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Jackson Securities, LLC Equity Update

Research for the Prudent Investor September19th, 2006

Yahoo! (YHOO –HOLD) Guides to the Bottom Half of 3Q06 Range


Lowering estimates maintain target of $33

Quick First Look


Brian Bolan, Research Analyst
(312) 253-0578; BBolan@JacksonSecurities.com

Quick Discussion

At an investor conference today, Yahoo! CFO Susan Decker stated that the company would likely report
results that would be closer to the bottom half of the range previously given. The previous range that was
given was $1.115B to $1.225B in revenue and $445M to $505M in operating cash flow. Our previous
estimate was slightly above the midpoint of guidance, our new estimate reflects the changes in the market.

The reason for the lowered guidance is a slowdown in advertising spending in two key areas, autos and
finance. The realization of the drop in advertising in the auto segment has future spending put further in
doubt. Chrysler announced today that shipments to dealers would be lower by about 24% as demand has
slowed and inventories are already high. This brings a healthy amount of doubt into the picture for the
future growth of advertising in the auto segment.

The other key area that is experiencing a slowdown is finance. A key component of the finance
advertising market is the mortgage and re-finance component. This space has been hurt over the last
several months due to rising interest rates and high amounts of available new home inventories. The first
round of brokerage reports (Goldman Sachs, Lehman Brother, Bear Stearns) have come in on the high
side of expectations leading us to believe that this group is not likely to be pulling back on any internet
advertising dollars.

Important Disclosures

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 pages 3 and 4. Analyst Certification is found on
page 3.

1
Quarter Estimates
Coming on the heels of a slight topline miss in the most recent quarter, investors are again shedding
shares of YHOO with the stock trading lower by around 12% on the day. The idea that a rising tide lifts
all ships is true in its inverse, and Google is being taken out to sea by this tide, dropping some 20 points in
reaction to the Yahoo! news.

During the call management noted that their market share has been 29.5% and 30% over the last two
years and they are pleased with this level given the significant competitive concerns in the market. We
noted in our last report on the company that the delay in the Panama project would likely not lead to any
market share gains in the second half of 2006, but could begin to produce results in 2007.

As a result, we are lowering our estimates for 3Q06. We are giving the topline a small haircut of about
$60M, which translates into a one penny reduction in EPS. Our target price is currently under review.

Yahoo!
Income Statement
($ in millions, except per share) OLD NEW
Q3E Q3E
Marketing Services, Gross 1505 1480
Less: TAC 511.7 547.6
Marking Services, Net 993.3 932.4
Fees 205 205
Total Net Revenues 1198.3 1137.4
Gross Revenues 1710 1685

Cost of Sales 173.8 164.9


Gross Profit 1024.5 972.5

Operating Expenses
Sales and Marketing 311.6 307.1
R&D 203.7 193.4
General and Adminis. 107.8 102.4
Amortization 50.0 50.0
Stock Comp 100.0 100.0
Total Op Expenses 773.1 752.8

Operating Income 251.4 219.7

Interest Income & Other 36.0 36.0

Pre-Tax Income 287.4 255.7


Taxes 125.0 111.2

Equity Earnings 27.0 27.0


Minoritiy Interest (0.3) (0.3)

Net Income 189.1 171.1

GAAP EPS $ 0.12 $ 0.11

Fully-Diluted Shares 1,513.3 1,513.3

2
Disclosures:

Analyst Certification
I Brian Bolan hereby certifies 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:
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has a position in the securities described herein.

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revenues or from the subject company/companies in the last 12 months.
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compensation from the subject company/companies in the next 3 months.

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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
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rating was issued.

Distribution of Ratings:
Jackson Securities, LLC has a distribution of ratings among its coverage universe as follows:

Buys – 65.5% (38 of 58 active recommendations)


Holds – 31.0% (18 of 58 active recommendations)
Sells – 3.5% (2 of 58 active recommendations)

Jackson Securities has provided investment banking services within the previous 12 months with the
following percentage of the companies they have rated:

3
Buys – 2.64% (1 of 38 active recommendations)
Holds – 0% (0 of 18 active recommendations)
Sells – 0% (0 of 2 active recommendations)

Risks: General economic conditions, economic slowdown/recession, adverse industry news.

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