217588134 155424763-case-14-yahoo

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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 company’s 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 in the U.S. state of 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.”
Copyright © 2011 Pearson Education Limited

Company’s Values, as stated on their website:
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)
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
Critical Success
Factors Weight Rating
Weighte
d Score Rating
Weighte
d Score Rating
Weighted
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
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. remain strong, topping US$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. Innovation 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 in being up-to-date all the time
6. Consolidations among Internet-based providers could make the competition
stronger
External Factor Evaluation (EFE) Matrix
Key External Factors Weight Rating Weighted
Score
Opportunities
1. 1.1 billion Internet users around the world as
of 2006 and it is still growing
0.1 4 0.4
2. Internet advertising revenues in the U.S.
remains strong, topping US$23 billion in 2008
0.08 3 0.24
3. Consumers are spending more of their time
online
0.08 3 0.24
4. New business strategies such as bundling
Internet access with voice and video services
are increasing
0.09 2 0.18
5. Innovation in technology is the driving force in
Internet-based businesses
0.07 2 0.14
6. Many businesses overseas are finding
advertising on Internet less expensive and
more responsive
0.09 3 0.27

7. Countries such as China and India have
stronger economic status and accordingly the
companies are able to spend more advertising
dollars via Internet
0.07 2 0.14
Threats
1. Due to weak economic conditions, Internet-
related businesses also have suffered
0.09 3 0.27
2. In 2009, a number of Internet content and
advertising companies reported disappointing
financial results and lowered their forward
financial outlooks
0.07 2 0.14
3. Low entry barrier makes the viability of
existing Internet-based businesses difficult
0.06 2 0.12
4. Changes in legislative requirements concerning
technology sharing, patent rights and
information security could increase future
expenses and lower profitability
0.07 3 0.21
5. Constant technology changes causes difficulty
in being up-to-date all the time
0.08 2 0.16
6. Consolidations among Internet-based providers
could make the competition stronger
0.05 2 0.1
Total 1.00 2.61
Positioning Map

E. Internal Audit
Strengths
1. Increase in revenue from 2007 to 2008 by 3.4 percent to US$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 anticipates having 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. Company’s quick ratio is 2.78, above industry average
Weaknesses
1. The net income decreased by 35.7 percent to US$424 million.
2. Overall advertising revenue dropped by 13 percent in the second quarter
of 2009 compared to the previous 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
Wide
Product Line
Offering
Narrow
Product
Line
Offering
Number of
Visitors
(High)
Number of
Visitors (Low)
Yahoo
Google
Microsoft

4. Company’s capital lease and other long-term liabilities increased by over
US$48 million
5. Microsoft has tried to acquire Yahoo! twice in 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
Avg P/E Price/ Sales Price/ Book
Net Profit
Margin (%)
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/
Share
Debt/
Equity
Return on
Equity (%)
Return on
Assets (%)
Interest
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 to US$7.2 billion
0.07 2 0.14
2. Yahoo is the second leading global Internet
brand
0.1 4 0.4
3. Other than offering advertising and online
properties, the company offers Internet access
through third-party entities
0.07 4 0.28
4. Other than advertising fees, Yahoo generates
additional revenue by charging fees for a range
of premium services
0.09 3 0.27
5. With additional lay-offs, the company anticipates
having a better profitability for the next few
years
0.06 4 0.24
6. Within Internet base service, Yahoo! has several
revenue generated segments such as Search,
0.08 4 0.32

Display Related, Classified, Referrals/Lead
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
US$424 million.
0.08 2 0.16
2. Overall advertising revenue dropped by 13
percent in the second quarter of 2009 compared
to the previous year
0.1 2 0.2
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
0.08 2 0.16
4. Company's capital lease and other long-term
liabilities increased by over US$48 million
0.08 2 0.16
5. Microsoft has tried to acquire Yahoo! twice in the
last three years
0.09 2 0.18
Total 1.00 2.91
F. SWOT Strategies
Strengths Weaknesses
1. Increase in revenue from
2007 to 2008 by 3.4
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,
1. The net income decreased
by 35.7 percent to
US$424 million.
2. Overall advertising
revenue dropped by 13
percent in the second
quarter of 2009 compared
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
4. Company’s capital lease
and other long-term
liabilities increased by

the company anticipates
having 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
7. Company’s quick ratio is
2.78, above industry
average
over US$48 million
5. Microsoft has tried to
acquire Yahoo! twice in
the last three years
Opportunities S-O Strategies W-O Strategies
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
US$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. Innovation 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
1. Implement a vertical or
horizontal integration
(forward or backward) of
a company that has
global presence (S2, S6,
S7, O1, O2, O3, O4, O5)
2. Increase advertising
spending by additional 10
percent on fee based
segments (S7, O4)
3. Cutback prices on
advertising and fee-based
segment by 2 percent
(S7, O1, O2)
1. Acquire innovative
technology/Internet-
related businesses using
a combination of cash
and debt (W3, W5, O2,
O4, O5)
2. Sell off low profit
segments and pay down
the long term debt (W4,
O1)
Threats S-T Strategies W-T Strategies
1. Due to weak economic
conditions, Internet-
1. Offer new marketing data
collection for advertisers
1. Improve innovation to
protect the company’s

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
in being up-to-date all
the time
6. Consolidations among
Internet-based providers
could make the
competition stronger
(S2, S6, T2)
2. Create additional
bundling partnership for
sound or video streaming
(S3, T3, T5)
technology, patent rights
and information security
(W3, W4, T4)
G. SPACE Matrix

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
Competition’s Capacity Utilization -2 Resource Utilization 5
Technological Know-How -2 Profit Potential 6
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
FS
CS
ES
IS
654321
Conservative Aggressive
CompetitiveDefensive
1
2
3
4
5
6
7-2-3-4-5-7 -1-6
7
-7
-6
-5
-4
-3
-2
-1

1. Market Development
2. Market Penetration
3. Product Development
4. Forward Integration
5. Backward Integration
6. Horizontal Integration
7. Related Diversification
Weak
Competitive
Position
Quadrant II
Quadrant I
Quadrant IV
Quadrant III
Strong
Competitive
Position
Rapid Market Growth
Slow Market Growth

I. The Internal-External (IE) Matrix
The IFE Total Weighted Score
Strong
3.0 to 4.0
Average
2.0 to 2.99
Weak
1.0 to 1.99
High
3.0 to
3.99
I II III
Medium
2.0 to
2.99
IV IV
Yahoo! Stores,
Inc.
VI
Low
1.0 to
1.99
VII VIII IX
The EFE
Total
Weighted
Score

J. QSPM
Acquire an
Internet-
based
business
(horizontal
or vertical
integration,
backward or
forward)
Increase
advertising
spending by
additional 10
percent on
fee-based
segments
Key Factors Weight AS TAS AS TAS
Opportunities
1. 1.1 billion Internet users around the world as of
2006 and it is still growing
0.1 4 0.4 2 0.2
2. Internet advertising revenues in the U.S.
remains strong, topping US$23 billion in 2008
0.08 3 0.24 4 0.32
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 access with voice and video services are
increasing
0.09 --- --- --- ---
5. Innovation in technology is the driving force in
Internet-based businesses
0.07 3 0.21 2 0.14
6. Many businesses overseas are finding advertising
on Internet less expensive and more responsive
0.09 4 0.36 3 0.27
7. Countries such as China and India have stronger
economic status and accordingly the companies
are able to spend more advertising dollars via
Internet
0.07 4 0.28 3 0.21
Threats
1. Due to weak economic conditions, Internet-
related businesses also have suffered
0.09 3 0.27 2 0.18
2. In 2009, a number of Internet content and
advertising companies reported disappointing
financial results and lowered their forward
financial outlooks
0.07 2 0.14 1 0.07
3. Low entry barrier makes the viability of existing
Internet-based businesses difficult
0.06 2 0.12 4 0.24
4. Changes in legislative requirements concerning
technology sharing, patent rights and
information security could increase future
expenses and lower profitability
0.07 --- --- --- ---
5. Constant technology changes causes difficulty in
being up-to-date all the time
0.08 --- --- --- ---
6. Consolidations among Internet-based providers
could make the competition stronger
0.05 4 0.20 1 0.05
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

2. Yahoo is the second leading global Internet
brand
0.1 4 0.4 3 0.3
3. Other than offering advertising and online
properties, the company offers Internet access
through third-party entities
0.07 3 0.21 2 0.14
4. Other than advertising fees, Yahoo generates
additional revenue by charging fees for a range
of premium services
0.09 3 0.27 4 0.36
5. With additional lay-offs, the company anticipates
having a better profitability for the next few
years
0.06 --- --- --- ---
6. Within Internet base service, Yahoo! has several
revenue generated segments such as Search,
Display Related, Classified, Referrals/Lead
0.08 3 0.24 4 0.32
7. Company's quick ratio is 2.78, above industry
average
0.1 4 0.4 3 0.3
Weaknesses
1. The net income decreased by 35.7 percent to
US$424 million.
0.08 3 0.24 1 0.08
2. Overall advertising revenue dropped by 13
percent in the second quarter of 2009 compared
0.1 4 0.4 2 0.2
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
0.08 --- --- --- ---
4. Company's capital lease and other long-term
liabilities increased by over US$48 million
0.08 2 0.16 3 0.24
5. Microsoft has tried to acquire Yahoo! twice in the
last three years
0.09 --- --- --- ---
SUBTOTAL 1.00 2.39 2.15
SUM TOTAL ATTRACTIVENESS SCORE 5.13 4.04
K. Recommendations
Acquire an Internet-based business for approximately US$1 billion (all cash or
half in cash) that has high presence in areas such as China, India, or Europe,
by implementing a vertical or horizontal integration (backward or forward).
L. EPS/EBIT Analysis

US$ Amount Needed: $500 million
Stock Price: US$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
$1,000,000,00
0 $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
8,220,000,00
0
16,440,000,00
0
27,400,000,00
0
7,535,000,00
0
15,755,000,00
0 26,715,000,000
EAT
7,920,000,00
0
15,840,000,00
0
26,400,000,00
0
7,260,000,00
0
15,180,000,00
0 25,740,000,000
#
Shares
1,424,893,33
3 1,424,893,333 1,424,893,333
1,391,560,00
0 1,391,560,000 1,391,560,000
EPS 5.56 11.12 18.53 5.22 10.91 18.50
70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock
Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000
$1,000,000,00
0 $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
7,672,000,00
0
15,892,000,00
0
26,852,000,00
0
8,083,000,00
0
16,303,000,00
0 27,263,000,000
EAT
7,392,000,00
0
15,312,000,00
0
25,872,000,00
0
7,788,000,00
0
15,708,000,00
0 26,268,000,000
#
Shares
1,414,893,33
3 1,414,893,333 1,414,893,333
1,401,560,00
0 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. It is launching 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
www.Alibaba.com.
In November, 2009, Microsoft and Yahoo released information 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 been granted by the U.S.

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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