Yahoo! Inc. 2009 Case Notes Prepared by: Dr. Mernoush Banton Case Authors: a!

"d #a$eroony

A.

Case Abstract

Yahoo! Inc. (www.yahoo.com) is a comprehensive strategic management case that includes the companys Calendar year-end December !" #$$% &inancial statements" competitor in&ormation and more. 'he case time setting is the year #$$(. )u&&icient internal and e*ternal data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan &or the company. +ead,uartered in )unnyvale in the -.). state o& Cali&ornia" Yahoo! Inc. is traded on the .ew Yor/ )toc/ 0*change under tic/er symbol Y+11.

B.

%"s"on &tate!ent 'Actua()

2Yahoo! powers and delights our communities o& users" advertisers" and publishers 3 all o& us united in creating indispensable e*periences" and &ueled by trust.4

C.

M"ss"on &tate!ent 'Actua()

2'o connect people to their passions" their communities" and the world5s /nowledge. 'o ensure this" Yahoo o&&ers a broad and deep array o& products and services to create uni,ue and di&&erentiated user e*periences and consumer insights by leveraging connections" data" and user participation.4 Companys 6alues" as stated on their website7 *+ce((ence: 8e are committed to winning with integrity. 8e /now leadership is hard won and should never be ta/en &or granted. 8e aspire to &lawless e*ecution and don5t ta/e shortcuts on ,uality. 8e see/ the best talent and promote its development. 8e are &le*ible and learn &rom our mista/es. (#" 9" :" () Inno,at"on: 8e thrive on creativity and ingenuity. 8e see/ the innovations and ideas that can change the world. 8e anticipate mar/et trends and move ,uic/ly to embrace them. 8e are not a&raid to ta/e in&ormed" responsible ris/. (;) Custo!er -"+at"on: 8e respect our customers above all else and never &orget that they come to us by choice. 8e share a personal responsibility to maintain our customers5 loyalty and trust. 8e listen and respond to our customers and see/ to e*ceed their e*pectations. (!" )

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.ea!/or0: 8e treat one another with respect and communicate openly. 8e &oster collaboration while maintaining individual accountability. 8e encourage the best ideas to sur&ace &rom anywhere within the organi?ation. 8e appreciate the value o& multiple perspectives and diverse e*pertise. (%) Co!!un"ty: 8e share an in&ectious sense o& mission to ma/e an impact on society and empower consumers in ways never be&ore possible. 8e are committed to serving both the Internet community and our own communities. (@) -un: 8e believe humor is essential to success. 8e applaud irreverence and don5t ta/e ourselves too seriously. 8e celebrate achievement. 8e yodel. !. #. . ;. 9. :. @. %. (. Customer =roducts or services Aar/ets 'echnology Concern &or survival" pro&itability" growth =hilosophy )el&-concept Concern &or public image Concern &or employees

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D.

*+terna( Aud"t

CPM Co!pet"t",e Pro1"(e Matr"+

Cr"t"ca( &uccess -actors Bdvertising )ervice C =roduct Duality =rice Competitiveness Aanagement Einancial =osition Customer >oyalty =roduct >ines Aar/et )hare Customer )ervice 'echnology 0mployees Flobal 0*pansion .ota(

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<pportun"t"es !. !.! billion Internet users around the world as o& #$$: and it is still growing #. Internet advertising revenues in the -.). remain strong" topping -)G# billion in #$$% . Consumers are spending more o& their time online ;. .ew business strategies such as bundling Internet access with voice and video services are increasing 9. Innovation in technology is the driving &orce in Internet-based businesses :. Aany businesses overseas are &inding advertising on Internet less e*pensive and more responsive @. Countries such as China and India have stronger economic status and accordingly the companies are able to spend more advertising dollars via Internet .hreats !. Due to wea/ economic conditions" Internet-related businesses also have su&&ered #. In #$$(" a number o& Internet content and advertising companies reported disappointing &inancial results and lowered their &orward &inancial outloo/s

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. >ow entry barrier ma/es the viability o& e*isting Internet-based businesses di&&icult ;. Changes in legislative re,uirements concerning technology sharing" patent rights and in&ormation security could increase &uture e*penses and lower pro&itability 9. Constant technology changes causes di&&iculty in being up-to-date all the time :. Consolidations among Internet-based providers could ma/e the competition stronger *+terna( -actor *,a(uat"on '*-*) Matr"+ #ey *+terna( -actors <pportun"t"es !. !.! billion Internet users around the world as o& #$$: and it is still growing #. Internet advertising revenues in the -.). remains strong" topping -)G# billion in #$$% . Consumers are spending more o& their time online ;. .ew business strategies such as bundling Internet access with voice and video services are increasing 9. Innovation in technology is the driving &orce in Internet-based businesses :. Aany businesses overseas are &inding advertising on Internet less e*pensive and more responsive @. Countries such as China and India have stronger economic status and accordingly the companies are able to spend more advertising dollars via Internet .hreats !. Due to wea/ economic conditions" Internetrelated businesses also have su&&ered #. In #$$(" a number o& Internet content and advertising companies reported disappointing &inancial results and lowered their &orward &inancial outloo/s . >ow entry barrier ma/es the viability o& e*isting Internet-based businesses di&&icult ;. Changes in legislative re,uirements concerning technology sharing" patent rights and in&ormation security could increase &uture e*penses and lower pro&itability $.! $.$% $.$% $.$( $.$@ $.$( $.$@ # # # ; $.; $.#; $.#; $.!% $.!; $.#@ $.!; 4e"3ht 5at"n3 4e"3hted &core

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9. Constant technology changes causes di&&iculty in being up-to-date all the time :. Consolidations among Internet-based providers could ma/e the competition stronger .ota(

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Interna( Aud"t
&tren3ths !. Increase in revenue &rom #$$@ to #$$% by .; percent to -)G@.# billion #. Yahoo is the second leading global Internet brand . 1ther than o&&ering advertising and online properties" the company o&&ers Internet access through third-party entities ;. 1ther than advertising &ees" Yahoo generates additional revenue by charging &ees &or a range o& premium services 9. 8ith additional lay-o&&s" the company anticipates having a better pro&itability &or the ne*t &ew years

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:. 8ithin Internet base service" Yahoo! has several revenue generated segments such as )earch" Display Helated" Classi&ied" He&erralsC>ead Feneration and 0mail @. Companys ,uic/ ratio is #.@%" above industry average 4ea0nesses !. 'he net income decreased by 9.@ percent to -)G;#; million. #. 1verall advertising revenue dropped by ! percent in the second ,uarter o& #$$( compared to the previous year . Yahoo! closed several o& its video properties and is planning to close twenty video services including its social networ/ site Yahoo! :$ and its web hosting service FeoCities ;. Companys capital lease and other long-term liabilities increased by over -)G;% million 9. Aicroso&t has tried to ac,uire Yahoo! twice in the last three years -"nanc"a( 5at"o Ana(ys"s (1ctober #$$() 2ro/th 5ates = )ales (Dtr vs year ago ,tr) .et Income (Y'D vs Y'D) .et Income (Dtr vs year ago ,tr) )ales (9-Year Bnnual Bvg.) .et Income (9-Year Bnnual Bvg.) Dividends (9-Year Bnnual Bvg.) Pr"ce 5at"os )ales (Dtr vs year ago ,tr) .et Income (Y'D vs Y'D) .et Income (Dtr vs year ago ,tr) )ales (9-Year Bnnual Bvg.) .et Income (9-Year Bnnual Bvg.) Dividends (9-Year Bnnual Bvg.) Pro1"t Mar3"ns = Fross Aargin =re-'a* Aargin .et =ro&it Aargin 9Yr Fross Aargin (9-Year Bvg.) 9Yr =re'a* Aargin (9-Year Bvg.) 9Yr .et =ro&it Aargin (9-Year Bvg.) -"nanc"a( Cond"t"on Yahoo! -!!.%$ -99. $ #;#.@$ ;.@! !#.#@ .B Yahoo! -!!.%$ -99. $ #;#.@$ ;.@! !#.#@ .B Yahoo! 9:. .$ -!.; 9(. !(.: !!.( Yahoo! Industry @.:$ ! .#$ ;:. $ :(.(@ %@.$( .B Industry @.:$ ! .#$ ;:. $ :(.(@ %@.$( .B Industry :#.# #@.! #$.: :$.@ $.; ##.( Industry &>P 800 -9.#$ -%.!$ #;.@$ !#.(@ !#. $ !!.%% &>P 800 -9.#$ -%.!$ #;.@$ !#.(@ !#. $ !!.%% &>P 800 %.# (.( :.( %.! !:.9 !!.9 &>P 800

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DebtC0,uity Hatio Current Hatio Duic/ Hatio Interest Coverage >everage Hatio Ioo/ 6alueC)hare Bdapted &rom www.moneycentral.msn.com A,3 P?* !#C$% !#C$@ !#C$: !#C$9 !#C$; !#C$ !#C$# !#C$! !#C$$ !#C(( @#.;$ 9%.($ 9%.!$ #@.@$ 9!.:$ %;.#$ %@.#$ -!!$.:$ !$!:.!$ !!9 .;$ Debt? *@u"ty $.$$ $.$% $.$% $.$( $.!! $.!@ $.$$ $.$$ $.$$ Pr"ce? &a(es #. @ ;.:( 9.@( !!.$@ !9. ! !%.!: !$.;@ !;.$( !:.9; #!(.!(

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#. Yahoo is the second leading global Internet brand . 1ther than o&&ering advertising and online properties" the company o&&ers Internet access through third-party entities ;. 1ther than advertising &ees" Yahoo generates additional revenue by charging &ees &or a range o& premium services 9. 8ith additional lay-o&&s" the company anticipates having a better pro&itability &or the ne*t &ew years :. 8ithin Internet base service" Yahoo! has several revenue generated segments such as )earch" Display Helated" Classi&ied" He&erralsC>ead Feneration and 0mail @. Company5s ,uic/ ratio is #.@%" above industry average 4ea0nesses !. 'he net income decreased by 9.@ percent to -)G;#; million. #. 1verall advertising revenue dropped by ! percent in the second ,uarter o& #$$( compared to the previous year . Yahoo! closed several o& its video properties and is planning to close twenty video services including its social networ/ site Yahoo! :$ and its web hosting service FeoCities ;. Company5s capital lease and other long-term liabilities increased by over -)G;% million 9. Aicroso&t has tried to ac,uire Yahoo! twice in the last three years .ota(

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&4<. &trate3"es
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9.

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@.

leading global Internet brand 1ther than o&&ering advertising and online properties" the company o&&ers Internet access through third-party entities 1ther than advertising &ees" Yahoo generates additional revenue by charging &ees &or a range o& premium services 8ith additional lay-o&&s" the company anticipates having a better pro&itability &or the ne*t &ew years 8ithin Internet base service" Yahoo! has several revenue generated segments such as )earch" Display Helated" Classi&ied" He&erralsC>ead Feneration and 0mail Companys ,uic/ ratio is #.@%" above industry average

revenue dropped by ! percent in the second ,uarter o& #$$( compared to the previous year . Yahoo! closed several o& its video properties and is planning to close twenty video services including its social networ/ site Yahoo! :$ and its web hosting service FeoCities ;. Companys capital lease and other long-term liabilities increased by over -)G;% million 9. Aicroso&t has tried to ac,uire Yahoo! twice in the last three years

<pportun"t"es !. !.! billion Internet users around the world as o& #$$: and it is still growing #. Internet advertising revenues in the -.). remains strong" topping -)G# billion in #$$% . Consumers are spending more o& their time online ;. .ew business strategies such as bundling Internet access with voice and video services are increasing 9. Innovation in technology is the driving &orce in Internet-based businesses :. Aany businesses overseas are &inding

&A< &trate3"es !. Implement a vertical or hori?ontal integration (&orward or bac/ward) o& a company that has global presence ()#" ):" )@" 1!" 1#" 1 " 1;" 19) #. Increase advertising spending by additional !$ percent on &ee based segments ()@" 1;) . Cutbac/ prices on advertising and &ee-based segment by # percent ()@" 1!" 1#)

4A< &trate3"es !. Bc,uire innovative technologyCInternetrelated businesses using a combination o& cash and debt (8 " 89" 1#" 1;" 19) #. )ell o&& low pro&it segments and pay down the long term debt (8;" 1!)

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advertising on Internet less e*pensive and more responsive @. Countries such as China and India have stronger economic status and accordingly the companies are able to spend more advertising dollars via Internet

.hreats !. Due to wea/ economic conditions" Internetrelated businesses also have su&&ered #. In #$$(" a number o& Internet content and advertising companies reported disappointing &inancial results and lowered their &orward &inancial outloo/s . >ow entry barrier ma/es the viability o& e*isting Internet-based businesses di&&icult ;. Changes in legislative re,uirements concerning technology sharing" patent rights and in&ormation security could increase &uture e*penses and lower pro&itability 9. Constant technology changes causes di&&iculty in being up-to-date all the time :. Consolidations among Internet-based providers could ma/e the competition stronger

&A. &trate3"es !. 1&&er new mar/eting data collection &or advertisers ()#" ):" '#) #. Create additional bundling partnership &or sound or video streaming () " ' " '9)

4A. &trate3"es !. Improve innovation to protect the companys technology" patent rights and in&ormation security (8 " 8;" ';)

2.

&PAC* Matr"+

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FS
Conservative
7 6 5 4 3 2 1

Aggressive

CS

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

Defensive

-7

Competitive

ES
-"nanc"a( &tab"("ty '-&) Heturn on Investment >everage >i,uidity 8or/ing Capital Cash Elow -"nanc"a( &tab"("ty '-&) A,era3e Co!pet"t",e &tab"("ty 'C&) Aar/et )hare =roduct Duality Customer >oyalty Competitions Capacity -tili?ation 'echnological Jnow-+ow : 9 : : : 8.7 *n,"ron!enta( &tab"("ty '*&) -nemployment 'echnological Changes =rice 0lasticity o& Demand Competitive =ressure Iarriers to 0ntry *n,"ron!enta( &tab"("ty '*&) A,era3e Industry &tab"("ty 'I&) Frowth =otential Einancial )tability 0ase o& Aar/et 0ntry Hesource -tili?ation =ro&it =otential Industry &tab"("ty 'I&) A,era3e -9 -# -: A9.7

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2rand &trate3y Matr"+

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Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Quadrant III

Slow Market Growth

Quadrant IV

!. #. . ;. 9. :. @.

Aar/et Development Aar/et =enetration =roduct Development Eorward Integration Iac/ward Integration +ori?ontal Integration Helated Diversi&ication

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I.

.he Interna(A*+terna( 'I*) Matr"+

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D.

E&PM
Bc,uire an Internetbased business (hori?ontal or vertical integration" bac/ward or &orward) A& .A& ; $.; $.#; ; --$. # --$.#! ; ; $. : $.#%

#ey -actors <pportun"t"es !. !.! billion Internet users around the world as o& #$$: and it is still growing #. Internet advertising revenues in the -.). remains strong" topping -)G# billion in #$$% . Consumers are spending more o& their time online ;. .ew business strategies such as bundling Internet access with voice and video services are increasing 9. Innovation in technology is the driving &orce in Internet-based businesses :. Aany businesses overseas are &inding advertising on Internet less e*pensive and more responsive @. Countries such as China and India have stronger economic status and accordingly the companies are able to spend more advertising dollars via Internet .hreats !. Due to wea/ economic conditions" Internetrelated businesses also have su&&ered #. In #$$(" a number o& Internet content and advertising companies reported disappointing &inancial results and lowered their &orward &inancial outloo/s . >ow entry barrier ma/es the viability o& e*isting Internet-based businesses di&&icult ;. Changes in legislative re,uirements concerning technology sharing" patent rights and in&ormation security could increase &uture e*penses and lower pro&itability 9. Constant technology changes causes di&&iculty in being up-to-date all the time :. Consolidations among Internet-based providers could ma/e the competition stronger .<.AF &tren3ths !. Increase in revenue &rom #$$@ to #$$% by .; percent to -)G@.# billion

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#. Yahoo is the second leading global Internet brand . 1ther than o&&ering advertising and online properties" the company o&&ers Internet access through third-party entities ;. 1ther than advertising &ees" Yahoo generates additional revenue by charging &ees &or a range o& premium services 9. 8ith additional lay-o&&s" the company anticipates having a better pro&itability &or the ne*t &ew years :. 8ithin Internet base service" Yahoo! has several revenue generated segments such as )earch" Display Helated" Classi&ied" He&erralsC>ead Feneration and 0mail @. Company5s ,uic/ ratio is #.@%" above industry average 4ea0nesses !. 'he net income decreased by 9.@ percent to -)G;#; million. #. 1verall advertising revenue dropped by ! percent in the second ,uarter o& #$$( compared to the previous year . Yahoo! closed several o& its video properties and is planning to close twenty video services including its social networ/ site Yahoo! :$ and its web hosting service FeoCities ;. Company5s capital lease and other long-term liabilities increased by over -)G;% million 9. Aicroso&t has tried to ac,uire Yahoo! twice in the last three years &GB.<.AF &GM .<.AF A..5AC.I%*N*&& &C<5*

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5eco!!endat"ons
Bc,uire an Internet-based business &or appro*imately -)G! billion (all cash or hal& in cash) that has high presence in areas such as China" India" or 0urope" by implementing a vertical or hori?ontal integration (bac/ward or &orward).

F.

*P&?*BI. Ana(ys"s

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-)G Bmount .eeded7 G9$$ million )toc/ =rice7 -)G!9.$$ 'a* Hate7 #@.;N Interest Hate7 9N O )hares 1utstanding7 !" (!"9:$"$$$ Co!!on &toc0 -"nanc"n3 Recession Normal Boom G!"$$$"$$$"$$ G $$"$$$"$$$ G:$$"$$$"$$$ $ $ $ $ $$"$$$"$$$ :$$"$$$"$$$ !"$$$"$$$"$$$ %"##$"$$$"$$ !:";;$"$$$"$$ #@";$$"$$$"$$ $ $ $ @"(#$"$$$"$$ !9"%;$"$$$"$$ #:";$$"$$$"$$ $ $ $ !";#;"%( " !";#;"%( " !";#;"%( " 8.8: 66.62 67.89 ;0 Percent &toc0 A 90 Percent Debt Recession Normal Boom G!"$$$"$$$"$$ G $$"$$$"$$$ G:$$"$$$"$$$ $ #$"$$$"$$$ #$"$$$"$$$ #$"$$$"$$$ #%$"$$$"$$$ 9%$"$$$"$$$ (%$"$$$"$$$ @":@#"$$$"$$ !9"%(#"$$$"$$ #:"%9#"$$$"$$ $ $ $ @" (#"$$$"$$ !9" !#"$$$"$$ #9"%@#"$$$"$$ $ $ $ !";!;"%( " !";!;"%( " !";!;"%( " 8.22 60.72 67.29 Debt -"nanc"n3 Normal G:$$"$$$"$$$ #9"$$$"$$$ 9@9"$$$"$$$ !9"@99"$$$"$$ $ !9"!%$"$$$"$$ $ !" (!"9:$"$$$ 60.96

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'aobao" China5s largest online retailer" is owned by Blibaba Froup" which is ;$ percent owned by -.). search titan Yahoo Inc. It is launching a mobile phone in partnership with >enovo Aobile to tap into rising demand &or mobile shopping. 'he phone" which will be preloaded with 'aobao applications" will enable users to shop wirelessly and will be launched within a month" targeted at the Chinese mar/et" the source said" spea/ing on condition o& anonymity because the plan is not yet public. Blibaba Froup is also parent o& China5s largest e-commerce website www.Blibaba.com. In .ovember" #$$(" Aicroso&t and Yahoo released in&ormation that the antitrust authorities in Canada and Bustralia have given the green light to both companies i& they wish to merge. 1bviously" such approval has not been granted by the -.).

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Pustice Department which is reviewing the deal" but in a Qoint statement" Aicroso&t and Yahoo say they Rremain hope&ul that the agreement will close in early #$!$.R

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