system also provides a new ranking model launched in early February 2007 as the second phase of Project Panama that ranks ads by relevance in addition to keyword bid price. We believe the new search marketing system provides a more relevant search experience to users, more valuable customer leads to advertisers, and additional opportunities to our distribution partners. We have completed the global roll-out of the technology across all relevant geographies.

In order to encourage a broad spirit of openness and innovation on the Yahoo! network of Websites, we sponsor programs such as the Yahoo! Developer network which makes Yahoo!’s infrastructure, platform, and communities accessible to third-parties via APIs. This has established a mutually beneficial environment, in which thousands of developers have used and built upon technology from Yahoo! services, including Yahoo! Search, Yahoo! Photos, and Yahoo! Maps to further increase the relevance of Yahoo! products and services for individual users and the greater community. Another example of this effort is the Hack Yahoo! Program, which is designed to encourage and empower employee and third-party innovation. This global program consists of a speaker series, an intranet site and blog, workshops, and quarterly “Hack Days” that are an ongoing opportunity to foster and celebrate the creativity of our employees and third parties.

As a complement to our core engineering and production teams, we also have scientists working in our Yahoo! Research Labs dedicated to developing novel algorithms and technology that empower users, businesses, and advertisers worldwide to maximize the social and economic potential of the Internet. Yahoo! performs research to address fundamental problems facing users such as: making their search for information on the Internet easier and more relevant; bringing them tools to help solve their problems; finding new and better ways for them to connect and communicate with family and community; and guiding family and friends towards high-quality products, songs, movies, and other resources. We also use technology to match relevant business services with customers most likely to be interested in such services. Yahoo! Research Berkeley is a research facility that operates in a partnership between Yahoo! Research Labs and the University of California at Berkeley (“UCB”). We believe this is a mutually beneficial intellectual property arrangement, and an opportunity for students and staff at UCB to gain access to resource and scale typically not afforded in the academic environment. The mission of Yahoo! Research Berkeley is to explore and invent social media and mobile media technology and applications that will enable people to create, describe, share, find, and remix media on the Web.

MANAGEMENT DISCUSSION FROM LATEST 10K

Forward-Looking Statements

In addition to current and historical information, this Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” or “continue,” other comparable terminology, or the negative of such terms. This Report includes, among others, forward-looking statements regarding our:


• expectations about revenues for marketing services and fees;

• expectations about growth in users;

• expectations about cost of revenues and operating expenses;

• expectations about effective tax rate;

• expectations about our on-going strategic initiatives;

• anticipated capital expenditures;

• impact of recent acquisitions on our business and evaluation of possible acquisitions of, or investments in, businesses, products, and technologies; and

• expectations about positive cash flow generation and existing cash, cash equivalents, and investments being sufficient to meet normal operating requirements.

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part 1, Item 1A “Risk Factors” of this Annual Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

Overview

We are a leading global Internet brand and one of the most trafficked Internet destinations worldwide. We are focused on powering our communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. We seek to provide Internet services that are essential and relevant to these communities of users, advertisers, publishers, and developers. Publishers, such as eBay Inc., WebMD, Cars.com, Forbes.com, and the Newspaper Consortium (our strategic partnership with a consortium of over 20 leading United States (“U.S.”) newspaper publishing companies), are a subset of our Affiliates and are primarily Websites and search engines that attract users by providing content of interest, presented on Web pages that have space for advertisements.

To users, we provide owned and operated online properties and services (“Yahoo! Properties” or “Offerings” or “Owned and Operated sites”). We also extend our marketing platform and access to Internet users beyond Yahoo! Properties through our distribution network of third-party entities (referred to as “Affiliates”) who have integrated our advertising offerings into their Websites (referred to as “Affiliate sites”) or their other offerings.

We focus on expanding our communities of users and deepening their engagement on Yahoo! Properties to enhance the value of our users to advertisers and publishers and thereby increase the spending of advertisers and publishers with us. We believe that we can expand our communities of users by offering compelling Internet services and effectively integrating search, community, personalization, and content to create a powerful user experience. We leverage our user relationships and the social community the users create to enhance our online advertising potential, as well as our fee-based services.

To advertisers and publishers, we provide a range of marketing solutions and tools that enable businesses to reach users who visit Yahoo! Properties and our Affiliate sites.

To developers, we provide an innovative and easily accessible array of Web Services and Application Programming Interfaces (“APIs”), technical resources, tools, and channels to market.

We generate revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. Additionally, although many of our user services are free, we do charge for a range of premium services that we offer. We classify these revenues as either marketing services or fees revenues. See Part I Business — “How We Generate Revenues” for additional information.

Our offerings to users currently fall into five categories — Front Doors; Search; Communications and Communities; Media; and Connected Life. See Part I Business — “What We Offer Our Users” for additional information. The majority of our offerings are available in more than 20 languages. We manage and measure our business geographically. Our principal geographies are the United States and International.

Revenue Sources

Marketing Services Revenues. The majority of our marketing services revenues is from sales of online display advertising; revenues are generated from several offerings including: the display of rich media advertisements, display of text-based links to an advertiser’s Website, listing-based services, and commerce-based transactions.

We recognize revenues from the display of graphical advertisements (“display advertising”) on Yahoo! Properties and on Affiliate sites as “impressions” are delivered. An “impression” is delivered when an advertisement appears in pages viewed by users. We also recognize revenues from the display of text-based links to the Websites of our advertisers (“search advertising”) which are placed on Yahoo! Properties and on Affiliate sites. We recognize revenues from these arrangements as “click-throughs” occur. A “click-through” occurs when a user clicks on an advertiser’s listing.

Marketing services revenues also includes listings and transaction revenues. Listings revenues are generated from a variety of consumer and business listings-based services, including access to the Yahoo! HotJobs database and classified advertising such as Yahoo! Autos, Yahoo! Real Estate, and other services. We recognize listings revenues when the services are performed. Transaction revenues are generated from facilitating commercial transactions through Yahoo! Properties, principally from Yahoo! Travel and Yahoo! Shopping. We recognize transaction revenues when there is evidence that qualifying transactions have occurred, for example, when travel arrangements are booked through Yahoo! Travel.

Fees Revenues. Fees revenues consists of revenues generated from a variety of consumer and business fee-based services, including Internet broadband services, royalties received from joint venture partners, premium mail, music and personals offerings, as well as services for small businesses. We recognize fees revenues when the services are performed.

2007 Performance Highlights

Our revenues for the year ended December 31, 2007 increased 8 percent year over year to approximately $7.0 billion, with fee paying users up 17 percent year over year, and Page Views up 11 percent year over year. Operating income for the year ended December 31, 2007 declined by $246 million. The decline reflects year over year increases in operating expenses of $626 million offset by the impact of additional margin related to year over year revenue growth.

Cash generated from our operations is a measure of the cash productivity of our business model and is an area of focus for us. Our operating activities in 2007 generated adequate cash to meet our operating needs. Cash used in investing activities in 2007 included capital expenditures of $602 million, as well as cash consideration for acquisitions of $974 million, offset by the sale of marketable debt securities. Cash used in financing activities in 2007 reflected our net cash used for direct and structured stock repurchases of $1.8 billion, offset by cash proceeds from the issuance of common stock of $375 million as a result of the exercise of employee stock options.

During 2007, we determined that income tax benefits of $127 million ($92 million related to 2006 and the remainder related to earlier years) should not have been recorded to additional paid-in capital as tax benefits from stock-based awards because for financial statement ordering purposes, the tax benefits should have been attributed to the utilization of acquired net operating losses first or should not have been recognized at all because the underlying tax amounts should not have been offset by tax benefits from stock-based awards. As a result, in the 2007 statement of cash flows, we reduced by $92 million, excess tax benefits from stock-based awards recorded in cash flows from operating activities with an equivalent reduction to the amount of excess tax benefits recorded in cash flows from financing activities. This reclassification had no impact on overall cash flows. The amounts that impacted income tax expense and earnings in equity interests also increased diluted earnings per share by $0.01 for the year ended December 31, 2007. We believe that the aforementioned amounts are not material to reported amounts for 2007, 2006, or earlier years and therefore we have corrected them in the 2007 consolidated financial statements. See Note 10 — “Income Taxes” in the consolidated financial statements for additional information.

Summary

We believe the search queries, Page Views, click-throughs, and the related marketing services and fees revenues that we generate correlate to the number and activity level of users across our offerings on Yahoo! Properties and the activity level on our Affiliate sites. In the fourth quarter of 2006, we launched a new search marketing system, referred to as Project Panama, and we have completed our migration plan for our active advertisers worldwide onto the new system. We believe the new search marketing system, including the new ranking model which was launched in all of our major domestic and international markets in 2007, in addition to ongoing enhancements in which we are investing, enables us to provide a more relevant search experience to users, more valuable customer leads to advertisers, and additional opportunities to our Affiliate and distribution partners. By providing a platform for our users that brings together our search technology, content, and community while allowing for personalization and integration across devices, we seek to become more essential to, increase our share of, and deepen the engagement of, our users with our products and services. We believe this deeper engagement of new and existing users and our new search marketing system, coupled with the growth of the Internet as an advertising medium will enable us to increase our revenues in 2008.

In the following Management’s Discussion and Analysis, we discuss the following areas of our financial results:


• Results of Operations;

• Business Segment Results;

• Transactions;

• Liquidity and Capital Resources;

• Critical Accounting Policies and Estimates; and

• Recent Accounting Pronouncements.

Results of Operations

We currently generate marketing services revenues principally from display advertising on Owned and Operated sites and from sponsored search results generated from searches on Owned and Operated and Affiliate sites. In addition, we receive revenues for Content Match links (advertising on Yahoo! Properties and Affiliate sites which include contextually relevant advertiser links to their respective Websites) on Owned and Operated and Affiliate sites and display advertising on Affiliate sites. The net revenues and related volume metrics from these additional sources are not currently material and are excluded from the discussion and calculation of average revenue per Page View on Owned and Operated sites and average revenue per search on Affiliate sites that follows.

Marketing Services Revenues from Owned and Operated Sites. Marketing services revenues from Owned and Operated sites for the year ended December 31, 2007 increased by approximately $600 million, or 20 percent, as compared to 2006. Factors leading to growth in overall marketing services revenues included an increase in user activity levels on Yahoo! Properties, which contributed to a higher volume of search queries, click-throughs, Page Views, and ad impression displays. Also our growing audience of users makes Yahoo! Properties more attractive to advertisers and increases their spending on marketing services. We expect marketing services revenues from our Owned and Operated sites to continue growing at a rate faster than total revenues. Marketing services revenues from Owned and Operated sites for the year ended December 31, 2006 increased by approximately $648 million, or 27 percent, as compared to 2005. Our marketing services revenues in 2006 was impacted by declining revenues from our relationship with Microsoft Corporation (“Microsoft”), which completed the transition of its U.S. business search business in-house during 2006. The year over year growth in marketing services revenues in 2006, despite the impact of Microsoft’s transition, can be attributed to a combination of factors that have driven increased marketing services revenues across Yahoo! Properties both domestically and internationally. These included an increase in our user base and activity levels on Yahoo! Properties, which resulted in a higher volume of search queries, ad impression displays, and click-throughs.

We periodically review and refine our methodology for monitoring, gathering, and counting Page Views to more accurately reflect the total number of Web pages viewed by users on Yahoo! Properties. Based on this process, from time to time we update our methodology to exclude from the count of Page Views interactions with our servers that we determine or believe are not the result of user visits to our Owned and Operated sites.

Using our updated methodology, for the year ended December 31, 2007 as compared to 2006, Page Views increased 11 percent and revenue per Page View increased 7 percent, and for the year ended December 31, 2006 as compared to 2005, Page Views increased 15 percent and revenue per Page View increased 10 percent.

(1) For the three month period ended March 31, 2007 and the year ended December 31, 2006, the reported Page View Growth and Revenue Per Page View Growth were based on Page Views on our Owned and Operated sites, searches on Affiliate sites and associated revenues on both Owned and Operated and Affiliate sites. Beginning in the second quarter of 2007, we revised our presentation of Page Views and Revenue Per Page View to include only Page Views on Owned and Operated sites and revenues from such Page Views, and to exclude searches on Affiliate sites and revenues from such searches. If the previously reported Page View Growth and Revenue Per Page View Growth for the three month period ended March 31, 2007 and year ended December 31, 2006 were adjusted to reflect the presentation adopted in the second quarter of 2007 (but not our updated methodology for counting Page Views), the reported percentages would have been 21 percent, and negative 6 percent, for the three month period ended March 31, 2007 and 21 percent, and 5 percent, for the year ended December 31, 2006.

(2) The revised Page View Growth and Revenue Per Page View Growth numbers reflect our updated methodology for counting Page Views, and for the year ended December 31, 2006 and the three month period ended March 31, 2007, also include adjustments to conform to the presentation adopted in the second quarter of 2007.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Forward-Looking Statements

In addition to current and historical information, this Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” or “continue” or the negative of such terms or other comparable terminology. This Report includes, among others, forward-looking statements regarding our:


• expectations about revenues, including revenues for marketing services and fees;

• expectations about growth in users;

• expectations about cost of revenues and operating expenses;

• expectations about our effective tax rate and the amount of unrecognized tax benefits;

• expectations about our on-going strategic and cost reduction initiatives;

• anticipated capital expenditures;

• impact of recent acquisitions on our business and evaluation of, and expectations for, possible acquisitions of, or investments in, businesses, products, and technologies; and

• expectations about positive cash flow generation and existing cash, cash equivalents, and investments being sufficient to meet normal operating requirements.

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part II, Item 1A, “Risk Factors” of this Report. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

Overview

We are a leading global Internet brand and one of the most trafficked Internet destinations worldwide. We are focused on powering our communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. We seek to provide Internet services that are essential and relevant to these communities of users, advertisers, publishers, and developers. Publishers, such as eBay Inc., WebMD, Cars.com, Forbes.com, and the Newspaper Consortium (our strategic partnership with a consortium of more than 20 leading United States (“U.S.”) newspaper publishing companies), are a subset of our distribution network of third-party entities (referred to as “Affiliates”) and are primarily Websites and search engines that attract users by providing content of interest, presented on Web pages that have space for advertisements. We manage and measure our business geographically. Our geographic segments are the U.S. and International.

To users, we provide owned and operated online properties and services (“Yahoo! Properties” or “Owned and Operated sites”). We also extend our marketing platform and access to Internet users beyond Yahoo! Properties through our Affiliates who have integrated our advertising offerings into their Websites (referred to as “Affiliate sites”) or their other offerings.

To advertisers and publishers, we provide a range of marketing solutions and tools that enable businesses to reach users who visit Yahoo! Properties and our Affiliate sites.

To developers, we provide an innovative and easily accessible array of Web Services and Application Programming Interfaces (“APIs”), technical resources, tools, and channels to market.

We focus on expanding our communities of users and deepening their engagement on Yahoo! Properties to enhance the value of our users to advertisers and publishers and thereby increase the spending of advertisers and publishers with us. We believe that we can expand our communities of users by offering compelling Internet services and effectively integrating search, community, personalization, and content to create a powerful user experience. We leverage our user relationships and the social community the users create to enhance our online advertising potential, as well as our fee-based services.

As used below, “Page Views” is defined as our internal estimate of the total number of Web pages viewed by users on Owned and Operated sites. “Searches” is defined as online search queries that may yield Internet search results ranked and sorted based on relevance to the user’s search query. “Sponsored search results” are a subset of the overall search results and provide links to paying advertisers’ Web pages. A “click-through” occurs when a user clicks on an advertisers’ language.

We believe the searches, Page Views, click-throughs, and the related marketing services and fees revenues that we generate correlate to the number and activity level of users across our offerings on Yahoo! Properties and the activity level on our Affiliate sites. By providing a platform for our users that brings together our search technology, content, and community while allowing for personalization and integration across devices, we seek to become more essential to, increase our share of, and deepen the engagement of, our users with our products and services. We believe this deeper engagement of new and existing users coupled with the growth of the Internet as an advertising medium may enable us to increase our revenues in the future.

During the second quarter of 2008, we entered into a non-exclusive services agreement (the “Services Agreement”) with Google Inc. (“Google”) to enable us to run advertisements supplied by Google alongside our search results and on Yahoo! Properties, as well as on Websites of certain partners and Affiliates. Although the Services Agreement was not subject to prior regulatory approval, Yahoo! and Google voluntarily agreed to delay implementation of the Services Agreement while the Antitrust Division of the U.S. Department of Justice (the “DOJ”) reviewed the agreement. At the conclusion of its review, the DOJ indicated that it intended to file a complaint to seek to enjoin the implementation of the Services Agreement. Following the DOJ’s decision, Google delivered notice to us that it was terminating the Services Agreement effective November 5, 2008.

On October 21, 2008, we announced our intent to significantly reduce our costs. As part of our cost reduction initiatives, we expect to reduce our global workforce by at least 10 percent by December 31, 2008. We expect to incur cash charges related to the workforce reduction for severance and other related costs. In addition, we expect to incur cash costs related to contract terminations and consolidation of facilities as part of these cost reduction initiatives. Total charges are expected to include these cash costs and may also include charges or credits related to stock-based compensation expense and charges related to non-cash impairment costs.


CONF CALL

Marta Nichols

Thank you and good afternoon and welcome to Yahoo!'s third quarter earnings conference call. On the call today are members of our executive team, Jerry Yang, Susan Decker, and Blake Jorgensen.

Before we begin, I would like to remind you that this call’s discussions will contain forward-looking statements that involve risks and uncertainties concerning Yahoo!'s expected financial performance, 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 indicative of future performance.

The potential risks and uncertainties include, among others, that the expected benefits of Yahoo!'s 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; the possibility that Microsoft or another party in the future make other proposals to acquire all or part of Yahoo!; potential continuing uncertainty arising in connection with Microsoft’s various proposals to acquire all or a part of Yahoo!; or take other actions which may create uncertainty for our employees, publishers, advertisers, and other business partners; and the possibility of significant cost of defense, indemnification, and liability resulting from stockholder litigation relating to such proposals.

Other potential factors that could affect the company’s business and financial results are included in the company’s Annual and Quarterly reports which are on file with the SEC.

All information discussed on this call is as of today, October 21, 2008 and Yahoo! does not intend and undertakes no duty to update this information to reflect future events or circumstances.

On the call today, we will discuss some non-GAAP financial measures as we talk about the company’s performance, including operating income before depreciation, amortization, and stock-based compensation expense, which will be referred to as operating cash flow; revenue excluding traffic acquisition costs, which will be referred to as revenue ex-TAC; free cash flow; non-GAAP net income; and non-GAAP net income per share. Reconciliations of those non-GAAP measures to the GAAP measures the company considers most comparable can also be found on our corporate website at www.info.yahoo.com, under Investor Relations.

We have prepared remarks and then we’ll have a brief Q&A session with Jerry, Susan, and Blake.

And now I would like to turn the call over to Jerry.

Jerry Yang

Thank you Marta and thanks for joining us today. I’ll start the call by summarizing our business and the third quarter results in light of the recent global economic conditions, then I’ll outline the actions we’re taking to become a more streamlined and competitive organization.

I’ll finish by talking about our visibility in the fourth quarter and address why we feel we will be well positioned for improved future growth.

In the third quarter we saw mixed trends. We experienced strong growth in our US search business as well as our performance in non-guaranteed display businesses. However demand for branded display advertising slowed further in the US with weakness in categories such as finance and retail where marketers are becoming increasingly cautious.

As well as geographical weakness in branded advertising in Europe and Asia. These factors contributed to the Q3 revenue coming in at the low end of our outlook range. However our operating cash flow on an adjusted basis came in above the mid point of our outlook range.

This is due to the aggressive cost management efforts throughout the year in which we have lined our expenditures with market environment even while making investments.

Based on the uncertain advertising environment that we face now, we are reducing our full year revenue outlook. At the same time we are reaffirming our operating cash flow outlook for the full year. Continued substantial cash flow remains one of our core financial strengths and an important goal for us as well.

We have the balance sheet strength, liquidity, and free cash flow we need to continue to make progress on our core strategies as we work our way through this economic downturn.

Throughout 2008 we have been balancing our investments and key initiatives while also managing our costs to meet profitability goals. As we saw the online ad market decline in the third quarter I decided that Yahoo! needed to accelerate the process of becoming more efficient and competitive.

I believe getting Yahoo! more fit at this time will provide the flexibility necessary for navigating current conditions and strengthen our position for the future.

We are identifying ways we can work more efficiently and taking steps to significantly improve our organization and reduce costs.

Our goal is to reduce the current annualized cost run rate of roughly $3.9 billion by more then $400 million before the end of this year 2008. These efforts will involve streamlining our organization by reducing layers, increasing spans of control, and eliminating redundancies.

Because the majority of our costs are headcount related, we anticipate that we will reduce our global workforce by at least 10% by year-end. This is the first step in a longer-term effort that will last into 2009 and beyond.

Driving efficiency is an ongoing priority for the company. We are looking at all aspects of our operations to improve performance and expect to implement additional structural changes that will benefit Yahoo! in the future years.

Some of these actions might include relocating some operations to lower cost geographies, consolidating real estate, improving procurement and standardizing our global technology platform and we expect that list to grow.

Like all companies facing these difficult decisions, we are very mindful of the impact on our affected employees. We’ll make every effort to ease the transition for Yahoo!s by providing separation packages and job placement services.

Yahoo! is a company that has been through a dramatic down cycle before. Back in 2001’s tough environment Yahoo! continued to grow users and engagement in spite of a fundamental shift in the business model. Similarly this quarter we saw solid growth in page views as well as increased audience engagement with now Yahoo! now responsible for nearly 14% of all the time spent online according to comp score.

We ranked first or second in 21 audience categories in September and consumers continue to make Yahoo! their destination of choice around milestone global events such as the Olympics, the elections and the current financial crisis.

On our [monitorization] efforts we saw revenue per search increase in the US and we launched APT from Yahoo! our new display ad management platform. We believe APT will change the game for advertisers, publishers, networks, and agencies dramatically simplifying the online advertising process while creating a dynamic open and innovative marketplace.

Building APT was a tremendous effort and we’re very proud of its early success. This year’s investments which also included the development of Yahoo! open strategy put in place the key elements of our plans to better capitalize in online ad spending, search and enhancing audience experiences through more open and social features in 2009 and beyond.

Even as we work to simplify our organization and improve our cost structure we will continue to prioritize our spending around these initiatives. Despite a tough environment I remain very optimistic about Yahoo!’s future. While many advertisers are guarding budgets carefully I am encouraged that most display advertisers who are still spending in this environment are spending with Yahoo!.

The fact is Yahoo! represents the most reliable quality option as marketers demand more from scarcer resources. Today we offer advertisers an even more diverse range of marketing opportunities and more sophisticated [in size] and targeting capabilities.

So while overall market remains cautious I believe our platforms, audiences, and strong relationship position as well for the current environment and when the ad market comes back.

Before concluding I’d like to briefly update you on the status of our agreement with Google. As you know we recently delayed implementation of an agreement to continue our discussions with the Department of Justice. We and Google are continuing to work with the DoJ and others regarding the agreement that the benefits it can provide to our advertisers and our users as well as Yahoo!’s overall competitive position in online advertising.

We look forward to bringing the benefits of the agreement to the marketplace as soon as possible. In conclusion this is in many ways an unprecedented macro environment. But even as we operate in a difficult advertising market, usage of Yahoo!’s services continue to increase and while the advertising market goes through this down cycle, we believe the internet ad market will emerge stronger then before with Yahoo! well positioned to take share.

I believe we’re doing the right thing to ensure that Yahoo! has the right cost structure in terms of productivity and efficiency. I’m also pleased that the investments we made to Yahoo!’s ad and audience platforms are taking shape.

Combined with our streamlined organization these investments will provide us with the flexibility the weather the current environment and take advantage of the growth opportunities beyond.

Now I’d like to turn the call over to Susan.

Susan Decker

Thanks Jerry, and good afternoon. In a year in which there have been a number of external challenges, Q3 was no exception as the impact of the credit market crisis became more visible and its tentacles reached into the broader global economy.

The impact of this is quite clear in each of our business lines and consumer metrics that we are reporting today. On the positive users and usage growth continued at a healthy clip as Yahoo! reinforced its position as a core starting point for consumers who want to keep on top of what’s important to them in their world.

The incredible news cycle of the last several months has been a magnet to our large engaged user base. On the negative side overall monetization was lower then expected and experienced the trends you might expect to see. Commitments to higher priced guaranteed advertising slowed further as companies with top line pressure cut back in order to protect their own bottom line results.

A bright spot within display was commitments to performance related advertising which has a more quantifiable positive impact on the short-term revenue of our advertisers and continues to grow rapidly. This was evident in the strength both of our performance advertising in display and also our search revenue in the quarter.

This was not enough however to offset the weaker performance in premium display. Amidst these changes we remained very focused on our internal product roadmaps marking three major milestones since we last spoke; the launch of APT, our new display advertising platform, the testing of our new homepage, a major redesign that we’ve been working on for many months, and just last week the launch of our new profiles audience product, a key cornerstone that will help make our major starting points more open and social.

I’ll focus my comments today providing more detail in two broad areas, first I’ll discuss audience trends, and then I’ll provide some color on monetization in the quarter highlighting product progress within each area.

Let’s begin with the audience trends, audience engagement was clear positive for Yahoo! in the quarter, a consistent theme that you’ll notice with respect to our audience product development efforts is that we are increasingly focused on making Yahoo! the place consumers go to check in on their world and as the quarter demonstrated when major events happened in the world, users flocked to Yahoo!.

The elections, the Olympics, and the global financial crisis drove strong usage gains on our homepage and in key verticals like news, sports, and finance with page views in each of these content categories up strong double-digits earning us the number one position in each of those vertical categories.

This engagement translated into strong production of inventory by our users with global page views up 17% year-over-year. Turning to search volume within that, we saw solid growth with both US and international query growth in Q3 exceeding our long-term goal of 10% worldwide.

Many of you follow com score data to track growth and market share. Our actual US growth rates inquiries have exceeded those estimated by com score in recent quarters. Looking forward our audience product roadmap remains focused on leveraging Yahoo!’s leadership with users as the go to experience to see what’s going on in their world.

We’re making more Yahoo! relevant in three ways, first by opening up to third party content. Second by leveraging the power of our enormous community of users to surface the most interesting content, and third by tailoring what our users see on Yahoo! based on what insights we have about them.

Let me give you examples of each of those three ways. First with respect to being open and personalized, we recently began testing a homepage redesign that will enable users to transform the Yahoo! homepage into a personalized web dashboard giving them many more customization tools including bringing their favorite experiences from many other sites directly onto their Yahoo! homepage.

For example users may select a dashboard allowing them to access all their mail providers including Yahoo! mail, AOL mail, and Gmail in one place. In addition they’ll be able to view content from other leading sites like eBay, NetFliks and many more.

These are just a couple of examples of the very visible changes available to enhance the user experience. Behind the scenes invisible to the outside world this new homepage is being built on a global code base for the very first time in Yahoo!’s history versus our previous structure which used over 20 worldwide code sets.

This will create tremendous efficiencies in our development processes and should allow for faster iterations now and in the future as well as more streamlined costs. The second example of how we’re making the site more relevant is we’re beginning the process of leveraging the power of our user community through the recent launch of the new profiles.yahoo.com, a new social foundation.

Yahoo! profiles is a centralized custom control panel that let’s you manage your identity, activities, interests and connections across Yahoo! and eventually the entire web. This new profile is not intended to be a new social destination on Yahoo! but instead to integrate the social graph as a central dimension of the services you use every day. You’ll see us leverage the new profile over multiple products in coming quarters in order to make our products more relevant.

Third we’ve also begun testing our new content optimization knowledge engine which uses complex algorithms to determine the most engaging content for our users allowing us to serve content in an increasingly relevant and personalized way.

This will ultimately allow our content experiences to differ by user similar to how advertising can be served to different users today. Since launching a test version in May click through rates in the today module of the homepage have increased by more then 30%.

We plan to rollout content optimization on other elements of the homepage as part of our redesign efforts and ultimately to other parts of the network. All of these efforts are fundamentally changing Yahoo! from a one size fits all portal to a personalized starting point for the web.

Let me be quite clear, this is not a minor tweak to our old portal model, but I hope you are beginning to see the visible results of the fundamental shift we took last year. Yahoo! sites will no longer consist of static programmed pages with their behavior, [boats], module selections and profile management tools alongside our technology and algorithms, users will be able to create much more relevant experiences for themselves incorporating both Yahoo! content and services and the best of the web.

Turning now to monetization, we saw mixed trends in the quarter with weakness in premium display more then offsetting strength in search and performance display. Starting with search, revenue per search in the US was up 11% year-over-year accelerating from our Q2 growth rate and boosted by multiple initiatives including the broadening of market reserve pricing to 100% of the US market early in the quarter and improved optimization on which ads we show users and how we display them.

MRP was rolled out in the UK and Japan in Q3 and should benefit RPS there in future quarters and we expect many more major markets will benefit from MRP in Q4 and beyond. Combined with the volume trends discussed earlier global GAAP O&O search revenue advanced 17% consistent with growth in Q2.

Let me now turn to display, overall GAAP O&O display revenue was up 3% globally, decelerating from its double-digit growth pace in the first half of the year. Volume trends remain strong as discussed earlier. In keeping with the overall economic environment weakening however we see marketers adjusting their overall marketing spend with the net result being a decline in display sell through and a decline in weighted average yield.

Underneath these aggregate trends we experienced very strong performance advertising trends but these are being more then offset by weaker trends in premium advertising since this guaranteed inventory represents the majority of our mix.

Using the US as an example guaranteed volume and pricing were flat to down slightly while non-guaranteed CPMs were up strongly driving non-guaranteed revenue up by a strong double-digit percentage.

By geography the US had begun to slow late in Q2 and trends there were modestly weaker then we had anticipated as the Q3 progressed but international display slowed much more significantly then expected as the rest of the world began to feel the effects of what we saw in the US a few months ago.

Touching briefly on what we’re seeing by vertical, while spending was slower across most categories, those that were most responsible for the display deceleration were somewhat consistent with what we saw last quarter including finance, travel, retail, and auto.

Our largest advertisers in the US were roughly flat in Q3, modestly slower then the year-over-year trends in Q2. Smaller advertisers held up better in the first half but the deceleration became more pronounced in Q3 for that category.

Looking forward we’re anticipating slower online advertising growth in Q4 and into 2009 as the real economic impact of recent capital market dislocation takes hold. That said from a competitive standpoint we’re hearing from many ad buyers that they are consolidating budgets with fewer media companies to bring efficiencies to their processes and in some cases this is actually driving increased spending for us.

As well Yahoo! maintains a strong leadership position in the display branded category as we continue to increase the share of budget we capture from many of the top global brands, even as these spends may be under cyclical pressure.

We are also positioning ourselves for competitive improvements through our new ad platform. Our ambition is to come out of this downturn with a stronger market position.

Speaking of that we’re very pleased to announce that APT went live in the quarter with two cornerstone online publishing partners, the San Francisco Chronicle and the San Jose Mercury News, and it is performing well.

We’ve already seen good order volume flowing through APT in its first month of operation and have maintained an aggressive deployment schedule for the remainder of this year and 2009.

Based on the positive results of our deployed partners to date, many partners have requested accelerated launches. The launch of APT from Yahoo! is the culmination of over a year of significant design and development work brought to life by the combined talents of a remarkable engineering and product team working closely with our go to market teams, all of whom deeply understand the needs of our customers.

We’ve developed a game changing web-based solution that allows unprecedented ease of cross selling across a large network of publishers, advertisers, ad networks, and ad agencies. As economic grounds and pressures shift so to have the demands for display advertising and publishing.

As we’ve discussed we’ve seen an increased demand for performance display, requests for more highly tuned targeting to specific audience segments, and higher fidelity and campaign planning, pricing and ad formats across both guaranteed and performance display.

APT’s capabilities improve all of these areas, providing a single and simple interface to determine how to target the best audience across the network at the best possible price. Its not just that APT eliminates manual and highly redundant processes, for advertisers it’s the ability to locate the ideal audience at a better price.

For publishers it allows them the ability to move up the value chain from non premium to premium monetization by giving advertisers the ability to advance buy impressions, add targeting features where they couldn’t before, and sell their audiences against Yahoo! inventory that’s currently being sold as remnant advertising.

To conclude as we manage through a time of uncertainty we feel good about the products we’re rolling out both in terms of how they position us competitively and also in terms of how they can leverage key connections in Yahoo! more efficiently and can be expanded globally in a scalable way.

These are important points because they will help us leverage our improving cost structure in ways that should allow us to batten down the hatches and weather the storm ahead with the goal of delivering operating cash flow growth in 2009 and beyond.

I look forward to sharing more about our plans in 2009 with you in January. Now with that let me turn the call over to Blake.

Blake Jorgensen

Thanks Susan, the third quarter was marked by two main themes; a worsening economic environment leading to revenues that were at the low end of our Q3 outlook range and continuing efforts to manage our costs that enable us to exceed the mid point of our Q3 OCF outlook on an adjusted basis and maintain our full year OCF outlook.

GAAP revenue increased 1% over Q3 2007. Revenue ex TAC increased 3%. We delivered $447 million of operating cash flow or OCF or $410 million including the $37 million of costs related to the Microsoft proposal, strategic alternatives including the Google agreement, the proxy contest, and related litigation.

My comments today in the call regarding our Q3 adjusted OCF exclude the impact of these costs. As Jerry mentioned global economic conditions deteriorated during the third quarter and with the events of the last few weeks we are cautious about the advertising market in Q4.

With a very strong balance sheet and continued cost management initiatives however we believe that we are well positioned to weather the current downturn.

We have no debt. We ended the third quarter with $3.3 billion of cash and marketable debt securities. As of the end of the quarter the value of our direct and indirect interests in the publicly traded securities of Yahoo! Japan, alibaba.com and Gmarket were valued at approximately $7.9 billion in the public markets or over $5.50 a share.

The market value of these interests has been volatile during the recent market turmoil but we continue to believe that these are highly valuable strategic assets. These figures include the value of the shares of alibaba.com held by Ali Baba Group of which we own approximately 40%.

These figures do not include estimates of the value of Ali Baba Group’s other privately held businesses such as [Taobao] and Alipay which we believe provide significant additional value.

We did not repurchase stock during the quarter due to continuing evaluation of strategic alternatives. Given the economic environment and the equity market volatility we have taken a conservative approach to our capital structure and maintain flexibility with our cash and investment portfolio.

Moving to the P&L, GAAP revenue was $1.79 billion. As a reminder, two months of Q3 were non comparable with the same months last year due to our sale of Overture Japan to Yahoo! Japan which was completed on August 31, 2007.

Excluding the revenues from our relationship with Yahoo! Japan from the third quarters of both 2007 and 2008 GAAP revenue growth would have been 6%. Beginning in Q4 our results will be comparable with respect to Overture Japan on a year-over-year basis.

Revenue ex-TAC was $1.33 billion and in addition to the Overture Japan impact I just mentioned the conversion of our relationships with AT&T and our other broadband partners has negatively affected our revenue ex-TAC growth rates in two ways.

First the fees revenue from our broadband partners is no longer growing and will in fact decline over time. The upfront payments received from AT&T and Rogers will allow us to recognize some fee revenue from our broadband relationships though this revenue source will decline over the next several years.

Second these broadband relationships are converting to primarily revenue sharing arrangements. We are now paying TAC to these partners on O&O marketing services revenue in both search and display which drives non-comparability with prior years when we were paying little or no TAC to these partners.

These revenue sharing agreements have contributed to difference between GAAP and the ex-TAC revenue growth this year. However once we anniversary the new partnership terms at the end of Q1 2009 our results will be comparable year-over-year and the TAC payments will no longer be a drag on revenue ex-TAC growth rates.

In our marketing services business total third quarter GAAP revenue was $1.56 billion, up 1% over last year’s third quarter. Total marketing services revenue ex-TAC was $1.1 billion, up 4% versus the prior year’s third quarter with TAC of $461 million.

Within marketing services the owned and operated revenue was $1 billion up 9% on a GAAP revenue basis. O&O search was $438 million up 17% and O&O display was $435 million, up 3%. Listings and other marketing services revenue was $130 million up 3% year-over-year.

Affiliate revenue was $561 million a 10% decrease from last year principally due to the final quarter of a non-comparable results from Overture Japan’s transaction.

This incremental detail on our marketing services revenue is included among the new slides in the earnings presentation we have posted on our Investor Relations website. We think these slide will help in the analysis of our revenue growth over time as well as help to clarify the growth impacts of M&A transactions and currency fluctuations as they occur.

Fees revenue was flat with last year and exceeded our expectations due to a few one-time items related to the renewal of our broadband partnership with Verizon, and our exit of the paid music subscription business.

We expect Q4 fees to decline sequentially and as I mentioned a moment ago, to continue to decline during 2009 as a result of the broadband partnership restructurings.

Looking at geographic breakdown, GAAP revenue in the US increased 7% and revenue ex-TAC increased 3% year-over-year. International GAAP revenue decreased 12% largely as a result of the different comparison with last year due to the Overture Japan transaction.

International revenue ex-TAC increased 4%. Acquisitions contributed 1% to GAAP revenue and currency did not have a material impact on year-over-year GAAP revenue growth in Q3, however currencies did hamper revenue growth by approximately 2% compared to our outlook which was based on trends we saw during the first half of the year.

Adjusted operating cash flow was $447 million for Q3 which exceeded the mid point of our July outlook. There are a few other items from the Q3 financials that I’d like to clarify.

Gross profit fell by approximately $13 million year-over-year due to principally higher amortization of acquired intangibles related to acquisitions we’ve made over the last year. Other income was negatively effected by approximately $13 million in currency fluctuations as volatility during the quarter affected cash balances held in international locations.

Our effective tax rate for the quarter was higher then normal due to changes in our anticipated full year geographic mix of profitability which required us to record additional tax expenses. As we benefit from the recent extension of the Federal R&D tax credit we expect our fourth quarter effective tax rate to be lower then normal.

We continue to estimate a full year tax rate between 41% and 44%. We expect our cash tax rate to be between 10% and 13% for the year.

The earnings and equity interest line item includes and after-tax $30 million non-cash impairment charge on our investment in alibaba.com, the publically traded subsidiary of Ali Baba Group.

The market value of our direct 1% stake in alibaba.com has decreased below our carrying value requiring us to record the impairment. To be clear this impairment had no impact on the carrying value of our investment in Ali Baba Group.

We continue to believe that there is significant value both in our investment and in our relationship with Ali Baba Group and alibaba.com.

Several of the factors I have just outlined negatively effected our reported EPS for the quarter. Our press release includes a table that provides a bridge between the $0.09 per share non-GAAP EPS and our $0.04 per share reported EPS based on these factors.

That brings me to our business outlook, given the weak economic climate we’re lowering our full year revenue outlook, but we are maintaining our operating cash flow and free cash flow outlook. We now expect fourth quarter results in the following ranges.

GAAP revenue of $1.77 billion to $1.97 billion and operating cash flow of $490 million to $570 million. Our fourth quarter and full year OCF outlook excludes costs related to the Microsoft proposal, strategic alternatives including the Google agreement, the proxy contest, and related litigation as well as any charges that may incur related to the cost reduction initiatives that Jerry mentioned.

Turning to free cash flow, we expect free cash flow for the full year of $925 million to $1.025 billion which reflects $700 million to $750 million in capital expenditures for the year. This free cash flow outlook excludes the impact of the upfront $350 million cash payment we received from AT&T in March as well as the strategic alternatives and related matters.

Jerry shared with you our plans to expand the aggressive cost management program that has helped us maintain our profitability goals this year. We plan to implement initiatives before year-end that will lead to significant reductions in both headcount and non-headcount related costs and will meaningfully reduce our expense run rate in 2009.

We expect to incur a one-time charge in Q4 that will cover employee separation packages and other non-headcount related items and we may record additional related costs in 2009.

While uncertainty in the economy is effecting overall demand for online ads we are confident that the actions we’re taking will enable us to improve financial performance even in a difficult business environment.

Now I’ll turn it back over to Jerry.

Jerry Yang

Thank you Blake, we are now ready for your questions.

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