JACKSON SECURITIES, LLC

Research for the Prudent Investor

Date 12/14/06 Yahoo! (YHOO): Maintain

Current Price $26.60
HOLD rating, lowering price
52WK HI $43.66
52WK LO $22.65
target.
EPS (TTM) $0.79 • Industry: Internet Services
Shares Outstanding 1.4B • YHOO: NASDAQ; $26.60
Market Cap. $36B • 12-month price target: $26.00
Dividend Yield NA 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
Price/Earnings (TTM) 33.8X
Price/Sales (TTM) 5.8X
EV/Revenue (TTM) 5.6X
EV/EBITDA (TTM) 18X
EBITDA (TTM) $1.94B

Brian Bolan
Research Analyst
Technology Company Description
Jackson Securities, LLC Yahoo! is an internet search and technology platform for all media that has
300 S. Wacker Dr., Suite 2450 established itself as the leader in its growing market. Yahoo! has transition to
Chicago, IL 60606 more than just a search engine to become a destination site and platform for new
media delivery.
Ph: (312) 253-0578
Fax: (312) 986-0560 Valuation and Recommendation:
bbolan@jacksonsecurities.com We are releasing our estimates for 2007 and lowering our price target for Yahoo!.
While some may think the worst may be over, we would rather remain cautious in
our stance at this time. We continue to recommend investors HOLD shares of
Yahoo!.

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 4.
Analyst Certification is found on page number 4.
Yahoo! (YHOO)

Project Panama is meeting deadlines

A report came out that Yahoo! has begun to rollout the much
anticipated new search backbone that has been called Project
Panama. This “soft” launch is allowing customer to migrate to the
new system over the next few months, so a financial impact will
likely not be seen until next quarter.

We view this as a moderate positive for the stock, and a

development that we hoped would occur

Peanut Butter

The peanut butter manifesto, penned by Brad Garlinghouse was a

call to arms and was the catalyst that forced Terry Semel’s hand to
split the company into three divisions. The fallout from the
manifesto is that Dan Rosensweig (COO) is out and Sue Decker is
better position for the CEO role should Semel continue to produce
“status quo” results.

Earnings Estimates

We are releasing our 2007 earnings estimates for Yahoo!, with a

bottom line number of $0.58 per share for the CY07. We were
somewhat aggressive with out estimates but still below the
consensus on Wall Street. We note that our estimates are heavily
weighted to the back half of the year, possibly making the stock
less attractive to investors during the first six months of 2007.

We are also lowering our price target to $26 per share from $33
per share.

JACKSON Brian Bolan 2

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

Yahoo! Income Statement ($ in millions, except per share)

Q1 Q2 Q3 Q4E 2006E Q1E Q2E Q3E Q4E 2007E
Marketing Services, Gross 1,380.9 1386 1370 1540 5,676.9 1,605 1,690 1,910 2,195 7,400.0
Less: TAC 479.4 453 459 539.0 1930.4 554 592 678 779 2602.5
Marking Services, Net 901.5 933 911 1001.0 3746.5 1,051 1,099 1,232 1,416 4797.5
Fees 186.2 190 210 240 826.2 245 250 265 300 1,060.0
Total Net Revenues 1,087.7 1123.0 1121.0 1241.0 4572.7 1296.3 1348.5 1497.0 1715.8 5857.5
Gross Revenues 1,567.1 1576 1580 1780 6503.1 1850 1940 2175 2495 8460

Cost of Sales 176.9 193.0 222.0 230.0 821.9 216.5 233.3 269.5 326.0 1045.2
Gross Profit 910.8 930.0 899.0 1011.0 3750.8 1079.8 1115.2 1227.5 1389.8 4812.3

Operating Expenses
Sales and Marketing 292.3 325.0 331.0 335.0 1283.3 350 375 400 425 1550.0
R&D 179.9 208.0 202.0 205.0 794.9 225 235 250 275 985.0
General and Adminis. 97.9 131.0 130.0 115.0 473.9 135 140 145 150 570.0
Amortization 30.9 34.0 32.0 30.0 126.9 30 30 30 30 120.0
Stock Comp 108.6 100.0 121.0 125.0 454.6 150 165 180 195 690.0
Total Op Expenses 709.6 798.0 816.0 810.0 3133.6 890.0 945.0 1005.0 1075.0 3915.0

Operating Income 201.2 229.0 202.0 201.0 617.2 189.8 170.2 222.5 314.8 897.3

Interest Income & Other 35.4 36.0 50.0 55.0 176.4 57 59 61 62 239.0

Pre-Tax Income 236.6 265.0 252.0 256.0 793.6 246.8 229.2 283.5 376.8 1136.3
Taxes 109.9 122.7 124.0 120.3 476.9 96.3 89.4 110.6 143.2 439.4

Equity Earnings 26.4 21.6 30.0 27.0 105.0 27 27 27 27 108.0

Minoritiy Interest (0.3) (0.3) 0.1 0.1 (0.4) 0.1 0.1 0.1 0.1 0.4

Net Income 159.9 163.6 159.0 162.8 421.3 177.6 166.9 200.0 260.7 805.3

EPS $0.11 $ 0.11 $ 0.11 $ 0.12 $ 0.45 $ 0.13 $ 0.12 $ 0.15 $ 0.19 $ 0.58

Fully-Diluted Shares 1,493.3 1,476.6 1,442.4 1,410.0 1,455.6 1400 1380 1375 1370 1,381.3

Source: Yahoo! Company Reports, Jackson Securities estimates

JACKSON Brian Bolan 3

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
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JACKSON Brian Bolan 4

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

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JACKSON Brian Bolan 5

SECURITIES, Research Analyst – Technology
LLC