Yahoo! Inc.

- 2009
Case Notes Prepared by: Dr. Mernoush Banton
Case Authors: Hamid Kazeroony

A. Case Abstract
Yahoo! Inc. (www.yahoo.com) is a comprehensive strategic management case
that includes the companys Calendar year-end December 31, 2008 financial
statements, competitor information and more. The case time setting is the year
2009. Sufficient internal and external data are provided to enable students to
evaluate current strategies and recommend a three-year strategic plan for the
company. Headquartered in Sunnyvale, California, Yahoo! Inc. is traded on the
New York Stock Exchange under ticker symbol YHOO.

B. Vision Statement (Actual)

Yahoo! powers and delights our communities of users, advertisers, and
publishers all of us united in creating indispensable experiences, and fueled
by trust.

C. Mission Statement (Actual)

To connect people to their passions, their communities, and the world's

knowledge. To ensure this, Yahoo offers a broad and deep array of products and
services to create unique and differentiated user experiences and consumer
insights by leveraging connections, data, and user participation

Mission Statement

Companys Values, as stated in their web site, states:

Excellence:
We are committed to winning with integrity. We know leadership is hard won and
should never be taken for granted. We aspire to flawless execution and don't
take shortcuts on quality. We seek the best talent and promote its development.
We are flexible and learn from our mistakes. (2, 5, 6, 9)

Innovation:
We thrive on creativity and ingenuity. We seek the innovations and ideas that can
change the world. We anticipate market trends and move quickly to embrace
them. We are not afraid to take informed, responsible risk. (4)

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Customer Fixation:
We respect our customers above all else and never forget that they come to us
by choice. We share a personal responsibility to maintain our customers' loyalty
and trust. We listen and respond to our customers and seek to exceed their
expectations. (1, 3)

Teamwork:
We treat one another with respect and communicate openly. We foster
collaboration while maintaining individual accountability. We encourage the best
ideas to surface from anywhere within the organization. We appreciate the value
of multiple perspectives and diverse expertise. (8)

Community:
We share an infectious sense of mission to make an impact on society and
empower consumers in ways never before possible. We are committed to
serving both the Internet community and our own communities. (7)

Fun:
We believe humor is essential to success. We applaud irreverence and don't take
ourselves too seriously. We celebrate achievement. We yodel.

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit

CPM Competitive Profile Matrix

Yahoo Google Microsoft

Ratin Weighted Ratin Weighted Ratin Weighted
Critical Success Factors Weight g Score g Score g Score
Advertising 0.10 3 0.30 4 0.40 1 0.10
Service / Product Quality 0.10 3 0.30 4 0.40 2 0.20
Price Competitiveness 0.07 3 0.21 2 0.14 1 0.07
Management 0.06 2 0.12 4 0.24 3 0.18

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Financial Position 0.09 2 0.18 3 0.27 4 0.36
Customer Loyalty 0.10 3 0.30 4 0.40 2 0.20
Product Lines 0.08 3 0.24 4 0.32 2 0.16
Market Share 0.10 3 0.30 4 0.40 2 0.20
Customer Service 0.07 3 0.21 4 0.28 2 0.14
Technology 0.10 3 0.30 4 0.40 2 0.20
Employees 0.05 3 0.15 2 0.10 1 0.05
Global Expansion 0.08 3 0.24 4 0.32 2 0.16
Total 1.00 2.85 3.67 2.02

Opportunities
1. 1.1 billion Internet users around the world as of 2006 and it is still growing
2. Internet advertising revenues in the U.S. remains strong, topping $23
billion in 2008
3. Consumers are spending more of their time online
4. New business strategies such as bundling Internet access with voice and
video services are increasing
5. Innovativeness in technology is the driving force in Internet-based
businesses
6. Many businesses overseas are finding advertising on Internet less
expensive and more responsive
7. Countries such as China and India have stronger economic status and
accordingly, the companies are able to spend more advertising dollars via
Internet

Threats
1. Due to weak economic conditions, Internet related businesses also have
suffered
2. In 2009, a number of Internet content and advertising companies reported
disappointing financial results and lowered their forward financial outlooks
3. Low entry barrier makes the viability of existing Internet based businesses
difficult
4. Changes in legislative requirements concerning technology sharing,
patent rights and information security could increase future expenses and
lower profitability
5. Constant technology changes causes difficulty to be up-to-date all the time
6. Consolidations among Internet-based providers could make the
competition to be strong

External Factor Evaluation (EFE) Matrix

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Key External Factors Weight Rating Weighted
Score

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Opportunities
0.1 4 0.4
1. 1.1 billion Internet users around the world as of 2006
and it is still growing
0.08 3 0.24
2. Internet advertising revenues in the U.S. remains
strong, topping $23 billion in 2008
0.08 3 0.24

3. Consumers are spending more of their time online

0.09 2 0.18
4. New business strategies such as bundling Internet
access with voice and video services are increasing
0.07 2 0.14
5. Innovativeness in technology is the driving force in
Internet-based businesses
0.09 3 0.27
6. Many businesses overseas are finding advertising on
Internet less expensive and more responsive
7. Countries such as China and India have stronger 0.07 2 0.14
economic status and accordingly, the companies are
able to spend more advertising dollars via Internet
Threats
0.09 3 0.27
1. Due to weak economic conditions, Internet related
businesses also have suffered
2. In 2009, a number of Internet content and advertising 0.07 2 0.14
companies reported disappointing financial results
and lowered their forward financial outlooks
0.06 2 0.12
3. Low entry barrier makes the viability of existing
Internet based businesses difficult
4. Changes in legislative requirements concerning 0.07 3 0.21
technology sharing, patent rights and information
security could increase future expenses and lower
profitability
0.08 2 0.16
5. Constant technology changes causes difficulty to be
up-to-date all the time
0.05 2 0.1
6. Consolidations among Internet-based providers
could make the competition to be strong
Total 1.00 2.61

Positioning Map

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 Number of
Visitors (High)

Google

Yahoo

Narrow
Microsoft
Product Line Wide Product
Offering Line Offering

Number of
Visitors (Low)

E. Internal Audit

Strengths
1. Increase in revenue from 2007 to 2008 by 3.4 percent to $7.2 billion
2. Yahoo is the second leading global Internet brand
3. Other than offering advertising and online properties, the company
offers Internet access through third-party entities
4. Other than advertising fees, Yahoo generates additional revenue by
charging fees for a range of premium services
5. With additional lay-offs, the company anticipating to have a better
profitability for the next few years
6. Within Internet base service, Yahoo! has several revenue generated
segments such as Search, Display Related, Classified, Referrals /
Lead Generation and Email.
7. Companys quick ratio is 2.54, above industry average

Weaknesses
1. The net income decreased by 35.7 percent to $424 million.
2. Overall advertising revenue dropped by 13 percent in the 2 nd quarter of
2009 compare to the prior year
3. Yahoo! closed several of its video properties and is planning to close
twenty video services including its social network site Yahoo! 360 and
its Web hosting service GeoCities

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 4. Companys capital lease and other long-term liabilities increased by
over $48 million
5. Microsoft has tried to acquire Yahoo! twice for the last three years

Financial Ratio Analysis (October 2009)

Growth Rates % Yahoo! Industry S&P 500

Sales (Qtr vs year ago qtr) -11.80 7.60 -5.20
Net Income (YTD vs YTD) -55.30 13.20 -8.10
Net Income (Qtr vs year ago qtr) 242.70 46.30 24.70
Sales (5-Year Annual Avg.) 34.71 69.97 12.97
Net Income (5-Year Annual Avg.) 12.27 87.09 12.30
Dividends (5-Year Annual Avg.) NA NA 11.88

Price Ratios Yahoo! Industry S&P 500

Sales (Qtr vs year ago qtr) -11.80 7.60 -5.20
Net Income (YTD vs YTD) -55.30 13.20 -8.10
Net Income (Qtr vs year ago qtr) 242.70 46.30 24.70
Sales (5-Year Annual Avg.) 34.71 69.97 12.97
Net Income (5-Year Annual Avg.) 12.27 87.09 12.30
Dividends (5-Year Annual Avg.) NA NA 11.88

Profit Margins % Yahoo! Industry S&P 500

Gross Margin 56.3 62.2 38.2
Pre-Tax Margin 3.0 27.1 9.9
Net Profit Margin -1.4 20.6 6.9
5Yr Gross Margin (5-Year Avg.) 59.3 60.7 38.1
5Yr PreTax Margin (5-Year Avg.) 19.6 30.4 16.5
5Yr Net Profit Margin (5-Year Avg.) 11.9 22.9 11.5

Financial Condition Yahoo! Industry S&P 500

Debt/Equity Ratio 0.01 0.01 1.11
Current Ratio 3.4 9.7 1.5
Quick Ratio 3.4 9.7 1.2
Interest Coverage NA 0.0 27.2
Leverage Ratio 1.2 1.1 3.5
Book Value/Share 8.69 85.16 21.58
Adapted from www.moneycentral.msn.com

Net Profit
Avg P/E Price/ Sales Price/ Book
Margin (%)

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 12/08 72.40 2.37 1.51 5.9
12/07 58.90 4.69 3.25 9.5
12/06 58.10 5.79 3.79 11.7
12/05 27.70 11.07 6.54 36.1
12/04 51.60 15.31 7.34 23.5
12/03 84.20 18.16 6.82 14.6
12/02 87.20 10.47 4.30 11.2
12/01 -110.60 14.09 5.19 -12.9
12/00 1016.10 16.54 8.90 6.4
12/99 1153.40 219.19 92.37 8.1

Book Value/ Debt/ Return on Return on Interest

Share Equity Equity (%) Assets (%) Coverage
12/08 $8.09 0.00 3.8 3.1 NA
12/07 $7.16 0.08 6.9 5.4 NA
12/06 $6.73 0.08 8.2 6.5 NA
12/05 $5.99 0.09 22.1 17.5 NA
12/04 $5.13 0.11 11.8 9.1 NA
12/03 $3.30 0.17 5.5 4.0 NA
12/02 $1.90 0.00 4.7 3.8 NA
12/01 $1.71 0.00 -4.7 -3.9 NA
12/00 $1.69 0.00 3.7 3.1 NA
12/99 $1.17 0.04 3.8 3.1 NA
Adapted from www.moneycentral.msn.com

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted

Score

Strengths

1. Increase in revenue from 2007 to 2008 by 3.4 percent 0.07 2 0.14

to $7.2 billion
2. Yahoo is the second leading global Internet brand 0.1 4 0.4

3. Other than offering advertising and online properties, 0.07 4 0.28

the company offers Internet access through third-party
entities
4. Other than advertising fees, Yahoo generates 0.09 3 0.27
additional revenue by charging fees for a range of
premium services

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5. With additional lay-offs, the company anticipating to 0.06 4 0.24
have a better profitability for the next few years
6. Within Internet base service, Yahoo! has several 0.08 4 0.32
revenue generated segments such as Search, Display
Related, Classified, Referrals / Lead Generation and
Email.
7. Company's quick ratio is 2.78, above industry average 0.1 4 0.4

Weaknesses

1. The net income decreased by 35.7 percent to $424 0.08 2 0.16

million.
2. Overall advertising revenue dropped by 13 percent in 0.1 2 0.2
the 2nd quarter of 2009 compare to the prior year
3. Yahoo! closed several of its video properties and is 0.08 2 0.16
planning to close twenty video services including its
social network site Yahoo! 360 and its Web hosting
service GeoCities
4. Company's capital lease and other long-term liabilities 0.08 2 0.16
increased by over $48 million
5. Microsoft has tried to acquire Yahoo! twice for the last 0.09 2 0.18
three years
Total 1.00 2.91

F. SWOT Strategies

Strengths
1. Increase in revenue
from 2007 to 2008 by
3.4 percent to $7.2
billion
2. Yahoo is the second
leading global Internet
brand
3. Other than offering
advertising and online
properties, the company
offers Internet access
through third-party
entities
4. Other than advertising
fees, Yahoo generates
Weaknesses
1. The net income
decreased by 35.7
percent to $424 million.
2. Overall advertising
revenue dropped by 13
percent in the 2nd quarter
of 2009 compare to the
prior year
3. Yahoo! closed several of
its video properties and
is planning to close
twenty video services
including its social
network site Yahoo! 360
and its Web hosting

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 additional revenue by service GeoCities
charging fees for a 4. Companys capital lease
range of premium and other long-term
services liabilities increased by
5. With additional lay-offs, over $48 million
the company 5. Microsoft has tried to
anticipating to have a acquire Yahoo! twice for
better profitability for the the last three years
next few years
6. Within Internet base
service, Yahoo! has
several revenue
generated segments
such as Search, Display
Related, Classified,
Referrals / Lead
Generation and Email.
7. Companys quick ratio is
2.78, above industry
average
Opportunities S-O Strategies W-O Strategies
1. 1.1 billion Internet users 1. Implement a vertical or 1. Acquire innovative
around the world as of horizontal integration technology / Internet
2006 and it is still (forward or backward) of a related businesses using a
growing company that has global combination of cash and
presence (S2, S6, S7, O1, debt (W3, W5, O2, O4,
2. Internet advertising
O2, O3, O4, O5) O5)
revenues in the U.S. 2. Increase advertising 2. Sell off low profit segments
remains strong, topping spending by additional and pay down the long
$23 billion in 2008 10% on fee based term debt (W4, O1)
3. Consumers are segments (S7, O4)
spending more of their 3. Cutback prices on
time online advertising and fee based
4. New business strategies segment by 2% (S7, O1,
such as bundling O2)
Internet access with
voice and video services
are increasing
5. Innovativeness in
technology is the driving
force in Internet-based
businesses
6. Many businesses
overseas are finding
advertising on Internet
less expensive and

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 more responsive
7. Countries such as China
and India have stronger
economic status and
accordingly, the
companies are able to
spend more advertising
dollars via Internet

Threats S-T Strategies W-T Strategies

1. Due to weak economic 1. Offer new marketing data 1. Improve innovation to
conditions, Internet collection for advertisers protect the companys
related businesses also (S2, S6, T2) technology, patent rights
have suffered 2. Create additional bundling and information security
partnership for sound or (W3, W4, T4)
2. In 2009, a number of
video streaming (S3, T3,
Internet content and T5)
advertising companies
reported disappointing
financial results and
lowered their forward
financial outlooks
3. Low entry barrier makes
the viability of existing
Internet based
businesses difficult
4. Changes in legislative
requirements
concerning technology
sharing, patent rights
and information security
could increase future
expenses and lower
profitability
5. Constant technology
changes causes
difficulty to be up-to-
date all the time
6. Consolidations among
Internet-based providers
could make the
competition to be strong

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G. SPACE Matrix

FS
Conservative 7
Aggressive

CS IS
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

-1

-2

-3

-4

-5

-6

Defensive
-7 Competitive

ES

Financial Stability (FS) Environmental Stability (ES)

Return on Investment 6 Unemployment -5
Leverage 5 Technological Changes -3
Liquidity 6 Price Elasticity of Demand -3
Working Capital 6 Competitive Pressure -2
Cash Flow 6 Barriers to Entry -6

Financial Stability (FS) Average 5.8 Environmental Stability (ES) Average -3.8

Competitive Stability (CS) Industry Stability (IS)

Market Share -1 Growth Potential 6
Product Quality -1 Financial Stability 5
Customer Loyalty -2 Ease of Market Entry 2
Competitions Capacity Utilization -2 Resource Utilization 5
Technological Know-How -2 Profit Potential 6

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Competitive Stability (CS) Average -1.6 Industry Stability (IS) Average 4.8

Y-axis: FS + ES = 5.8 + (-3.8) = 2.0

X-axis: CS + IS = (-1.6) + (4.8) = 3.2

H. Grand Strategy Matrix

Rapid Market Growth

QuadrantI
QuadrantII

Strong
Weak
Competitive
Competitive
Position
Position

QuadrantIV
QuadrantIII Slow Market Growth

1. Market Development
2. Market Penetration
3. Product Development
4. Forward Integration
5. Backward Integration
6. Horizontal Integration
7. Related Diversification

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 I. The Internal-External (IE) Matrix
The IFE Total Weighted Score

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
I II III

High
3.0 to 3.99

IV IV VI

The EFE Total Yahoo! Stores, Inc.

Weighted Medium
Score 2.0 to 2.99

VII VIII IX

Low
1.0 to 1.99

J. QSPM

Acquire an
Internet
based
business Increase
(horizontal or advertising
vertical spending by
integration, addition 10%
backward or on fee based
forward) segments
Key Factors Weight AS TAS AS TAS
Opportunities

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1. 1.1 billion Internet users around the world as of 0.1 4 0.4 2 0.2
2006 and it is still growing
2. Internet advertising revenues in the U.S. remains 0.08 3 0.24 4 0.32
strong, topping $23 billion in 2008
3. Consumers are spending more of their time online 0.08 4 0.32 2 0.16
4. New business strategies such as bundling Internet 0.09 --- --- --- ---
access with voice and video services are
increasing
5. Innovativeness in technology is the driving force in 0.07 3 0.21 2 0.14
Internet-based businesses
6. Many businesses overseas are finding advertising 0.09 4 0.36 3 0.27
on Internet less expensive and more responsive
7. Countries such as China and India have stronger 0.07 4 0.28 3 0.21
economic status and accordingly, the companies
are able to spend more advertising dollars via
Internet
Threats
1. Due to weak economic conditions, Internet related 0.09 3 0.27 2 0.18
businesses also have suffered
2. In 2009, a number of Internet content and 0.07 2 0.14 1 0.07
advertising companies reported disappointing
financial results and lowered their forward financial
outlooks
3. Low entry barrier makes the viability of existing 0.06 2 0.12 4 0.24
Internet based businesses difficult
4. Changes in legislative requirements concerning 0.07 --- --- --- ---
technology sharing, patent rights and information
security could increase future expenses and lower
profitability
5. Constant technology changes causes difficulty to 0.08 --- --- --- ---
be up-to-date all the time
6. Consolidations among Internet-based providers 0.05 4 0.20 1 0.05
could make the competition to be strong
TOTAL 1.00 2.74 1.89
Strengths
1. Increase in revenue from 2007 to 2008 by 3.4 0.07 1 0.07 3 0.21
percent to $7.2 billion
2. Yahoo is the second leading global Internet brand 0.1 4 0.4 3 0.3
3. Other than offering advertising and online 0.07 3 0.21 2 0.14
properties, the company offers Internet access
through third-party entities
4. Other than advertising fees, Yahoo generates 0.09 3 0.27 4 0.36
additional revenue by charging fees for a range of
premium services
5. With additional lay-offs, the company anticipating 0.06 --- --- --- ---
to have a better profitability for the next few years
6. Within Internet base service, Yahoo! has several 0.08 3 0.24 4 0.32
revenue generated segments such as Search,
Display Related, Classified, Referrals / Lead
Generation and Email.

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7. Company's quick ratio is 2.78, above industry 0.1 4 0.4 3 0.3
average
Weaknesses
1. The net income decreased by 35.7 percent to $424 0.08 3 0.24 1 0.08
million.
2. Overall advertising revenue dropped by 13 percent 0.1 4 0.4 2 0.2
in the 2nd quarter of 2009 compare to the prior
year
3. Yahoo! closed several of its video properties and is 0.08 --- --- --- ---
planning to close twenty video services including
its social network site Yahoo! 360 and its Web
hosting service GeoCities
4. Company's capital lease and other long-term 0.08 2 0.16 3 0.24
liabilities increased by over $48 million
5. Microsoft has tried to acquire Yahoo! twice for the 0.09 --- --- --- ---
last three years
SUBTOTAL 1.00 2.39 2.15
SUM TOTAL ATTRACTIVENESS SCORE 5.13 4.04

K. Recommendations
Acquire an Internet based business for approximately $1 billion (all cash or in
cash) that has high presents in areas such as China, India, or Europe, by
implementing a vertical or horizontal integration (backward or forward).

L. EPS/EBIT Analysis
$ Amount Needed: $500 million
Stock Price: $15.00
Tax Rate: 27.4%
Interest Rate: 5%
# Shares Outstanding: 1,391,560,000

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 0 0 0 25,000,000 25,000,000 25,000,000
EBT 300,000,000 600,000,000 1,000,000,000 275,000,000 575,000,000 975,000,000
Taxes 8,220,000,000 16,440,000,000 27,400,000,000 7,535,000,000 15,755,000,000 26,715,000,000
EAT 7,920,000,000 15,840,000,000 26,400,000,000 7,260,000,000 15,180,000,000 25,740,000,000
#
Shares 1,424,893,333 1,424,893,333 1,424,893,333 1,391,560,000 1,391,560,000 1,391,560,000
EPS 5.56 11.12 18.53 5.22 10.91 18.50

70 Percent 70 Percent
Stock - 30 Debt - 30
Percent Debt Percent Stock

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 Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 20,000,000 20,000,000 20,000,000 5,000,000 5,000,000 5,000,000
EBT 280,000,000 580,000,000 980,000,000 295,000,000 595,000,000 995,000,000
Taxes 7,672,000,000 15,892,000,000 26,852,000,000 8,083,000,000 16,303,000,000 27,263,000,000
EAT 7,392,000,000 15,312,000,000 25,872,000,000 7,788,000,000 15,708,000,000 26,268,000,000
#
Shares 1,414,893,333 1,414,893,333 1,414,893,333 1,401,560,000 1,401,560,000 1,401,560,000
EPS 5.22 10.82 18.29 5.56 11.21 18.74

M. Epilogue
Taobao, China's largest online retailer, is owned by Alibaba Group, which is 40
percent owned by U.S. search titan Yahoo Inc will launch a mobile phone in
partnership with Lenovo Mobile to tap into rising demand for mobile shopping.
The phone, which will be preloaded with Taobao applications, will enable users to
shop wirelessly and will be launched within a month, targeted at the Chinese
market, the source said, speaking on condition of anonymity because the plan is
not yet public. Alibaba Group is also parent of China's largest e-commerce
website Alibaba.com.

In November, 2009, Microsoft and Yahoo released that the antitrust authorities in
Canada and Australia have given the green light to both companies if they wish
to merge. Obviously, such approval has not be granted by the Justice
Department which is reviewing the deal, but in a joint statement, Microsoft and
Yahoo say they "remain hopeful that the agreement will close in early 2010."

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