Yahoo! Reports Third Quarter 2005 Financial Results; Revenues - $1,330 Million, Operating Income - $270 Million, Operating Income Before Depreciation and Amortization - $385 Million

"Yahoo! had another record quarter and continued to see solidgrowth across our business. We introduced a number of new andinnovative products and services and continued to provide moreeffective means for advertisers to engage with consumers," said TerrySemel, chairman and chief executive officer, Yahoo! "Our ongoingability to execute against plan and utilize our industry-leadingtechnology continues to position us for long-term growth and enablesus to provide our users with the best content and most relevant onlineexperience."

Consolidated Financial Results

-- Revenues were $1,330 million for the third quarter of 2005, a 47 percent increase compared to $907 million for the same period of 2004.

-- Marketing services revenue was $1,160 million for the third quarter of 2005, a 46 percent increase compared to $797 million for the same period of 2004.

-- Fees revenue was $170 million for the third quarter of 2005, a 55 percent increase compared to $110 million for the same period of 2004.

-- Revenues excluding traffic acquisition costs ("TAC") were $932 million for the third quarter of 2005, a 42 percent increase compared to $655 million for the same period of 2004.

-- Gross profit for the third quarter of 2005 was $810 million, a 41 percent increase compared to $574 million for the same period of 2004.

-- Operating income for the third quarter of 2005 was $270 million, a 57 percent increase compared to $172 million for the same period of 2004.

-- Operating income before depreciation and amortization for the third quarter of 2005 was $385 million, a 48 percent increase compared to $260 million for the same period of 2004.

-- Cash flow from operating activities for the third quarter of 2005 was $440 million, a 65 percent increase compared to $267 million for the same period of 2004.

-- Free cash flow for the third quarter of 2005 was $345 million, a 71 percent increase compared to $202 million for the same period of 2004.

-- Net income for the third quarter of 2005 was $254 million or $0.17 per diluted share (including a net impact of $16 million, or $0.01 per diluted share, related to the sales of investments). For the same period of 2004, net income was $253 million or $0.17 per diluted share (including a net impact of $129 million, or $0.09 per share, related to the sale of an investment and an associated tax benefit).

"We are extremely pleased with our third quarter results, whichexceeded expectations, showing strong revenue growth, continuedprofitability, and significant free cash flow," said Susan Decker,chief financial officer, Yahoo! "Our ability to deliver anotherquarter of record results, while also investing in internal operationsand external acquisitions, continues to reinforce the power of ourbusiness model."

Segment Financial Results

-- United States revenues for the third quarter of 2005 were $923 million, a 41 percent increase from the $655 million reported for the same period of 2004.

-- International revenues for the third quarter of 2005 were $407 million, a 62 percent increase from the $252 million reported for the same period of 2004.

-- United States segment operating income before depreciation and amortization for the third quarter of 2005 was $306 million, a 37 percent increase from the $223 million reported for the same period of 2004.

-- International segment operating income before depreciation and amortization for the third quarter of 2005 was $79 million, an 117 percent increase from the $36 million reported for the same period of 2004.

Cash Flow Information

Free cash flow was $345 million in the third quarter of 2005compared to $202 million for the same period of 2004. In addition tofree cash flow, Yahoo! generated $75 million from the issuance ofcommon stock as a result of the exercise of employee stock options,and $36 million in proceeds from sales of marketable equitysecurities. These increases were offset by $208 million used in directstock repurchases and a net $393 million used in structured stockrepurchase transactions. Cash, cash equivalents and investments inmarketable debt securities were $4,764 million at September 30, 2005as compared to $4,925 million at June 30, 2005, a reduction of $161million.

Please refer to the "Note to Unaudited Condensed ConsolidatedStatements of Operations" for definitions of certain key financialmeasures used here and in the "Business Outlook" attached to thispress release.

Quarterly Conference Call

Yahoo! will host a conference call to discuss third quarterresults at 5:00 p.m. Eastern Time today. A live webcast of theconference call, together with supplemental financial information canbe accessed through the Company's Investor Relations website athttp://yhoo.client.shareholder.com/earnings.cfm. In addition, anarchive of the webcast can be accessed through the same link. An audioreplay of the call will be available following the conference call bycalling 877-213-9653 or 630-652-3041, reservation number: 12875515.

About Yahoo!

Yahoo! Inc. is a leading global internet brand and one of the mosttrafficked Internet destinations worldwide. Yahoo! seeks to provideonline products and services essential to users' lives, and offers afull range of tools and marketing solutions for businesses to connectwith Internet users around the world. Yahoo! is headquartered inSunnyvale, California.

This press release includes the following financial measuresdefined as non-GAAP financial measures by the Securities and ExchangeCommission: revenues excluding traffic acquisition costs, operatingincome before depreciation and amortization, and free cash flow. Thesemeasures may be different from non-GAAP financial measures used byother companies. The presentation of this financial information is notintended to be considered in isolation or as a substitute for thefinancial information prepared and presented in accordance withgenerally accepted accounting principles. See "Note to UnauditedCondensed Consolidated Statements of Operations" and "Reconciliationsto Unaudited Condensed Consolidated Statements of Operations" includedin this press release for further information regarding these non-GAAPfinancial measures.

This press release and its attachments contain forward-lookingstatements that involve risks and uncertainties concerning Yahoo!'sexpected financial performance (as described without limitation in theBusiness Outlook section and quotations from management in this pressrelease), as well as Yahoo!'s strategic and operational plans. Actualresults may differ materially from the results predicted and reportedresults should not be considered as an indication of futureperformance. The potential risks and uncertainties include, amongothers, the Company's ability to compete with new or existingcompetitors; reduction in spending by, or loss of, marketing servicescustomers; the demand by customers for Yahoo!'s premium services;acceptance by users of new products and services; risks related to theintegration of recent acquisitions; risks related to the Company'sinternational operations; failure to manage growth anddiversification; adverse results in litigation, including intellectualproperty infringement claims; the Company's ability to protect itsintellectual property and the value of its brands; dependence on keypersonnel; dependence on third parties for technology, services,content and distribution; and general economic conditions. Allinformation set forth in this release and its attachments is as ofOctober 18, 2005. Yahoo! undertakes no duty to update thisinformation. More information about potential factors that couldaffect the Company's business and financial results is included underthe captions, "Risk Factors" and "Management's Discussion and Analysisof Financial Condition and Results of Operations," in the Company'sAnnual Report on Form 10-K for the year ended December 31, 2004 andthe Quarterly Report on Form 10-Q for the quarter ended June 30, 2005which are on file with the SEC and available at the SEC's website atwww.sec.gov. Additional information will also be set forth in thosesections in Yahoo!'s Quarterly Report on Form 10-Q for the quarterended September 30, 2005, which will be filed with the SEC in thefourth quarter of 2005.

Yahoo! and the Yahoo! logos are trademarks and/or registeredtrademarks of Yahoo! Inc. All other names are trademarks and/orregistered trademarks of their respective owners.

Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2004 2005 2004 2005
---------- ----------- ----------- -----------


Revenues $ 906,715 $ 1,329,929 $ 2,496,800 $ 3,756,668

Cost of revenues 332,333 520,238 911,421 1,459,433

---------- ----------- ----------- -----------
Gross profit 574,382 809,691 1,585,379 2,297,235
---------- ----------- ----------- -----------

Operating expenses:
Sales and marketing 192,950 265,714 551,120 742,639
Product development 97,033 141,616 261,162 386,509
General and
administrative 69,215 77,733 189,930 232,708
Stock compensation
expense (1) 6,111 13,524 25,823 33,938
Amortization of
intangibles 36,968 41,047 103,588 122,664
---------- ----------- ----------- -----------
Total operating
expenses 402,277 539,634 1,131,623 1,518,458
---------- ----------- ----------- -----------

Income from operations 172,105 270,057 453,756 778,777

Other income, net 123,281 65,995 150,838 1,095,725
---------- ----------- ----------- -----------

Income before income
taxes, earnings in
equity interests,
minority interests 295,386 336,052 604,594 1,874,502

Provision for income
taxes (67,117) (113,797) (204,343) (750,087)
Earnings in equity
interests 25,696 32,164 69,672 94,647
Minority interests in
operations of
consolidated
subsidiaries (660) (646) (2,894) (6,040)
---------- ----------- ----------- -----------

Net income $ 253,305 $ 253,773 $ 467,029 $ 1,213,022
========== =========== =========== ===========


Net income per share -
diluted $ 0.17 $ 0.17 $ 0.32 $ 0.82
========== =========== =========== ===========

Shares used in per
share calculation -
diluted 1,458,610 1,486,876 1,444,955 1,482,739
========== =========== =========== ===========


(1) Stock compensation expense is allocated as follows:

Sales and marketing $ 1,731 $ 2,278 $ 7,712 $ 5,277
Product development 2,371 6,817 9,642 13,820
General and
administrative 2,009 4,429 8,469 14,841
---------- ----------- ----------- -----------
Total stock
compensation
expense $ 6,111 $ 13,524 $ 25,823 $ 33,938
========== =========== =========== ===========


----------------------------------------------------------------------
Supplemental Financial Data (See Note)
---------------------------
Revenues excluding
traffic acquisition
costs ("TAC") $ 655,401 $ 932,115 $ 1,814,692 $ 2,627,982
Operating income before
depreciation and
amortization $ 259,704 $ 385,122 $ 704,687 $ 1,098,624
Free cash flow $ 201,680 $ 344,637 $ 592,969 $ 962,077
----------------------------------------------------------------------



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
including the tax benefit from stock options, less net capital
expenditures and dividends received. 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.



Yahoo! Inc.
Reconciliations to Unaudited Condensed Consolidated Statements
of Operations
(in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2005 2004 2005
----------- ----------- ----------- -----------

Revenues for groups of similar services (2):
Marketing services $ 796,568 $ 1,159,572 $ 2,184,319 $ 3,278,669
Fees 110,147 170,357 312,481 477,999
----------- ----------- ----------- -----------
Total revenues $ 906,715 $ 1,329,929 $ 2,496,800 $ 3,756,668
=========== =========== =========== ===========

Revenues by segment:
United States $ 654,985 $ 922,860 $ 1,878,417 $ 2,611,103
International 251,730 407,069 618,383 1,145,565
----------- ----------- ----------- -----------
Total revenues $ 906,715 $ 1,329,929 $ 2,496,800 $ 3,756,668
=========== =========== =========== ===========

Cost of revenues:
Traffic acquisition
costs ("TAC") $ 251,314 $ 397,814 $ 682,108 $ 1,128,686
Other cost of
revenues 81,019 122,424 229,313 330,747
----------- ----------- ----------- -----------
Total cost of
revenues $ 332,333 $ 520,238 $ 911,421 $ 1,459,433
=========== =========== =========== ===========

Revenues excluding TAC:
Gross profit $ 574,382 $ 809,691 $ 1,585,379 $ 2,297,235
Other cost of
revenues 81,019 122,424 229,313 330,747
----------- ----------- ----------- -----------
Revenues excluding
TAC $ 655,401 $ 932,115 $ 1,814,692 $ 2,627,982
=========== =========== =========== ===========

Revenues excluding TAC by segment:
United States:
Gross profit $ 438,737 $ 609,466 $ 1,241,633 $ 1,725,015
Other cost of
revenues 64,340 94,151 187,261 257,539
----------- ----------- ----------- -----------
Revenues excluding
TAC $ 503,077 $ 703,617 $ 1,428,894 $ 1,982,554
=========== =========== =========== ===========

International:
Gross profit $ 135,645 $ 200,225 $ 343,746 $ 572,220
Other cost of
revenues 16,679 28,273 42,052 73,208
----------- ----------- ----------- -----------
Revenues excluding
TAC $ 152,324 $ 228,498 $ 385,798 $ 645,428
=========== =========== =========== ===========

Operating income before depreciation and amortization:
Income from
operations $ 172,105 $ 270,057 $ 453,756 $ 778,777
Depreciation and
amortization 81,488 101,541 225,108 285,909
Stock compensation
expense 6,111 13,524 25,823 33,938
----------- ----------- ----------- -----------
Operating income
before depreciation
and amortization $ 259,704 $ 385,122 $ 704,687 $ 1,098,624
=========== =========== =========== ===========

Operating income before depreciation and amortization by segment:
Operating income
before depreciation
and amortization -
United States $ 223,260 $ 306,031 $ 612,879 $ 867,690
Operating income
before depreciation
and amortization -
International 36,444 79,091 91,808 230,934
----------- ----------- ----------- -----------
Operating income
before depreciation
and amortization $ 259,704 $ 385,122 $ 704,687 $ 1,098,624
=========== =========== =========== ===========

United States:
Income from
operations $ 151,402 $ 209,735 $ 401,247 $ 602,028
Depreciation and
amortization 66,668 83,413 189,679 233,607
Stock compensation
expense 5,190 12,883 21,953 32,055
----------- ----------- ----------- -----------
Operating income
before depreciation
and amortization -
United States $ 223,260 $ 306,031 $ 612,879 $ 867,690
=========== =========== =========== ===========

International:
Income from
operations $ 20,703 $ 60,322 $ 52,509 $ 176,749
Depreciation and
amortization 14,820 18,128 35,429 52,302
Stock compensation
expense 921 641 3,870 1,883
----------- ----------- ----------- -----------
Operating income
before depreciation
and amortization -
International $ 36,444 $ 79,091 $ 91,808 $ 230,934
=========== =========== =========== ===========

Free cash flow:
Cash flow from
operating
activities $ 267,424 $ 440,131 $ 753,101 $ 1,230,041
Acquisition of
property and
equipment, net (65,744) (95,494) (160,132) (257,294)
Dividends received - - - (10,670)

----------- ----------- ----------- -----------
Free cash flow $ 201,680 $ 344,637 $ 592,969 $ 962,077
=========== =========== =========== ===========

(2) Yahoo! currently classifies its revenues as either Marketing
Services or Fees. For the three and six months ended September 30,
2004, Yahoo! reclassified previously reported Marketing Services
revenues of $6 million and $16 million, respectively, as Fees in
order to refine its alignment of revenue sources with these
classifications.



Yahoo! Inc.
Business Outlook

Business Outlook

The following business outlook is based on current information and
expectations as of October 18, 2005 and assumes the closing of the
previously announced strategic combination with Alibaba.com
Corporation in the fourth quarter. Yahoo!'s business outlook as of
today is expected to be available on the Company's Investor Relations
website 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 Year
ending ending
December 31, December 31,
2005 2005
-------------- --------------

Revenues excluding traffic
acquisition costs ("TAC") (3)
outlook (in millions):
Gross profit $893-$933 $3,190-$3,230
Other cost of revenues 139-149 470-480
-------------- --------------
Revenues excluding TAC $1,032-$1,082 $3,660-$3,710
============== ==============

Operating income before depreciation
and amortization (3) outlook
(in millions):
Income from operations $322-$337 $1,100-$1,115
Depreciation and amortization 114-124 400-410
Stock compensation expense 16-21 50-55
-------------- --------------
Operating income before depreciation
and amortization $452-$482 $1,550-$1,580
============== ==============

(3) Refer to Note to Unaudited Condensed Consolidated Statements of
Operations.



Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2005 2004 2005
----------- ----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 253,305 $ 253,773 $ 467,029 $ 1,213,022
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 81,488 101,541 225,108 285,909
Tax benefits from
stock options 56,145 121,180 177,266 723,748
Earnings in equity
interests (25,696) (32,164) (69,672) (94,647)
Dividends received - - - 10,670
Minority interests
in operations of
consolidated
subsidiaries 660 646 2,894 6,040
Stock compensation
expense 6,111 13,524 25,823 33,938
(Gain)/loss from
sale of investments,
assets and other,
net (100,683) (24,472) (91,067) (976,738)
Changes in assets
and liabilities,
net of effects of
acquisitions:
Accounts
receivable, net (47,466) (50,764) (83,288) (128,921)
Prepaid expenses
and other (7,016) (2,504) (6,434) 7,736
Accounts payable 12,694 8,839 (899) (5,354)
Accrued expenses
and other
liabilities 31,692 31,580 83,561 111,396
Deferred revenue 6,190 18,952 22,780 43,242
----------- ----------- ----------- -----------
Net cash provided by
operating activities 267,424 440,131 753,101 1,230,041
----------- ----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of
property and
equipment, net (65,744) (95,494) (160,132) (257,294)
Purchases of
marketable debt
securities (695,951) (1,157,592) (2,157,888) (6,632,419)
Proceeds from sales
and maturities of
marketable debt
securities 395,609 1,415,056 1,865,276 6,789,521
Acquisitions, net of
cash acquired (34,648) (1,089) (608,525) (127,463)
Proceeds from sales
of marketable
equity securities 191,429 35,846 192,780 1,006,142
Other investing
activities, net (151) (435) 14,986 (39,030)
----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities (209,456) 196,292 (853,503) 739,457
----------- ----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from
issuance of common
stock, net 105,913 75,027 423,591 377,751
Repurchases of
common stock - (208,457) - (373,352)
Structured stock
repurchases, net (45,907) (392,786) (95,907) (752,717)
Other financing
activities, net - 949 - 1,749
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities 60,006 (525,267) 327,684 (746,569)
----------- ----------- ----------- -----------

Effect of exchange
rate changes on cash
and cash equivalents 3,711 (4,576) 6,764 (19,649)

Net change in cash and
cash equivalents 121,685 106,580 234,046 1,203,280
Cash and cash
equivalents,
beginning of period 528,253 1,920,423 415,892 823,723
----------- ----------- ----------- -----------

Cash and cash
equivalents, end of
period $ 649,938 $ 2,027,003 $ 649,938 $ 2,027,003
=========== =========== =========== ===========

Supplemental schedule
of acquisition-
related activities:

Cash paid for
acquisitions $ 36,403 $ 1,140 656,014 $ 128,592
Cash acquired in
acquisitions (1,755) (51) (47,489) (1,129)
----------- ----------- ----------- -----------
$ 34,648 $ 1,089 $ 608,525 $ 127,463
=========== =========== =========== ===========

Common stock,
restricted stock
and stock options
issued in
connection with
acquisitions
$ 1,175 $ - $ 3,384 $ 44,381
=========== =========== =========== ===========



Yahoo! Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)

December 31, September 30,
2004 2005
------------ -------------

ASSETS
Current assets:
Cash and cash equivalents $ 823,723 $ 2,027,003
Marketable debt securities 1,875,964 1,156,688
Marketable equity securities 812,288 -
Accounts receivable, net 479,993 599,129
Prepaid expenses and other current assets 98,507 179,875
------------ -------------
Total current assets 4,090,475 3,962,695

Long-term marketable debt securities 1,042,575 1,579,930
Property and equipment, net 531,696 623,050
Goodwill 2,550,957 2,564,073
Intangible assets, net 480,666 451,018
Other assets 481,832 362,856
------------ -------------
Total assets $ 9,178,201 $ 9,543,622
============ =============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,205 $ 38,879
Accrued expenses and other current
liabilities 853,115 739,813
Deferred revenue 279,387 324,039
------------ -------------
Total current liabilities 1,180,707 1,102,731

Long-term deferred revenue 65,875 63,811
Long-term debt 750,000 749,995
Other long-term liabilities 35,907 87,694
Minority interests in consolidated
subsidiaries 44,266 51,961
Stockholders' equity 7,101,446 7,487,430
------------ -------------
Total liabilities and stockholders' equity $ 9,178,201 $ 9,543,622
============ =============