Yahoo Inc. (YHOO) Initiated with Perform Rating on Equity Research

WILLIAMS CAPITAL RESEARCH
Equity Research Yahoo Inc. (NASDAQ:YHOO)
Company Update Current Rating: PERFORM

December 17, 2010 Initiating Coverage with a Perform Rating

Internet Analyst: Brian Bolan 773 413 0285; bolan@willcap.com

Trading Desk: NY 800-924-1511 CT 800-688-6349

YHOO Perform Fiscal Year Calendar Year Curr. Q. 1 yr ago Next 4 Quarters
Key Data
Price: $16.51 (Rev in Dec-10 Dec-09 Mar-11 Jun-11 Sep-11 Dec-11
FY09 FY10E FY11E CY09 CY10E CY11E
Price Target: $18.00 $bns) F4Q10E F4Q09 F1Q11E F2Q11E F3Q11E F4Q11E
52 Week High: $19.12 Rev prev: NA NA NA NA NA NA NA NA NA NA NA NA
52 Week Low: $12.94 Rev 6.460 6.517 6.801 6.460 6.517 6.801 1.718 1.732 1.619 1.659 1.673 1.849
NTM P/E: 16x EPS NA NA NA NA NA NA NA NA NA NA NA NA
prev:
EPS
Market Cap ($B): 21.52 $0.61 $0.67 $0.84 $0.61 $0.67 $0.84 $0.18 $0.15 $0.19 $0.20 $0.20 $0.25
Ent Value ($B): 19.00 EV/S: 2.94x 2.92x 2.79x 2.94x 2.92x 2.79x
Shares Outstdg (M): 1.30 P/E 27.07x 24.64x 19.65x 27.07x 24.64x 19.65x
Avg Daily Volume (M): 18.90
Cash/Share: 2.16
BV/Share: 9.28

Yet Another Hierarchical Officious Oracle is the acronym for Yahoo!. Yahoo! was first made available in 1994
and has grown to serve more than 2.3 billion visits per month. Through its search engine, users can navigate the
web and find useful information along with tools to communicate with others.

The economic downturn and attempted acquisition by Microsoft (Nasdaq: MSFT - $27.99, not rated) has provided
large distractions to a company that quite literally cannot afford another distraction. Having reached a deal with
Microsoft to handle the search, the company is focusing on display and improving technology to better serve large
clients.

We believe that the fundamentals will improve slightly throughout the remainder of the year but that this is
already in the stock. Upside surprises to US market share are expected by management although we are
somewhat sceptical. We expect display to lead most of the upside for Yahoo! in the second half of 2010 as search
looks to us to be a margin enhancer instead of its previous role as revenue growth supplier.

At 31x trailing twelve months earnings, we believe that Yahoo! is fairly valued despite the difficulty in assigning
value to the Asian assets the firm has. We initiate coverage on Yahoo! with a Market Perform rating and a 12-
month price target of $18.00 based on a 21x multiple of our 2011 earnings estimate.

Industry Discussion

The internet search market is dominated by Google but still has several major competitors. While some smaller
players are still around, the majority of the attention in the space is focused on Google, Yahoo! and
Microsoft(Bing). Other companies like AOL Inc. (NYSE: AOL - $24.84, not rated) and Ask.com are still

PLEASE SEE THE APPENDIX TO THIS REPORT ON PAGES 14‐17 FOR IMPORTANT DISCLOSURES, REG AC
ANALYST CERTIFICATION AND DISCLAIMERS
Brian Bolan Bolan@willcap.com Trading NY 800-924-1511, CT 800-688-6349

WILLIAMS CAPITAL RESEARCH PAGE 2 December 17, 2010

relevant in terms of market share, but few others have been able to make or sustain an impact in the industry.
Search sites, unlike popular portals, have maintained their position as starting points for users. Yahoo! made
being the starting point for users a key strategic initiative, demonstrating the importance of being first. Whether
users prefer content on the starting page or a search box, it is clear that search will continue to be a dominate
platform for the internet.

Taking the search engine beyond the search home page has been the goal of the major search companies over the
last several years. They have utilized the ability to quickly index a page, scan it for keywords or phrases and
deliver highly targeted ads that match the content of the specific page. The best example of this was in the social
networking space as Google outbid competitors to deliver ads to one of the most trafficked sites, the News Corp-
owned MySpace. The deal focused on better monetizing the massive traffic on the site and led its major
competitor to enlist the help of Microsoft to serve its ads. The difference in the two deals was a $15 billion
valuation that was given to Facebook by Microsoft via a minority stake investment. With the investment,
Microsoft became the ad serving agent for Facebook, the popular social networking site.

A watershed moment came during the 4Q07 Google earnings conference call. The company noted that it was
facing challenges in monetizing the traffic that MySpace was generating. Microsoft sensed weakness and moved
to attempt to level the playing field in the search space by making a $46B bid for Yahoo!. An arduous fight
ensued as Yahoo! was determined to remain independent and struck an accord with Google in an effort to escape
Microsoft’s bear hug. Yahoo! successfully thwarted the takeover attempt; however, it continues to see its market
share decrease. Microsoft has abandoned its quest for a complete purchase of Yahoo! and has instead moved to
join forces with Yahoo! and combine the search efforts of Bing with Yahoo! to better compete with Google.

Yahoo! stayed out of the competition for server ads to the major social networks, with Microsoft investing in and
serving ads for Facebook, while Google still delivers ads for MySpace. Display rates came down significantly in
the economic downturn as ad buying mainstays of Auto’s and Finance verticals both suffered more than most.
Rates have returned as ad budgets for online brand buys have increased in 2010.

Where the growth will come from

Much has already been said about the shift of ad budgets to online from offline. We believe this trend will
continue; but just as that trend continues to accelerate, another segment is at its nascent stage. Mobile phones
have become more sophisticated in the last few years, with BlackBerry maker Research in Motion still leading the
way in terms of market share. What was a battle between BlackBerry and Palm has turned into a race with
several competitors, the most notable of which is Apple’s (Nasdaq: AAPL - $321.25, not rated) iPhone. The rich
content of the web has moved from the PC to the smartphone. The potential to target consumers via tracking
movement and purchases subsidized via advertising could significantly change how commerce is enacted.

As new technology comes to market, we believe that consumers will embrace smartphones and their features. It
may be some time before consumers are willing to allow for web-based payments to take share from credit cards,
but it is something that makes sense over the long term. This bodes well for the platform that is the most robust
which, by definition, will allow for the most applications.

We believe that Yahoo! will take an agnostic approach to the two key platforms of Android and Apple and
develop applications for both. We would note that the Yahoo Search app for iPhone with its drawing features is a
strong competitor in the market.



Market Share

Over the last several years, market share has been measured by several companies that purchase the “clickstream”
of users from internet service providers (ISP). This raw data is analyzed to determine how many searches were
made in a specific time frame (generally one month) and where they were made. This data is not fully endorsed
by the search companies, but the trends are usually in agreement with the search companies’ internal logs.

Google is the dominant search company with almost 70% of the worldwide market as tabulated by comScore.
We believe that Google’s market share of search will continue to grow and will approach the 75% level in the
summer of 2011. Yahoo!, on the other hand, has seen its share of the US and worldwide markets continue to fall.
We believe that this trend will continue despite the search partnership the company entered into with Bing. With
only a year under Bing’s belt it is hard to compare it to Yahoo! and Google, but it is a significant change from the
MSN search stats Microsoft used to deliver. Early results for March indicate that Yahoo! gained share from both
Google and Bing, and showed some signs of stabilization in what had been a year-long pattern of market share
losses for Yahoo!.

Going forward, we believe that search market share numbers will focus mostly on worldwide measurements as
opposed to domestic vs. international. That being said, Google dominance is unquestioned worldwide, although
there are smaller segments of the world where Google is not the leader. Yandex is the leader in Russia, but this
market is small compared to the US.

Exhibit 1

Source: Company reports and Williams Capital Research

Seasonality

There is an issue of seasonality that affects internet usage and internet companies. The general consensus is that
usage slows during the summer months as the weather draws more people to outdoor activities. The later part of
the third quarter is buoyed by back to school when traffic increases from academic sources. The fourth quarter is
traditionally the strongest quarter as the combination of the educational segment and the searches that arise from
the holiday shopping and travel season increase traffic.



Comparable Companies

Yahoo! faces competition from numerous sources, and while it produces its own content, it partners with
newspapers and other media partners in attempts to drive traffic. The company relies on both the search engine
and its owned media properties for a majority of its revenue. The search deal with Microsoft makes that
comparable a moot point in terms of search, as the two search engines will likely begin producing the exact same
results. In essence the same search will produce the same results at Bing as well as the Yahoo! search. We
believe this will, over time, shift market share from Yahoo! search to Bing.

Google (NASDAQ: GOOG - $591.71, rated Outperform) - Google dominates the search market with
approximately 65% of US market share and has a sizeable digital footprint. Through its acquisition of
DoubleClick, it also participates in the display business placing ads on properties the company owns as well as
for Network partners. Google has a substantial balance sheet and the ability to make large acquisitions or
develop costly operations from scratch.

Aol. (NYSE: AOL - $321.25, not rated) - After a spin out from Time Warner, Aol. is now a primary competitor
with Yahoo! in the highly competitive fields of display advertising, email and instant messaging. Aol. search is
enhanced by Google and maintains roughly 3-4% of the domestic search market. Lately, the company has
focused more on producing localized content on which it runs display advertisements.

Microsoft (NASDAQ: MSFT- $27.99, not rated) - Despite being a key partner in search, Microsoft also offers
an ad network to publishers to reach mobile, content (display) and search platforms. Although the online division
of Microsoft is not a significant portion of total revenue contribution, we believe that the company will continue
to compete in the space.

Baidu (NASDAQ: BIDU - $98.31, not rated) - The Chinese search engine is a competitor in the international
space. Based in China, Baidu has seen its stock soar since its IPO and has dominated the Chinese language
search market. Though most of its appeal has been its MP3 search and downloads, Biadu competes with
Yahoo!’s Asian properties

Yandex (Private Company) – Yandex is a Russian search engine that has 19 million daily users and is growing
fast in Eastern Europe. The company’s market share in Russia increased from 56% in January 2009 to 62% by
February of 2010 with page-views of 10 billion in December 2009. Google had 21.8% market share in Russia in
February 2010.



Exhibit 2

Source: Google Finance, recent prices

Company Background

Yahoo!, which recently turned 15 years old, has seen a dramatic series of events that most parents of
teenagers understand. From birth to bubble to bust to buyout, this company has gone through a lot and
continues to be a leader in the internet. To get a better understanding of the company we are looking at
each unit and how it has performed over the last few years.

Exhibit 3

Source: Company reports & Williams Capital Research

Search

Owned and Operated (O&O) Search has been a source of disappointment since its revenue peaked back in 3Q08,
as the broader economy began to turn. The company struggled the rest of the year but entered 2010 with more
disappointments in search.



Exhibit 4


We believe that the search deal with Microsoft will ultimately improve margins as the company continues to
focus of driving more display share.

Display

The Display business is best characterized by brand-building advertisements. These command lower rates than
search-based ad rates as search is more a “point of purchase” style advertisement. With the economy recovering,
display rates are likely to move higher off of what are likely artificially low rates over the past few quarters.
With more devices coming to market (iPad, Slate, and smartphones) we believe that total impressions will grow
in the remainder of the year despite the fact that Yahoo! saw 0% pageview growth in 1Q10.

Exhibit 5


Affiliate
Yahoo! noted on its 1Q10 conference call that it is working to deepen its relationship with significant partners,
and we believe that its continued focus on better ad serving technology will pay off in the form of higher revenue



from affiliates. With Yahoo!’s reach of 600 million audience members, it remains a high priority for most
advertisers.

Exhibit 6


Listings and Services

The decrease in revenues in Listings and Services is likely to continue as Yahoo! sold HotJobs to Monster.com in
February 2010. This change could have affected the listings at HotJobs in the quarter outside of the pre-existing
contracts.

Exhibit 7


Fees

Fees revenue declined 11.7% sequentially in 1Q10 as broadband partnership shifted to advertising from a fee-
based structure. At the end of CY08, Yahoo! had 19 million fee-paying customers and by the end of the
following year that number stood at 9.7 million. We expect to see further decreases in the fee revenue line item
over the course of the year.



Exhibit 8


Acquisitions

Yahoo! has a history of acquiring companies, but lately the track record has been less than stellar. The Company
proved that it wasn’t afraid of large scale acquisitions when it purchased Overture or the $5 billion price tag it
paid for the Mark Cuban Broadcast.com company. Since that time the company continued eating up smaller
companies, some of which eventually dissolved and some that failed to reach their pre-acquisition hype.

Yahoo! bought a couple of ad exchanges over the last two years including RightMedia and Blue Lithium. The
move brought a new model (exchange) to Yahoo! but we have seen little evidence that the marketplace is about to
shift the way it purchases ads.

We believe the takeaway from the last two acquisitions (Maktoob.com in August 2009 and citizensports.com in
March 2010) shows the company will continue to add to its platform despite its currency (stock) being weaker
than it has been over the last few years. That said, we do not believe that any significant acquisitions are in the
works for Yahoo!.

Management

Venture Capitalists have a saying about management, ‘the jockey is just as important as the horse.’ This means
that management can make or break even the best of ideas. That seemed to be the case over the last several years
with Yahoo!. Terry Semel, a former CEO of Yahoo! wanted to position the company as close as he could to
Hollywood in order to develop media relations and advertising partnerships. One too many misses of earnings
led him to leave the position and he was replaced by co-founder Jerry Yang.

Jerry Yang’s tenure as CEO was far shorter, as Microsoft attempted to acquire Yahoo! but Yang did not want to
see the company he founded be sold to what many in the technology industry consider to be the new age “Big
Brother”.

The hiring of Carol Bartz was a surprise move going with more veteran leadership that featured more crass out
takes. At the start of her tenure her energy and shakeup were welcome changes, but a brain drain of talent leaving
for start-ups and competitors has made us question the decision. A few months ago, Bartz was on a media blitz



after completing a year as CEO but still had troubles in describing what Yahoo! does and what the plan for the
future was. Our concerns with top management are that Yahoo! may be trying to be too much to too many
instead of focusing on core competencies.

Carol Bartz Ms. Bartz has served as Chief Executive Officer and as a member of the Board of Directors since
January 2009. Ms. Bartz served as the Executive Chairman of the Board of Autodesk, Inc., a computer-aided
design software provider, from May 2006 to February 2009, as Chairman, President and Chief Executive Officer
of Autodesk from April 1992 to April 2006 and as a director of Autodesk from April 1992 to February 2009.

Tim Morse, Prior to joining Yahoo!, Morse was the CFO of Altera Corporation, a semiconductor company
specializing in programmable logic devices for communications, industrial, and consumer applications, where he
established scalable, cost-effective processes and controls. He previously served as the CFO and general manager
of business development for General Electric Plastics.

The recent loss of Hilary Schneider speaks to the continuous turmoil at the top as Yahoo! has struggled with
giving its vision clarity. We expect Yahoo! to begin to look at poaching talent from companies like AOL and
Google as it continues to tweak its value proposition to the market. Much as being a one stop shop in the
financial sector did not work, we do not believe that advertisers or consumers are looking for one place, one site
to handle all of their digital needs. The recent layoffs of 600-700 employees will also work against the general
morale of the people that remain at Yahoo!

Financial Statement Analysis

Yahoo!’s Income Statement showed year over year top line growth for consecutive quarters the first time in
several quarters with Display increasing 20% year over year in 1Q10 and 19% year over year in 2Q10. Affiliates
also contributed to the growth but it was the only other line item to show year over year growth. We anticipate
year over year growth of 4% in the remaining quarter of 2010.

Yahoo! will have a complex year financially with the Microsoft search deal providing some cost savings for the
company and potentially lowering expected R&D costs towards the end of the year. With less of a focus on
search, the company will likely be looking to display and affiliates to pick up any revenue shortfall. We expect
margins, on a whole to begin to improve over the next several quarters.

Balance Sheet

At the end of 2Q10, Yahoo! had more than $3.8 billion in cash and equivalents and marketable securities, down
from $4.14 billion following the first quarter of 2010. During the most recent quarter, the company repurchased
32 million shares for $496 million. On June 24 a new buyback of $3 billion was authorized, and we expect the
company to continue to repurchase shares.

Yahoo! does not have any long term debt at this time. We do not expect Yahoo! to take on any long term debt in
the foreseeable future.

Asian Assets

The company holds a significant interest in two Asian internet properties, Yahoo! Japan and Alibaba Group.
These investments have caused a great deal of consternation among investors and the press as calls for
monetization have not been answered. Given the tax implications, lack of liquidity, and general lack of premium



buyers, we expect Yahoo! to continue to hold these assets for the foreseeable future. Yahoo! holds approximately
35% ownership of Yahoo! Japan and a 44% ownership of the Alibaba Group.

Over the last few years there has been a call to monetize these assets and or call attention so that the market will
reflect the value of these assets in the Yahoo! share price. We believe that assets hold value, but investors should
be more concerned with the day-to-day operations of the company instead of looking for a monetization event.
Should the company move to monetize any of the Asian assets, it may be interpreted as sign of weakness and the
near term financial gain may be undermined by longer term pressure on the stock.

Financial Outlook

The company has noted that its current goals are to increase margins, and the Microsoft Search deal will go a long
way to helping that happen. We expect that better rates for the display business combined with better audience
targeting will result in better performance for Yahoo! in 2010.

We are not overly aggressive in terms of our estimates for Yahoo! as we are skeptical that the company will
substantially improve its search share. At the same time, we believe that margins should expand as costs move
lower and revenue improves slightly.

Recommendation and Valuation

We are initiating coverage of Yahoo! with a Market Perform rating and a one-year price target of $18. Over the
last year, we have seen severe multiple contraction as revenue deceleration has taken its toll on the valuation. We
see potential for improvements for the display business and increases in operating margin due to the Microsoft
deal to help the financial outlook for 2011. Our price target is derived off of a 21x multiple of our 2011 earnings
estimate.

Having been a member of the “Nifty-Fifty” (50x forward earnings) in the past, Yahoo! has seen its valuation
readjusted after the Microsoft offer and subsequent search deal. We believe that Wall Street discounts the Asian
assets slightly more than the approximate $8.3 billion value they have as a sale or greater monetization is
unlikely. The weak cash position compared to two of its main rivals is also an aspect that we believe has to factor
into overall valuation.

Our price target of $18 per share is derived by a multiple of 21x our 2011 earnings estimate of $0.84.

Investment Risks

If the company experiences any or all of the following risk factors, as well as others, the company’s stock price
may be affected.

 Advertisers reduce internet budgets. Advertising is the source of the majority of Yahoo!’s revenue. Should
advertisers lose faith in the internet as a medium for advertisements Yahoo! would suffer a significant
revenue slowdown.

 A better advertising platform is developed for internet advertising. Search has been the dominant



application on the internet for the last ten years. Should another application become more acceptable than
search, advertisers could move budgets from search to that platform.

 Competition is intense and moves quickly. Yahoo! faces intense competition from Google and AOL among
others. Should a competitor develop a more efficient and relevant search engine, a better email platform,
or a more compelling display platform, Yahoo! would be severely impacted.

 Future growth is predicated on success of mobile. Many of our assumptions of growth are based on the
future success of all things mobile. Should Yahoo! fail to adapt to a changing environment that focuses on
mobile delivery of search and display ads, the company would face significant challenges.

 Loss of key management. Turnover at Yahoo! has been significant concern for some time and continues to
remain a challenge to top management. Should this trend continue the talent drain will result in an
inability to properly serve clients which would put future revenues at risk.

Exhibit 9




Yahoo! 3Q10 Income Statement Analysis

Exhibit 10




Yahoo! Income Statement

Exhibit 11




Appendix -
Exhibit 12 Two Year Price Chart

Yahoo Inc. (YHOO) Price Perform ance Chart (Rating and Target)
14-Dec-2007 to 15-Dec-2010 (Daily)
Ratings: O=Outperform; P=Perform; U=Underperform
35

30

P $18.00 25

20

15

10

5
1/08 4/08 7/08 10/08 1/09 4/09 7/09 10/09 1/10 4/10 7/10 10/10
Yahoo! Inc.
Source: FactSet Prices

Prices as of December 16th, 2010.

ANALYST CERTIFICATION

I hereby certify that the views expressed in the foregoing research report accurately reflect my
personal any of the subject companies mentioned in this report. I further certify that no part of
my compensation was, is, or will be directly, or indirectly, related to the specific
recommendations or views contained in this research report.

Financial Interests: Neither I, Brian Bolan, nor a member of my household owns securities
in any of the subject companies mentioned in this research report. Neither I, nor a member of
my household is an officer, director, or advisory board member of the issuer or has another
significant affiliation with the subject company. I do not know or have reason to know at the
time of this publication of any other material conflict of interest.

By: Brian Bolan

Williams Capital Research DISCLOSURE INFORMATION

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

Analyst Compensation: The author's compensation is based upon the value directly or
indirectly attributed to the research services by Williams Capital institutional brokerage
clients. The author of this report is compensated based on the performance of the firm, and
has not received any compensation in the past 12 months from any of the subject companies
mentioned in this report. The performance of the firm is driven by its secondary trading
revenues, investment banking revenues, and asset management revenues.



Williams Capital Group does not act as a market-maker.

Williams Capital Group does act as a block positioner.

WILLIAMS CAPITAL RESEARCH STOCK RATING KEY:

Outperform: (BUY) In the analyst's opinion, the stock will outperform the sector by 5%
over the next 12 months.

Perform: (HOLD) In the analyst's opinion, the stock or sector will be in line with the sector
over the next 12 months.

Underperform: (SELL) In the analyst's opinion, the stock or sector will underperform the
sector by 5% over the next 12 months.

DISCLAIMER

The opinions, forecasts, and recommendations contained in this report are those of the analyst
preparing the report and are based upon the information available to them as of the date of the
report. The analysts are basing their opinions upon information they have received from
sources they believe to be accurate and reliable and the completeness and/or accuracy is
neither implied nor guaranteed. The opinions and recommendations are subject to change
without notice.

Williams Capital Research has no obligation to continue to provide this institutional
research product and no such obligation is implied or guaranteed. The report is provided to
the Institutional clients of Williams Capital Research for informational purposes only and
is not an offer or a solicitation for the purchase or sale of any financial instrument. The firm
does not make a market in the security of the subject company(ies) or affiliated securities. The
firm or its employees may buy or sell the subject company’s(ies’) securities or derivatives that
is/are the subject(s) of this report. And the firm from time to time may buy or sell the subject
company’s fixed income securities from customers on a principal basis. Past performance is
not an indication of future results. Calculations of price targets are based on a combination of
one or more methodologies generally accepted among financial analysts, including but not
limited to, analysis of multiples and/or discounted cash flows (whether whole or in part), or
any other method which may be applied.

Although the statements of fact in this report have been obtained from and are based upon
outside sources that the firm believes to be reliable, the firm does not guarantee the accuracy or
completeness of material contained in this report. Any such estimates or forecasts contained in
this report may not be met. Past performance is not an indication of future results. Calculations



of price targets are based on a combination of one or more methodologies generally accepted
among financial analysts, including but not limited to, analysis of multiples and/or discounted
cash flows (whether whole or in part), or any other method which may be applied. Rating,
target price and price history information on the company in this report is available upon
request.

ADDITIONAL DISCLOSURE INFORMATION:

The Williams Capital Group, L.P. or its Affiliates do and seek compensation for
investment banking services from the subject company(ies) within the next 3 months. 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 decision. Additional information
is available upon request.

“Investment Banking Clients” is defined as companies in respect of which The Williams
Capital Group, L.P. (the “firm”) or its affiliates have received or are entitled to receive
compensation for investment banking services in connection with transactions that were
publicly announced in the past 12 months.
Distribution of Equity Research Ratings as of: December 16, 2010

Outperform Perform Sell

All Research Coverage: 75% 25% 0%
Universe of IBC: 0% 0% 0%
Consumer Staples: 50% 50% 0%
Consumer Staples - IBC: 0% 0% 0%

Company Ratings History
Prior Current Target
Company Name Ticker Date Action Rating Rating Price Price
Yahoo! YHOO 16-Dec-10 Initiation of Coverage None Perform $16.51 $18.00



Valuation

We are initiating coverage of Yahoo! with a Market Perform rating and a one-year price target of $18.
Over the last year, we have seen severe multiple contraction as revenue deceleration has taken its toll on
the valuation. We see potential for improvements for the display business and increases in operating
margin due to the Microsoft deal to help the financial outlook for 2011. Our price target is derived off of
a 21x multiple of our 2011 earnings estimate.

Having been a member of the “Nifty-Fifty”(50x forward earnings) in the past, Yahoo! has seen its
valuation readjusted after the Microsoft offer and subsequent search deal. We believe that Wall Street
discounts the Asian assets slightly more than the approximate $8.3 billion value they have as a sale or
greater monetization is unlikely. The weak cash position compared to two of its main rivals is also an
aspect that we believe has to factor into overall valuation.

Our price target of $18 per share is derived by a multiple of 21x our 2011 earnings estimate of $0.84.

Risks

If the company experiences any or all of the following risk factors, as well as others, the company’s
stock price may be affected.

1. Advertisers reduce internet budgets. Advertising is the source of the majority of
Yahoo!’s revenue. Should advertisers lose faith in the internet as a medium for
advertisements Yahoo! would suffer a significant revenue slowdown.
2. A better advertising platform is developed for internet advertising. Search has
been the dominant application on the internet for the last ten years. Should another
application become more acceptable than search, advertisers could move budgets from
search to that platform.
3. Competition is intense and moves quickly. Yahoo! faces intense competition from
Google and AOL among others. Should a competitor develop a more efficient and relevant
search engine, a better email platform, or a more compelling display platform, Yahoo!
would be severely impacted.
4. Future growth is predicated on success of mobile. Many of our assumptions of
growth are based on the future success of all things mobile. Should Yahoo! fail to adapt to a
changing environment that focuses on mobile delivery of search and display ads, the
company would face significant challenges.
5. Loss of key management. Turnover at Yahoo! has been significant concern for some
time and continues to remain a challenge to top management. Should this trend continue
the talent drain will result in an inability to properly serve clients which would put future
revenues at risk.

To receive any additional information upon which this report is based, please contact the following
individuals or write to Research Production Department, Williams Capital Research, 650 Fifth Ave.,
New York, NY 10019 -

Suling Lew, Head of Institutional Sales or Jack Murphy, Director of Research
212-373-4243 203-659-6007


Yahoo Inc. (YHOO) Initiated with Perform Rating on Equity Research

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