Forward-Looking Statements

In addition to current and historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as "may," "will," "should," "could," "would," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," or "continue," the negative of such terms, or other comparable terminology. This Annual Report on Form 10-K includes, among others, forward-looking statements regarding our:

• expectations about revenues, including revenues for marketing services and fees;

• expectations about growth in users;

• expectations about cost of revenues and operating expenses;

• expectations about the amount of unrecognized tax benefits;

• expectations about our on-going strategic and cost reduction initiatives;

• anticipated capital expenditures;

• impact of acquisitions on our business and evaluation of, and expectations for, possible acquisitions of, or investments in, businesses, products, and technologies; and

• expectations about positive cash flow generation and existing cash, cash equivalents, and investments being sufficient to meet normal operating requirements.

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part 1, Item 1A. "Risk Factors" of this Annual Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Annual Report on Form 10-K to reflect actual results or future events or circumstances.

Overview

Yahoo! Inc., together with its consolidated subsidiaries ("Yahoo!," the "Company," "our," "we," or "us"), is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. We are focused on powering our communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. Together with our owned and operated online properties and services ("Yahoo! Properties" or "Owned and Operated sites"), we also provide our advertising offerings and access to Internet users beyond Yahoo! through our distribution network of third-party entities ("Affiliates"), who have integrated our advertising offerings into their Websites, referred to as Affiliate sites, or their other offerings. We generate revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. Additionally, although many of the services we provide to our users are free, we do charge fees for a range of premium services.

We provide a range of marketing services that make it easier and more effective for advertisers and marketers to reach and connect with users who visit Yahoo! Properties and our Affiliate sites. We believe that our marketing services enable advertisers to deliver highly relevant marketing messages to their target audiences.

Our offerings to users on Yahoo! Properties currently fall into six categories:
Front Doors, Communities, Search, Communications, Audience, and Connected Life. See Part I, Item 1. "Business"-"User Offerings" for additional information. The majority of our offerings are available in more than 30 languages. We manage and measure our business geographically. Our principal geographies are the United States ("U.S.") and International.

Revenue Sources

Marketing Services Revenues. Our online advertising offerings include the display of graphical advertisements ("display advertising"), the display of text-based links to an advertiser's Website ("search advertising"), listing-based services, and commerce-based transactions.

We recognize revenues from display advertising on Yahoo! Properties and on Affiliate sites as "impressions" are delivered or when qualifying actions are performed by the user. An "impression" is delivered when an advertisement appears on a page viewed by users. We also recognize revenues from search advertising on Yahoo! Properties and on Affiliate sites. We recognize revenues from these arrangements as "click-throughs" occur. A "click-through" occurs when a user clicks on an advertiser's listing.

Marketing services revenues also includes listings and transaction revenues. Listings revenues are generated from a variety of consumer and business listings-based services, including access to the Yahoo! HotJobs database and classified advertising such as Yahoo! Autos, Yahoo! Real Estate, and other services. We recognize listings revenues when the services are performed. Transaction revenues are generated from facilitating commercial transactions through Yahoo! Properties, principally from Yahoo! Travel and Yahoo! Shopping. We recognize transaction revenues when there is evidence that qualifying transactions have occurred. For example, we recognize revenues when travel arrangements are booked through Yahoo! Travel.

Fees Revenues. Fees revenues consists of revenues generated from a variety of consumer and business fee-based services, including Internet broadband services, royalties received from joint venture partners, premium mail, music and personals offerings, as well as services for small businesses. We recognize fees revenues when the services are performed.

2008 Highlights



                                                    Years Ended December 31,          2007-2008
Operating Highlights                                 2007              2008            Change
                                                                 (In thousands)
Revenues                                         $  6,969,274      $  7,208,502      $   239,228
Income from operations                           $    695,413      $     12,963      $  (682,450 )

                                                    Years Ended December 31,          2007-2008
Cash Flow Highlights                                 2007              2008            Change
                                                                 (In thousands)
Net cash provided by operating activities        $  1,918,899      $  1,880,241      $   (38,658 )
Net cash used in investing activities            $   (572,502 )    $ (1,311,783 )    $  (739,281 )
Net cash (used in) provided by financing
activities                                       $ (1,442,008 )    $    332,406      $ 1,774,414

Our revenues for the year ended December 31, 2008 increased 3 percent year-over-year to approximately $7.2 billion, with Page Views, which is defined as our internal estimate of the total number of Web pages viewed by users on Owned and Operated sites, up 19 percent year-over-year. The growth can be attributed to an increasing number and activity level of users across our offerings on Yahoo! Properties. Marketing services and fees revenues experienced 4 percent and 1 percent year-over-year growth, respectively. We began to feel the impact of the global economic recession in the third quarter of 2008. The current general economic conditions have caused some advertisers to spend less on online advertising which could negatively affect the growth rate of our revenues.

Cash generated from our operations is a measure of the cash productivity of our business model. Our operating activities in 2008 generated adequate cash to meet our operating needs. Cash used in investing activities in 2008 included capital expenditures of $675 million, cash consideration for acquisitions of $209 million, and net purchases of marketable debt securities of $368 million. Cash used in financing activities in 2008 reflected our

net cash used for direct stock repurchases of $79 million as well as $77 million used for tax withholdings related to net share settlements of restricted stock awards and restricted stock units, which were offset by cash proceeds from the issuance of common stock of $363 million as a result of the exercise of employee stock options.

Summary

We believe the searches, Page Views, click-throughs, and the related marketing services and fees revenues that we generate correlate to the number and activity level of users across our offerings on Yahoo! Properties and the activity level on our Affiliate sites. By providing a platform for our users that brings together our search technology, content, and community while allowing for personalization and integration across devices, we seek to become more essential to, increase our share of, and deepen the engagement of, our users with our products and services. We believe this deeper engagement of new and existing users coupled with the growth of the Internet as an advertising medium may enable us to increase our revenues in the future.

In 2008, we recorded a $350 million one-time payment from AT&T Inc. in long-term deferred revenues, a portion of which was recognized as revenues during the year, and a non-cash gain of $401 million, net of tax, within earnings in equity interests representing our share of Alibaba Group's gain on the IPO of Alibaba.com. We also recorded a goodwill impairment charge of $488 million related to our European reporting unit.

During 2008, we implemented a strategic workforce realignment in the first quarter and initiated a number of cost reduction initiatives in the fourth quarter, including a workforce reduction and consolidation of our real estate facilities. In connection with these initiatives we incurred severance, facility and other restructuring costs of $137 million, offset by $30 million in related stock-based compensation expense reversals for unvested awards which were forfeited, resulting in a net restructuring charge of $107 million in 2008.

The objective of the cost reduction initiatives implemented in the fourth quarter of 2008 was to reduce our current annualized cost run rate by more than $400 million to enhance profitability in the current economic environment. We will continue to emphasize productivity improvement initiatives that may result in additional restructurings. For further details regarding these restructuring initiatives and related costs and charges, refer to our discussion under Costs and Expenses and Note 16-"Restructuring Charges, Net" in the Notes to the consolidated financial statements.

In the following Management's Discussion and Analysis, we discuss the following areas of our financial results:

• Results of Operations;

• Business Segment Results;

• Transactions;

• Liquidity and Capital Resources;

• Critical Accounting Policies and Estimates; and

• Recent Accounting Pronouncements.

Results of Operations

The following table sets forth selected information on our results of operations as a percentage of revenues for the periods indicated:

                                                             Years Ended December 31,
                                                       2006            2007            2008
Revenues                                                  100 %           100 %           100 %
Cost of revenues                                           42              41              42

Gross profit                                               58              59              58

Operating expenses:
Sales and marketing                                        20              23              22
Product development                                        13              15              17
General and administrative                                  8               9              10
Amortization of intangibles                                 2               2               1
Restructuring charges, net                                  0               0               1
Goodwill impairment charge                                  0               0               7

Total operating expenses                                   43              49              58

Income from operations                                     15              10               0
Other income, net                                           2               2               1

Income before income taxes, earnings in equity
interests, and minority interests                          17              12               1
Provision for income taxes                                 (7 )            (5 )            (3 )
Earnings in equity interests                                2               2               8
Minority interests in operations of
consolidated subsidiaries                                   0               0               0

Net income                                                 12 %             9 %             6 %

Revenues. Revenues by groups of similar services were as follows (dollars in thousands):

                                             Years Ended December 31,                        2006-2007      2007-2008
                              2006       (*)        2007       (*)        2008       (*)     % Change       % Change
Marketing services:
Owned and Operated sites   $ 3,074,803    48 %   $ 3,669,816    52 %   $ 4,045,996    56 %          19 %           10 %
Affiliate sites              2,552,404    40 %     2,418,423    35 %     2,270,210    32 %          (5 )%          (6 )%

Marketing services           5,627,207    88 %     6,088,239    87 %     6,316,206    88 %           8 %            4 %
Fees                           798,472    12 %       881,035    13 %       892,296    12 %          10 %            1 %

Total revenues             $ 6,425,679   100 %   $ 6,969,274   100 %   $ 7,208,502   100 %           8 %            3 %

(*) Percent of total revenues.

We currently generate marketing services revenues principally from display advertising on Owned and Operated sites and from search advertising. "Searches" is defined as online search queries that may yield Internet search results ranked and sorted based on relevance to the user's search query. "Sponsored search results" are a subset of the overall search results, and provide links to paying advertisers' Web pages.

We also receive revenues for Content Match links (advertising on Yahoo! Properties and Affiliate sites which includes contextually relevant advertiser links to their respective Websites) on Owned and Operated and Affiliate sites and display advertising on Affiliate sites. The net revenues and related volume metrics from these additional sources are not currently material and are excluded from the discussion and calculation of average revenue per Page View on Owned and Operated sites and average revenue per search on Affiliate sites that follows.

Marketing Services Revenues from Owned and Operated Sites. Marketing services revenues from Owned and Operated sites for the year ended December 31, 2008 increased by approximately $376 million, or 10 percent, as compared to 2007. Factors leading to growth in overall marketing services revenues included an increase in user activity levels on Yahoo! Properties, which contributed to a higher volume of search queries, Page Views, and ad impression displays. The transition of and changes in certain of our broadband access partnerships from being fee-paying user based to an advertising revenue sharing model have also contributed to the increase in marketing services revenues from Owned and Operated sites. Marketing services revenues from Owned and Operated sites for the year ended December 31, 2007 increased by approximately $595 million, or 19 percent, as compared to 2006. The year-over-year growth in marketing services revenues in 2007 can be attributed to a combination of factors that have driven increased marketing services revenues across Yahoo! Properties both domestically and internationally. These included an increase in our user base and activity levels on Yahoo! Properties, which resulted in a higher volume of search queries, ad impression displays, and click-throughs.

The primary components of growth in our marketing services revenues from Owned and Operated sites are search and display advertising. For the year ended December 31, 2008, revenues from search advertising on Owned and Operated sites grew 17 percent, compared to 2007. For the year ended December 31, 2008, revenues from display advertising on Owned and Operated sites grew 7 percent, compared to 2007.

We periodically review and refine our methodology for monitoring, gathering, and counting Page Views to more accurately reflect the total number of Web pages viewed by users on Yahoo! Properties. Based on this process, from time to time we update our methodology to exclude from the count of Page Views interactions with our servers that we determine or believe are not the result of user visits to our Owned and Operated sites.

Using our updated methodology, for the year ended December 31, 2008 as compared to 2007, Page Views increased 19 percent and revenue per Page View decreased 7 percent, and for the year ended December 31, 2007 as compared to 2006, Page Views increased 12 percent and revenue per Page View increased 6 percent. The decrease in revenue per Page View in 2008 compared to 2007 is due to a shift to lower-yielding display advertising. The increase in revenue per Page View in 2007 compared to 2006 was due to the introduction of new inventory with higher yields.

In the table below, we set forth the quarterly and year-over-year growth in Page Views and revenue per Page View for the year ended December 31, 2008 and the year-over-year growth in Page Views and revenue per Page View for the year ended December 31, 2007, both as previously reported and as revised to reflect our updated methodology.

                                             Q1 2008                     Q2 2008                           Q3 2008                   FY 2008
                                             3 months           3 months         6 months         3 months         9 months         12 months
Previously Reported Page View Growth               19 %               23 %             21 %             17 %             20 %             N/A
Page View Growth(1)                                20 %               23 %             22 %             17 %             20 %              19 %
Previously Reported Revenue Per Page
View Growth                                        (1 )%              (7 )%            (4 )%            (7 )%            (5 )%            N/A
Revenue Per Page View Growth(1)                    (1 )%              (7 )%            (4 )%            (7 )%            (5 )%             (7 )%

                                             Q1 2007                     Q2 2007                           Q3 2007                   FY 2007
                                             3 months           3 months         6 months         3 months         9 months         12 months
Previously Reported Page View Growth(2)            13 %(3)             8 %             10 %             13 %             11 %              11 %
Page View Growth(1)                                14 %                9 %             11 %             14 %             12 %              12 %
Previously Reported Revenue Per Page
View Growth(2)                                      0 %(3)             9 %              5 %             10 %              6 %               7 %
Revenue Per Page View Growth(1)                    (1 )%               8 %              4 %              8 %              5 %               6 %

(1) The revised Page View Growth and Revenue Per Page View Growth numbers reflect our updated methodology for counting Page Views.

(3) For the three month period ended March 31, 2007, the reported Page View Growth and Revenue Per Page View Growth were based on Page Views on our Owned and Operated sites, searches on Affiliate sites and associated revenues on both Owned and Operated and Affiliate sites. Beginning in the second quarter of 2007, we revised our presentation of Page Views and Revenue Per Page View to include only Page Views on Owned and Operated sites and revenues from such Page Views, and to exclude searches on Affiliate sites and revenues from such searches. If the previously reported Page View Growth and Revenue Per Page View Growth for the three month period ended March 31, 2007 were adjusted to reflect the presentation adopted in the second quarter of 2007 (but not our updated methodology for counting Page Views), the reported percentages would have been 21 percent and negative 6 percent, respectively, for the three month period ended March 31, 2007.

We currently expect marketing services revenues on our Owned and Operated sites to decrease for the first quarter of 2009 compared to the first quarter of 2008 due primarily to global economic conditions. General economic conditions have caused some advertisers to spend less on online advertising which could negatively affect the growth rate of our revenues, particularly our display revenues as advertisers spend less on brand advertising. In addition, strengthening of the U.S. Dollar against other currencies could have a further negative impact on our international revenues.

Marketing Services Revenues from Affiliate Sites. Marketing services revenues from Affiliate sites for the year ended December 31, 2008 decreased $148 million, or 6 percent, as compared to 2007. Marketing services revenues from Affiliate sites for the year ended December 31, 2007 decreased $134 million, or 5 percent, as compared to 2006.

During the third quarter of 2007, we sold Overture Japan to Yahoo! Japan. As part of this transaction, we also entered into a commercial arrangement with Yahoo! Japan in which we provide search marketing services to Yahoo! Japan for a service fee. This arrangement began on September 1, 2007 and, beginning on that date, we commenced recording marketing services revenues from Yahoo! Japan for the provision of search marketing services based on a percentage of advertising revenues earned by Yahoo! Japan for the delivery of sponsored search results. The sale of Overture Japan to Yahoo! Japan negatively impacted Affiliate revenues during the year ended December 31, 2008 by approximately $300 million, year-over-year.

We continue to employ network quality initiatives to improve return on investment for our advertisers. We expect a continuing decline in marketing services revenues from Affiliate sites for the first quarter of 2009 compared to the first quarter of 2008 due primarily to these network quality initiatives and global economic conditions. The current general economic conditions have caused some advertisers to spend less on online advertising, which could negatively affect the growth rate of our revenues, particularly our display revenues as advertisers spend less on brand advertising. In addition, strengthening of the U.S. Dollar against other currencies could have a further negative impact on our international revenues.

The number of searches on Affiliate sites increased by approximately 23 percent for the year ended December 31, 2008, as compared to 2007. The increase in the volume of searches is primarily attributable to an increase in the number of searches per Affiliate. The number of searches on Affiliate sites increased by approximately 1 percent for the year ended December 31, 2007, as compared to 2006. The increase in the volume of searches is primarily attributable to a net increase in the number of Affiliates.

The average revenue per search on our Affiliate sites decreased by 26 percent for the year ended December 31, 2008, as compared to 2007, primarily as a result of a change in traffic mix and the impact of the sale of Overture Japan to Yahoo! Japan. The average revenue per search on our Affiliate sites decreased by 5 percent for the year ended December 31, 2007, as compared to 2006 primarily as a result of a decline in revenues from certain Affiliate sites.

Fees Revenues. Our fees revenues include premium fee-based services such as Internet broadband services, sports, music, photos, games, personals, premium e-mail offerings, and services for small businesses. Other fee-based revenues include royalties, licenses, and mobile services.

For the year ended December 31, 2008, fees revenues increased approximately $11 million, or 1 percent, as compared to 2007. This relatively flat year-over-year trend is due to the ongoing transition of and changes in certain of our broadband access partnerships, from being fee-paying user based to an advertising revenue sharing model. This has resulted in a reduction in fees revenues associated with these partnerships. The transition of and changes in certain of our broadband access partnerships from being fee-paying user based to an advertising revenue sharing model have also contributed to the increase in marketing services revenues from Owned and Operated sites. As we have renewed contracts with broadband partners and our relationships have moved from being fee-paying user based to an advertising revenue sharing model, our number of fee-paying users has decreased. In addition to the transition of the broadband partnerships, we have transitioned out of the VOIP and subscription music businesses. Due to these factors and global economic conditions, we expect fees revenues to continue to decline for the first quarter of 2009, as compared to the first quarter of 2008. In addition, strengthening of the U.S. Dollar against other currencies could have a further negative impact on our international revenues.

As used in this discussion, "fee-paying users" is based on the total number of fee-based subscriptions aggregated from each Yahoo! Property. To calculate the average revenue per fee-paying user, we divide the revenue generated from the subscriptions by the average fee-paying users during the year.

The number of paying users for our fee-based services decreased to 9.7 million as of December 31, 2008 compared to 19.0 million as of December 31, 2007. This decrease of 49 percent was a result of the business model changes described above. Adjusting the number of fee-paying users as of December 31, 2007 to remove fee-paying users related to our renewed broadband relationships, our fee-paying users would have been 10.1 million as of December 31, 2007, compared to 9.7 million as of December 31, 2008, a decrease of 4 percent.

For the year ended December 31, 2007, fees revenues increased approximately $83 million, or 10 percent, as compared to 2006. The year-over-year growth in 2007, as compared to 2006, is associated with an increase in the number of paying users for our fee-based services across most of our offerings. The number of paying users was 19.0 million as of December 31, 2007, compared to 16.3 million . . .