Equity Update

October 17, 2007

Brian Bolan
Director of Research
312-253-0578; bbolan@jacksonsecurities.com

Current Price: YHOO: $26.69

Review of the earnings call, maintain hold.

Yahoo! Earnings overview

Yahoo! reported revenues of $1.462B and earnings of $0.11 per share. This was well above our
expectations of revenues of $1.16B and $0.09 on the bottom line. A significant amount of negative
sentiment towards the stock pushed the price lower in the trading session leading up to earnings release.
The consensus of $0.08 was clearly too low, and this beat could be the signal of good things to come in
2008.

In just looking at the numbers, it was a good quarter for Yahoo!, something the company and the stock
needed badly. What will matter more than the earnings and outlook is how investors take the reorg.
Many are likely to gloss over the corporate speak of a reorg and focus strictly on the numbers. We offer
our analysis of the reorg topics.

Transformation not yet complete, but the groundwork has been laid

On the conference call, Yahoo! management outlined three key multi year objectives: “to become the
starting point for the most consumers on the Internet; to be the ‘must buy’ for the most advertisers; and to
deliver open, industry-leading platforms that attract the most developers.”

First let’s go over the starting point idea. Management stated on the call that they would not invest further
in areas of the company that were not starting points, and would shutter other underperforming sites. The
Yahoo home page is certainly a good one and likely to be the “startup” page for many web users, but its
really difficult to say how much that really matters in a world that is moving to pay per click advertising.
Yahoo mail is already thoroughly entrenched and its search product is the clear number 2 alternative to
Google. We are not convinced the “make a Yahoo product your homepage” is a unique and innovative
strategy. We believe this thesis is not going to help Yahoo! succeed in its struggles versus Google.

Important Disclosures

Jackson Securities, LLC does or 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 pages 4 thru 6. Analyst Certification is found on
page 4.
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The second part of the multi year objectives is to become the “must buy” for advertisers. This quite
simply is a case of either having the best content on the web or the ability to serve the most relevant ads
that inspire clicks and actions by users. Yahoo! has made improvements in monetization, but for the most
part has relied on the content on its owned and operated (O&O) sites. We have seen Yahoo! acquire
content by buying and building. Rivals.com is a good example of a content purchase which boosts the
number of paid relationships and Yahoo! OMG is a good example of a content driven site that has been
built from the ground up. To the extent that this is a technology driven objective, we believe Yahoo! will
continue on its acquisitive path.

The third and final objective is to deliver open platforms to encourage developers to produce applications
and or widgets. Can you say Facebook? In the game of follow the leader, only one person really has any
fun, and it’s not the followers. Amazon was the first to open itself up to developers and some great
products are services were spawned by that move. Facebook has taken it to another level with the
multitudes of ‘apps’ that are available on its social networking site. We think this is another example of
follow the leader and lacks the creativity and innovation that could redeem Yahoo! in the eyes of most
investors.

While we are clearly not thrilled by the results of the reorganization we are happy with the numbers from
the quarter. Revenue growth was solid but slightly offset by weaker margins which could have been the
result of acquisitions.

What the Reorg lacked

In a word, innovation. There was nothing new or earth shattering and its clear to us that Yahoo! will
continue to struggle in its search battle against Google.

Little mention was made of the lack of a viable social networking site on Yahoo! While Yahoo! 360 and
Answers were singled out, its clear that they are not completing effectively with MySpace and Facebook.

Good News from the reorg…

Those of you in the venture capital world must have been popping the bottles and dancing with models!
Yahoo! more or less committed itself to print more money for the Venture Capital community that backs
the right search and advertisement based companies. Yahoo! has been very acquisitive in the past and the
new strategy mentioned nothing of growing tech from within.

The reorg did highlight the progress that Panama is showing, with 14% growth in revenue and O&O sites
growing at 22% from the year ago period. This quarter once again showed acceleration in growth for the
O&O network, an encouraging sign for the content strategy that Yahoo! has. Further accelerations are
expected, but not likely to be at the same rate as the last three quarters.

Non conference call releases

Yahoo! announced partnerships with WedMd, Cars.com, Ziff-Davis Media and Forbes. Basically this is a
signal to Google that Yahoo! is going to go after specific entrenched sites that have a built in audience and

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know to a high degree who is advertising on their site. In turn, for delivering these ads, Yahoo! is likely
to pay an extremely high portion of the total ad revenue for this opportunity, likely an amount higher than
Google is willing to match. With Google TAC rate rising over the last few quarters, we see would expect
the TAC rates for these deals to be in the high 90’s (in terms of percentage). We anticipate more of these
types of announcements from Yahoo! in the coming months.

Valuation and Recommendation:

We increased our rating to Hold when the stock traded with a $22 handle, and more or less held our breath for better results.
The results came through, backed by some good growth numbers but hurt by weaker margins. The 100 day review left us
somewhat skeptical as to leaderships ability to really drive innovation, which we believe is the key to Yahoo!’s success. We
continue to rate shares of Yahoo! a hold and keep our target at the below market price of $26. Our target price is based on an
earnings multiple of roughly 61x this years estimate.

Source: company reports and Jackson Securities

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Buy initiated 7/14/06: $32.23 Downgrade to Hold 7/19/06: Hold 12/14/06: $26.60 Target: Downgrade to Sell 5/4/07:
Target: $37.00 $32.24 Target: $33.00 $26.00 $28.18 Target: $26.00

Upgrade to Hold 8/30/07: Hold 10/10/07: $28.37 Target:

$22.55 Target: $22.00 $26.00

Source: BigCharts.com

Disclosures:

Analyst Certification
I, Brian Bolan, hereby certify that the views expressed in this research report 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 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 or any compensation for products or services other than investment
banking

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 • Jackson Securities will seek investment banking compensation from the subject company
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 this stock

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 – 50.0% (19 of 38 active recommendations)

Holds – 44.7% (17 of 38 active recommendations)
Sells – 5.3% (2 of 38 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% (0 of 38 active recommendations)

Holds – 0.0% (0 of 38 active recommendations)
Sells – 0.0% (0 of 38 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
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