JACKSON SECURITIES, LLC

Research for the Prudent Investor

Date 2/6/07 Yahoo! (YHOO):Earnings

Current Price $28.56
review, maintain HOLD.
52WK HI $34.09 • Industry: Internet Services
52WK LO $22.65 • YHOO: NASDAQ; $28.56
EPS (TTM) $0.53 • 12-month price target: $26.00
Shares Outstanding 1.4B Buy initiated 7/14/06: $32.23 Downgrade to Hold 7/19/06: Hold 12/14/06: $26.60 Target:
Target: $37.00 $32.24 Target: $33.00 $26.00
Market Cap. $39B
Dividend Yield NA
Price/Earnings (TTM) 56X
Price/Sales (TTM) 6X
EV/Revenue (TTM) 5.7X
EV/EBITDA (TTM) 18X
EBITDA (TTM) $2B

Company Description
Brian Bolan Yahoo! is an internet search and technology platform for all media that has
established itself as the leader in its growing market. Yahoo! has transition to
Director of Equity Research more than just a search engine to become a destination site and platform for new
Technology media delivery.
Jackson Securities, LLC Valuation and Recommendation:
300 S. Wacker Dr., Suite 2450 Following the release of pedestrian earnings, the stock has moved higher based
Chicago, IL 60606 on expectations of Project Panama coming online in early February 2007. At the
Ph: (312) 253-0578 same time, the company reigned in Wall Street expectations for the year. This
Fax: (312) 986-0560 effectively strained the valuation perspective, as estimates came down as the
bbolan@jacksonsecurities.com stock price rose. We maintain our hold rating and would suggest investors be
prepared for what may be a volatile year for the stock.

Jackson Securities, LLC seeks to do business with companies

covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect
the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decisions. Please
also refer to the important disclosures found on page number 6.
Analyst Certification is found on page number 6.
Yahoo! (YHOO)

Earnings review

Yahoo! reported revenue of $1.228B in the fourth quarter of 2006,

roughly in line with Wall Street estimates, but a hair below our
somewhat aggressive estimate of $1.241B. We note that the fees
line item of revenue was substantially weaker than our estimate,
while Marketing Services was lower due to MSN. TAC rate was
higher as expected, and we expect that trend to continue.

Volumes on O&O sites saw rising page views on a year over year
basis, which the company believes is key but this was offset by a
3% drop on revenue per page. Page views grew 22% to over 4
billion per day in December.

Paid relationships were up 800,000 in the quarter, bringing the

total to 16.3M individuals who are paying Yahoo! for a premium
service. The total number of paying individuals grew 3.7M in
2006. The company expects to add another 3.7M paying
individuals in 2007, bringing the total to 19M. The bad news in
that ARPU is will be trending lower throughout the year from the
$4 per month rage to the $3 per month range.

Project Panama

The wait is over for Project Panama, released on February 5, the

new system for ad placement is expected to reverse the current
downward trend of revenue per query in search. The company
noted that it would likely take a full quarter before we would see
positive financial affects of Panama, but that the second half of the
year should show building results.

Panama will help the broader network through its new ranking
algorithm as well as advanced features such as continent opt-out
and geo-targeting. The company believes that this will increase
returns to advertisers and ultimately publishers as well.

JACKSON Brian Bolan 2

SECURITIES, Research Analyst – Technology
LLC
Yahoo! (YHOO)

Peanut Butter

In our most recent research release we noted that the Peanut Butter
Manifesto was responsible for the corporate re-org announced on
December 5, 2006. To clarify this point, we wanted to stress that
the memo written by Brad Garlinghouse was not the primary
reason for the re-org. We believe that internal memos that are
leaked, such as the Peanut Butter Manifesto, are red flags but not
necessarily the primary impetus for action from the top.

Guidance

Guidance was less than impressive, with the company admitting

that 1Q07 would be the slowest quarter. For the full year, Yahoo
expects revenue of between $4.95B - $5.54B, up 14% from year
ago levels at the midpoint. Our current topline estimate is calling
for $5.49B and earnings per share of $0.53.

Valuation

We continue to believe that holding Yahoo! shares is the

appropriate action given the circumstances. While the company is
optimistic about the second half of the year, we note that putting
that much leverage into the future performance of Panama
inherently increases risk. After about 6 months of being stuck in a
trading range, we see little reason for the range to be broken over
the next three months. At that time we expect to have some more
anecdotal evidence of how Panama is performing and if advertiser
are coming back to Yahoo!. We continue to rate Yahoo! shares
HOLD.

JACKSON Brian Bolan 3

SECURITIES, Research Analyst – Technology
LLC
Yahoo! (YHOO)

Yahoo!
Income Statement
($ in millions, except per share)
Q4E Q4A % difference
Marketing Services, Gross 1540 1490 -3.4%
Less: TAC 539.0 475 -13.5%
Marking Services, Net 1001.0 1015.0 1.4%
Fees 240 213 -12.7%
Total Net Revenues 1241.0 1228 -1.1%
Gross Revenues 1780 1703 -4.5%

Cost of Sales 230.0 216 -6.5%

Gross Profit 1011.0 1012.0 0.1%

Operating Expenses
Sales and Marketing 335.0 334.2 -0.2%
R&D 205.0 204.7 -0.1%
General and Adminis. 115.0 137.6 16.4%
Amortization 30.0 27.2 -10.5%
Stock Comp 125.0 95.1 -31.5%
Total Op Expenses 810.0 798.8 -1.4%

Operating Income 201.0 213.2 5.7%

Interest Income & Other 55.0 35.24 -56.1%

Pre-Tax Income 256.0 248.4 -3.0%

Taxes 120.3 108.0 -11.4%
47.0% 43.5% -8.1%
Equity Earnings 27.0 33.853 20.2%
Minoritiy Interest 0.1 -0.238 142.0%

Net Income 162.8 229.0 28.9%

EPS $ 0.12 $ 0.16 28.5%

Fully-Diluted Shares 1,410.0 1,419.1 0.6%

Source: Yahoo! Company Reports, Jackson Securities estimates

JACKSON Brian Bolan 4

SECURITIES, Research Analyst – Technology
LLC
Yahoo! (YHOO)

Yahoo!
Income Statement
($ in millions, except per share)
Q1E Q2E Q3E Q4E 2007E
Marketing Services, Gross 1,540 1,650 1,850 2,050 7,090.0
Less: TAC 531 586 657 750 2524.1
Marking Services, Net 1,009 1,064 1,193 1,300 4565.9
Fees 220 225 230 250 925.0
Total Net Revenues 1228.7 1289.3 1423.3 1549.7 5490.9
Gross Revenues 1760 1875 2080 2300 8015

Cost of Sales 205.2 223.0 256.2 294.4 978.9

Gross Profit 1023.5 1066.2 1167.1 1255.3 4512.0

Operating Expenses
Sales and Marketing 350 375 400 425 1550.0
R&D 225 235 250 275 985.0
General and Adminis. 135 135 145 150 565.0
Amortization 30 30 30 30 120.0
Stock Comp 125 115 130 135 505.0
Total Op Expenses 865.0 890.0 955.0 1015.0 3725.0

Operating Income 158.5 176.2 212.1 240.3 787.0

Interest Income & Other 57 59 61 62 239.0

Pre-Tax Income 215.5 235.2 273.1 302.3 1026.0

Taxes 84.0 91.7 106.5 114.9 397.1

Equity Earnings 27 27 27 27 108.0

Minority Interest 0.1 0.1 0.1 0.1 0.4

Net Income 158.6 170.6 193.7 214.5 737.3

EPS $ 0.11 $ 0.12 $ 0.14 $ 0.16 $ 0.53

Normalized EPS
Fully-Diluted Shares 1400 1380 1375 1370 1,381.3

Source: Yahoo! Company Reports, Jackson Securities estimates

JACKSON Brian Bolan 5

SECURITIES, Research Analyst – Technology
LLC
Yahoo! (YHOO)

Analyst Certification
I, Brian Bolan hereby certify that the views expressed in this research note accurately reflect my personal views about the subject securities and issuers. I also
certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research
report. I may be compensated in part based on the overall profitability of Jackson Securities, LLC, which includes earnings from investment banking and all
other aspects of the firm’s business.

Conflicts of interest:
Neither Jackson Securities nor any of its publishing analysts or their immediate family members has a position in the securities described herein.

Compensation:
The research analyst has not received compensation based upon investment banking revenues or from the subject company/companies in the last 12 months.
Jackson Securities has not in the last 12 months managed or co-managed a public offering of securities, received compensation for investment banking services
from the subject company/companies or any compensation for products or services other then investment banking
Jackson Securities does not expect to receive or intend to seek investment banking compensation from the subject company/companies in the next 3 months.

Position as Officer or Director:

Neither the research analysts nor members of their immediate households occupy positions as an officer or director with the company/companies mentioned in
this report.

Market Making:
Jackson Securities does not make a market in the stock(s) listed in this report.

Explanation of Ratings:
Buy - Expected 12-month absolute performance of +10% or higher than the market price
at which time the rating was issued.
Hold - Expected 12-month absolute performance of +5% to –5% from the price at the
time the rating was issued.
Sell - Expected 12-month absolute performance of –10% or lower than the market price
at which time the rating was issued.

Distribution of Ratings:
Jackson Securities, LLC has a distribution of ratings among its coverage universe as follows:

Buys – 59.58% (28 of 47 active recommendations)

Holds – 38.3% (18 of 47 active recommendations)
Sells – 2.12% (1 of 47 active recommendations)

Jackson Securities has provided investment banking services within the previous 12 months with the following percentage of the companies they
have rated:

Buys – 0% (0 of 28 active recommendations)

Holds – 0% (0 of 18 active recommendations)
Sells – 0% (0 of 1 active recommendations)

Risks: General economic conditions, economic slowdown/recession, adverse industry news.

Other Important Disclosures and Disclaimers

Disclaimer: This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This material should not be
construed as an offer to sell or the solicitation of an offer to buy any securities mentioned herein in any jurisdiction where such an offer or solicitation would be
illegal. We are not soliciting any action based on this material. This document is for general information only, and it does not constitute a personal
recommendation or take into consideration the particular investment objectives, financial condition or financial needs of any clients. Before acting on any advise
or recommendation in this research report, clients should consider seek professional advice. Past performance is not a guide to future performance. Future
returns are not guaranteed, and a loss of original capital may occur.

The information contained herein has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Any
opinions expressed herein are statements of our judgment on the date appearing on this material only and are subject to change without notice. We endeavor to
provide updates on a reasonable basis of the information discussed in research reports, but there may be reasons which prevent us from doing so.

Additional Information: Any additional information, if applicable, supporting this recommendation may be furnished upon request. This report is not directed
to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where
such distribution, publication, availability or use would be contrary to law or regulation or which would subject Jackson Securities or its affiliates to any
registration or licensing requirement within such jurisdiction. This report is prepared for the use of Jackson Securities clients and may not be redistributed,
retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Jackson Securities.

JACKSON Brian Bolan 6

SECURITIES, Research Analyst – Technology
LLC
Yahoo! (YHOO)

Jackson Securities, LLC.

Equity Research

Atlanta Chicago Stamford Dallas Houston

Miami Sacramento Bethesda Milwaukee

300 S. Wacker Drive

Suite 2450
Chicago, IL 60606
Phone: 312.986.8200
Fax: 312.986.0560
Trading: 1.800.642.1233

JACKSON Brian Bolan 7

SECURITIES, Research Analyst – Technology
LLC