Report

March 31,
2004 2005
Revenues $ 757,786 $ 1,173,742
Cost of revenues 281,705 453,297
Gross profit 476,081 720,445
Operating expenses:
Sales and marketing 166,295 230,519
Product development 76,989 119,349
General and administrative 57,556 73,545
Stock compensation expense (*) 12,572 9,466
Amortization of intangibles 30,512 40,203
Total operating expenses 343,924 473,082
Income from operations 132,157 247,363
Other income, net 14,378 49,994
Income before income taxes, earnings in equity interests, 146,535 297,357
minority interests
Provision for income taxes (64,709) (120,435)
Earnings in equity interests 19,868 29,378
Minority interests in operations of consolidated subsidiaries (482) (1,740)
Net income $ 101,212 $ 204,560
Net income per share - diluted $ 0.07 $ 0.14
Shares used in per share calculation - diluted 1,426,548 1,477,811
(*) Stock compensation expense is allocated as follows:
Sales and marketing $ 3,605 $ 1,490
Product development 4,723 3,262
General and administrative 4,244 4,714
Total stock compensation expense $ 12,572 $ 9,466
Supplemental Financial Data (See Note)
Revenues excluding traffic acquisition costs ("TAC") $ 550,150 $ 820,755
Operating income before depreciation and amortization $ 210,921 $ 345,062
Free cash flow $ 197,286 $ 317,566
Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Yahoo! Inc.
Note to Unaudited Condensed Consolidated Statements of Operations
This press release includes the non-GAAP financial measures of revenues excluding traffic acquisition costs, operating
income before depreciation and amortization, and free cash flow, which are reconciled to gross profit, income from
operations, and cash flow from operating activities, respectively, which we believe are the most comparable GAAP
measures. We use these non-GAAP financial measures for internal managerial purposes, when publicly providing
business outlook, and as a means to evaluate period-to-period comparisons. These non-GAAP financial measures are
used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial
measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and
the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding
of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and
not as a substitute for, or superior to, gross profit, income from operations, and cash flow from operating activities
calculated in accordance with generally accepted accounting principles.
Revenues excluding traffic acquisition costs or TAC is defined as gross profit plus other cost of revenues. Under
GAAP, both our revenues and cost of revenues include TAC. In defining revenues excluding TAC as our non-GAAP
gross profit measure, we have removed TAC from both revenues and cost of revenues. TAC consists of payments
made to affiliates that have integrated our sponsored search offerings into their websites and payments made to
companies that direct consumer and business traffic to the Yahoo! website. We present revenues excluding TAC: (1)
to provide a metric for our investors to analyze and value our Company and (2) to provide investors one of the primary
metrics used by the Company for evaluation and decision-making purposes. We provide revenues excluding TAC
because we believe it is useful to investors in valuing our Company. One of the ways investors value companies is to
apply a multiple to revenues. Since a significant portion of the GAAP revenues associated with our sponsored search
offerings is paid to our third party affiliates, we believe investors find it more meaningful to apply multiples to
revenues excluding TAC to assess our value as this avoids “double counting” revenues that are paid to, and being
reported by, our third party affiliates. Further, management uses revenues excluding TAC for evaluating the
performance of our business, making operating decisions, for budgeting purposes, and as a factor in determining
management compensation. A limitation of revenues excluding TAC is that it is a measure which we have defined for
internal and investor purposes that may be unique to the Company and therefore it may not enhance the comparability
of our results to other companies in our industry who have similar business arrangements but address the impact of
TAC differently.
Operating income before depreciation and amortization is defined as income from operations before depreciation,
amortization of intangible assets and amortization of stock compensation expense. We consider operating income
before depreciation and amortization to be an important indicator of the operational strength of the Company. This
measure eliminates the effects of depreciation, amortization of intangible assets and amortization of stock
compensation expense from period to period, which we believe is useful to management and investors in evaluating the
operating performance of the Company, as depreciation and amortization costs are not directly attributable to the
underlying performance of the Company's business operations. A limitation associated with this measure is that it does
not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the
Company's businesses. Management evaluates the costs of such tangible and intangible assets through other financial
measures such as capital expenditures. A further limitation associated with this measure is that it does not include
stock compensation expenses related to our workforce. Management compensates for this limitation by providing
supplemental information about stock compensation expense on the face of the consolidated statements of operations.
Free cash flow is defined as cash flow from operating activities less net capital expenditures. We consider free cash
flow to be a liquidity measure which provides useful information to management and investors about the amount of
cash generated by the business after the acquisition of property and equipment, which can then be used for strategic
opportunities including, among others, investing in the Company's business, making strategic acquisitions,
strengthening the balance sheet and repurchasing stock. A limitation of free cash flow is that it does not represent the
total increase or decrease in the cash balance for the period.
Three Months Ended
March 31,
2004 2005
Revenues for groups of similar services (*):
Marketing services $ 665,046 $ 1 ,024,796
Fees 9 2,740 1 48,946
Total revenues $ 7 57,786 $ 1 ,173,742
Revenues by segment:
United States $ 5 99,271 $ 8 18,726
International 1 58,515 3 55,016
Total revenues $ 7 57,786 $ 1 ,173,742
Cost of revenues:
Traffic acquisition costs ("TAC") $ 2 07,636 $ 3 52,987
Other cost of revenues 7 4,069 1 00,310
Total cost of revenues $ 281,705 $ 4 53,297
Revenues excluding TAC:
Gross profit $ 4 76,081 $ 7 20,445
Other cost of revenues 7 4,069 1 00,310
Revenues excluding TAC $ 5 50,150 $ 8 20,755
Revenues excluding TAC by segment:
United States:
Gross profit $ 3 89,108 $ 5 40,089
Other cost of revenues 6 2,617 7 8,803
Revenues excluding TAC $ 4 51,725 $ 6 18,892
International:
Gross profit $ 8 6,973 $ 1 80,356
Other cost of revenues 1 1,452 2 1,507
Revenues excluding TAC $ 9 8,425 $ 2 01,863
Operating income before depreciation and amortization:
Income from operations $ 132,157 $ 2 47,363
Depreciation and amortization 66,192 8 8,233
Stock compensation expense 1 2,572 9 ,466
Operating income before depreciation and amortization $ 210,921 $ 3 45,062
Operating income before depreciation and amortization by segment:
Operating income before depreciation and amortization - United States $ 191,254 $ 2 70,415
Operating income before depreciation and amortization - International 19,667 7 4,647
Operating income before depreciation and amortization 210,921 3 45,062
United States:
Income from operations $ 121,289 $ 1 90,018
Depreciation and amortization 59,300 7 1,603
Stock compensation expense 1 0,665 8 ,794
Operating income before depreciation and amortization - United States $ 191,254 $ 2 70,415
International:
Income from operations $ 10,868 $ 5 7,345
Depreciation and amortization 6,892 1 6,630
Stock compensation expense 1 ,907 6 72
Operating income before depreciation and amortization - International $ 19,667 $ 7 4,647
Free cash flow:
Cash flow from operating activities $ 235,975 $ 3 85,715
Acquisition of property and equipment, net (38,689) ( 68,149)
Free cash flow $ 197,286 $ 3 17,566
Yahoo! Inc.
Reconciliations to Unaudited Condensed Consolidated Statements of Operations
(in thousands)
(*) Yahoo! currently classifies its revenues as either Marketing Services or Fees. For the quarter ended March 31, 2004, Yahoo! reclassified previously reported
Marketing Services revenues of $4 million as Fees in order to refine its alignment of revenue sources with these classifications.
Yahoo! Inc.
Business Outlook
Business Outlook
Three months Year
ending ending
June 30, December 31,
2005 2005
Revenues excluding traffic acquisition costs (*) ("TAC") outlook (in millions):
Gross Profit $748-$778 $3,120-$3,235
Other cost of revenues 107-117 445-480
Revenues excluding TAC $855-$895 $3,565-$3,715
Operating income before depreciation and amortization (*) outlook (in millions):
Income from operations $238-$249 $1,075-$1,120
Depreciation and amortization 92-98 385-405
Stock compensation expense 10-13 40-50
Operating income before depreciation and amortization $340-$360 $1,500-$1,575
(*) Refer to Note to Unaudited Condensed Consolidated Statements of Operations.
The following business outlook is based on current information and expectations as of April 19, 2005. Yahoo!'s business outlook as of today is
expected to be available on the Company's Investor Relations Web site throughout the current quarter. It is currently expected the outlook will not
be updated until the release of Yahoo!'s next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may
update the outlook or any portion thereof at any time.
Three Months Ended
March 31,
2004 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1 01,212 $ 204,560
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6 6,192 88,233
Tax benefits from stock options 6 0,750 107,527
Earnings in equity interests (19,868) (29,378)
Minority interests in operations of consolidated subsidiaries 4 82 1,740
Stock compensation expense 1 2,572 9,466
(Gain)/loss from sale of investments, assets and other, net (1,273) (14,268)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 1 ,189 (30,417)
Prepaid expenses and other (4,410) 19,108
Accounts payable (17,909) (24,626)
Accrued expenses and other liabilities 3 2,303 45,219
Deferred revenue 4 ,735 8,551
Net cash provided by operating activities 2 35,975 385,715
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net (38,689) (68,149)
Purchases of marketable debt securities (911,515) (1,636,760)
Proceeds from sales and maturities of marketable debt securities 9 17,032 1,777,385
Acquisitions, net of cash acquired (43,767) (53,970)
Proceeds from sales of marketable equity securities 1 ,351 11,382
Other investing activities, net 9 ,560 11,318
Net cash provided by (used in) investing activities (66,028) 41,206
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 9 2,295 90,304
Repurchase of common stock - (164,895)
Structured stock repurchase, net (50,000) (96,202)
Other financing activities, net - 800
Net cash provided by (used in) financing activities 4 2,295 (169,993)
Effect of exchange rate changes on cash and cash equivalents 3 ,040 10,259
Net change in cash and cash equivalents 2 15,282 267,187
Cash and cash equivalents, beginning of period 4 15,892 823,723
Cash and cash equivalents, end of period $ 6 31,174 $ 1,090,910
Supplemental schedule of investing activities:
Cash paid for acquisitions $ 5 0,684 $ 5 3,997
Cash acquired in acquisitions ( 6,917) (27)
$ 4 3,767 $ 53,970
$ 2,209 $ 37,766
Common stock, restricted stock and stock options issued in connection with
acquisitions
Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
December 31, March 31,
2004 2005
ASSETS
Current assets:
Cash and cash equivalents $ 823,723 $ 1,090,910
Marketable debt securities 1,875,964 1,490,066
Marketable equity securities 812,288 751,291
Accounts receivable, net 479,993 514,497
Prepaid expenses and other current assets 98,507 76,808
Total current assets 4,090,475 3,923,572
Long-term marketable debt securities 1,042,575 1,270,832
Property and equipment, net 531,696 552,959
Goodwill 2,550,957 2,540,309
Intangible assets, net 480,666 534,893
Other assets 481,832 482,400
Total assets $ 9,178,201 $ 9,304,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,205 $ 25,870
Accrued expenses and other current liabilities 853,115 876,696
Deferred revenue 279,387 289,709
Total current liabilities 1,180,707 1,192,275
Long-term deferred revenue 65,875 65,196
Long-term debt 750,000 750,000
Other long-term liabilities 35,907 38,467
Minority interests in consolidated subsidiaries 44,266 46,849
Stockholders' equity 7,101,446 7,212,178
Total liabilities and stockholders' equity $ 9,178,201 $ 9,304,965
Yahoo! Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)