Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1996
Commission File Number 0-28018
YAHOO! INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0398689
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3400 CENTRAL EXPRESSWAY
SUITE 201, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 731-3300
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 31, 1997, the aggregate market value of voting stock held by non-
affiliates of the Registrant, based upon the closing sales price for the
Registrant's Common Stock, as reported in the NASDAQ National Market System, was
$172,717,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for any other purpose.
The number of shares of the Registrant's Common Stock outstanding as of
January 31, 1997 was 27,237,784.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K:
(1) 1996 Annual Report to Shareholders
- Items 5, 6, 7, 8 and 14(a)(1).
(2) Proxy Statement for the 1997 Annual Meeting of Shareholders
- Items 10, 11, 12 and 13.
2
PART I
Item 1. Business
THE FOLLOWING DESCRIPTION OF THE COMPANY'S BUSINESS CONTAINS FORWARD-
LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH IN THIS
ANNUAL REPORT UNDER THE HEADING, "RISK FACTORS."
OVERVIEW
Yahoo! Inc. ("Yahoo!" or the "Company") offers a family of branded
online media properties, including its flagship property YAHOO! (R),
that are among the most widely-used sources of information and
discovery on the World Wide Web. YAHOO! was developed and first made
available in 1994 by the Company's founders, David Filo and Jerry Yang, while
they were graduate students at Stanford University. The Company was
incorporated in March 1995 and completed its initial public offering in April
1996.
Under the "Yahoo!" brand, the Company provides intuitive, context-based
guides to online content, Web search capabilities, aggregated third-party
content and community and personalization features. In December 1996,
Internet users viewed an average of over 20 million Web pages per day in
"Yahoo!" branded properties.
The Company believes that as one of the pioneer Internet guides, Yahoo! has
a strong, globally-prominent brand presence, and is one of the most visible and
recognizable names generally associated with the Internet. The Company seeks to
further extend its brand position and audience by continuing to aggregate and
develop Web content that serves focused groups of Internet users with specific
subject-area, demographic and geographic characteristics. As of the date of
this Report, in addition to YAHOO!, the Company offered fourteen
geographically focused versions of YAHOO! including five international
versions for Canada, Japan, France, Germany, and the United Kingdom and
Ireland, and regionally focused properties for nine U.S. metropolitan areas;
two subject-matter focused properties organizing timely content about sports
and stocks and investing information; and two demographically focused
properties for children and women.
The Company makes its properties available without charge to users, and
generates revenue primarily through the sale of banner advertising. Advertising
on Yahoo! properties is sold through the Company's internal advertising sales
force and third party agents. During the fourth quarter of 1996, more than 550
advertisers purchased advertising on Yahoo! properties.
3
PRODUCTS AND MEDIA PROPERTIES
YAHOO! MAIN SITE
The Company's principal offering, YAHOO!, provides a comprehensive,
intuitive and user-friendly online guide to Web navigation and aggregated
information content. YAHOO! includes a hierarchical, subject-based directory
of Web sites, which enables Web users to locate and access desired
information and services through hypertext links included in the directory.
As of December 1996, YAHOO! organized over 500,000 Web site listings under
the following 14 principal categories: Arts and Humanities, Business and
Economy, Computers and Internet, Education, Entertainment, Government,
Health, News and Media, Recreation and Sports, Reference, Regional, Science,
Social Science, and Society and Culture. Web sites are further organized
under these major headings by hierarchical subcategories. Users can browse
the directory listings by subject matter through a rapid keyword search
request that scans the contents of the entire directory or any subcategory
within YAHOO!. The basic Web site listings are in many cases supplemented
with brief descriptive commentary, and a special symbol is used to indicate
listings that, in the view of the Company's editorial staff, provide unique
presentation or content within their topic area. YAHOO! also provides
Web-wide text search results from the AltaVista search engine. These results
are integrated into the directory search function so that Web-wide search
results are presented in the absence of relevant listings from the YAHOO!
directory.
YAHOO! also incorporates a rich set of current and reference information
from leading content providers, including real-time news (provided by Reuters
New Media), stock quotes (Reuters), business profiles (Hoover's), stock
investing commentary (Motley Fool), sports scores (ESPN SportsTicker),
television listings (TVGuide), weather information (Weathernews, Inc.), maps
with driving directions (Vicinity), searchable yellow pages (Vicinity), and
People Search white pages and e-mail listings (Four11). YAHOO! also organizes
hypertext links to Web sites featuring current events and issues of interest,
such as elections, holidays, political issues and major weather conditions,
organized in a topical format and updated regularly.
TARGETED ONLINE PROPERTIES
The comprehensive subject-based, demographic and geographic listings in
YAHOO! have provided a platform for the Company to develop and offer independent
navigational tools and information services that are targeted to particular
interests and Web users and are presented within the familiar YAHOO! framework
and style. The Company works with appropriate strategic partners who develop
localized or targeted content and, in some cases, promote and sell advertising.
The Company also has developed Web based media properties that allow the user to
personalize and tailor the presentation of information and navigational
resources. The Company believes that, if implemented successfully, these
services further strengthen customer loyalty to the "Yahoo!" brand and create
additional revenue opportunities through a broader end user and advertiser base
and increasingly targeted advertising opportunities.
4
GEOGRAPHIC PROPERTIES
The Company seeks to build upon its global user base by developing Internet
properties focused on geographic regions, which include foreign countries as
well as domestic major metropolitan areas. As of the date of this Report, the
Company had launched fourteen geographically targeted Web properties.
INTERNATIONAL ONLINE PROPERTIES. The Company has developed international
online properties including localized versions of YAHOO! in Canada, Japan,
France, Germany, and the United Kingdom and Ireland. For international
properties, the Company has relied primarily upon the editorial efforts of third
parties in such geographical areas to localize YAHOO! for language, customs and
cultural interests, language-specific search capabilities, and to maintain Web
site listings that are relevant to the country or metropolitan areas. For
example, YAHOO! JAPAN--Yahoo!'s first geographic property--was developed through
a joint venture between the Company and SOFTBANK, one of the Company's principal
shareholders and Japan's largest distributor of computer software, peripherals
and systems, as well as one of Japan's largest publishers of computer-related
magazines and books.
REGIONAL ONLINE PROPERTIES. As of the date of this Report, the Company
offered regional Yahoo! properties for Austin, Boston, Chicago, Dallas, Los
Angeles, New York, the San Francisco Bay Area, Seattle, and Washington D.C.
These offerings, which are developed and maintained by the Company, include
listings from the main YAHOO! service selected and organized on the basis of
regional focus, as well as aggregated local content, such as local news,
weather, traffic and Yellow pages listings licensed from third party content
providers including local television and radio stations, newspapers and
entertainment guides, and localized community features, such as bulletin
boards, personals and classifieds listings. In addition, the Company offers
YAHOO! GET LOCAL (TM), which provides users with local online resources for more
than 30,000 U.S. cities, which are organized and presented to users on the
basis of the user's zip-code. The Company believes that these local
properties provide local advertisers a cost-effective means of targeting
their online audience, as well as allowing national advertisers to target key
geographic markets.
SUBJECT-BASED PROPERTIES
The Company has developed subject-based Internet properties, including
YAHOO! SCOREBOARD (sports scores and information) and YAHOO! FINANCE (stock
quotes and company and industry information). The Company currently is
developing a YAHOO! branded property focused on Internet resources for online
shopping for goods and services and MTV/YAHOO! UNFURLED (TM) focused on
music-related Web resources, produced in conjunction with MTV Networks.
Yahoo! intends to continue to seek relationships with leading content
providers to develop additional Internet properties focused on interest areas
that the Company believes to be desirable advertising vehicles.
DEMOGRAPHIC PROPERTIES
The Company also has developed and offers online properties focused on
targeted demographic groups, initially children and women. In March 1996, the
Company
5
introduced YAHOOLIGANS! (TM), a version of YAHOO! designed for children aged
7 to 12. The Web sites included in YAHOOLIGANS! are selected by professional
educators as appropriate for children. In January 1997, the Company,
together with Wire Networks Inc.--the producers of Women's Wire, a leading
interactive Web magazine for women -- launched BEATRICE'S WEB GUIDE (TM), an
online property providing navigation and content targeted to women. The
Company seeks to develop additional Internet properties that are focused on
specific demographic groups which provide attractive advertising
opportunities.
PERSONALIZED INFORMATION SERVICES
In July 1996, the Company launched MY YAHOO! (TM), a personalized Web
information service. MY YAHOO! allows users to create a personal profile which
directly organizes and delivers to the user information of personal interest
such as personalized stock quotes, stock portfolio management, local and
national headlines, local and national weather and sports news, as well as the
user's favorite Web searches and YAHOO! categories. The Company has developed a
universal registration system that permits YAHOO! users to easily use several
YAHOO! services under a single username, including MY YAHOO!, YAHOO! CHAT and
YAHOO! CLASSIFIEDS. The Company also recently entered into an agreement to
develop a property to be known as "NETSCAPE GUIDE BY YAHOO!", which will be a
personalized navigation and information service made available in connection
with Netscape's Web site and browser. See "Distribution Alliances -- Leading
Web Sites and Browsers."
PRINT AND OTHER OFFLINE PROPERTIES
The Company seeks to extend the "Yahoo!" brand into print and other
offline media, primarily for the purpose of promoting the brand and creating
greater demand for the Company's online properties. The Company has entered
into an agreement with Ziff-Davis Publishing Company, a subsidiary of
SOFTBANK, for the publication of YAHOO! INTERNET LIFE (TM), a monthly print
magazine companion to the online magazine. The Company also has entered into
a multiple-book publishing arrangement with IDG Books Worldwide, Inc., a
leading publisher of computer books and magazines. Under this agreement,
several guides to the Internet have been published, including YAHOO!
UNPLUGGED, YAHOO! WILD WEB RIDES, and YAHOOLIGANS! WAY COOL WEB SITES.
Royalty revenues under these arrangements have been and are expected to
continue to be nominal.
ADVERTISING SALES AND PRICING
The Company has derived substantially all of its revenues to date from the
sale of advertisements and promotions on Yahoo! properties. The Company's
advertising products currently consist primarily of banner advertisements that
appear on the top of pages within Yahoo! properties, as well as higher profile
promotional sponsorships that are typically focused on a particular event, such
as a sweepstakes. Hypertext links are embedded in each banner advertisement to
provide the user with instant access to the advertiser's Web site, to obtain
additional information, or to purchase products and services.
Although a substantial majority of advertising purchases on Yahoo!
properties are for general rotation on pages within the services, the Company
seeks to offer increasingly better targeted properties that will deliver greater
value to advertisers through more focused audiences. By developing an extended
family of "Yahoo!" branded properties, the Company seeks to offer advertisers a
wide range of placement options.
6
During the year ended December 31, 1996, SOFTBANK Corporation, a 36%
shareholder of the Company, purchased directly and through SOFTBANK affiliates
(including companies in which SOFTBANK has invested) $2,075,000 of advertising
at rates which are comparable with other large customers.
ADVERTISING SALES ORGANIZATION
In late 1996, the Company established an internal sales force. As of
February 28, 1997, 21 advertising sales professionals were employed in six
locations across the U.S., including Atlanta, Chicago, Dallas, Los Angeles,
New York, and San Francisco. SOFTBANK Interactive Marketing, a subsidiary of
SOFTBANK, served as the Company's exclusive advertising sales representative
through the end of 1996, and continues to represent a significant proportion
of Yahoo!'s advertising sales. The Company's advertising sales organization
consults regularly with agencies and customers on design and placement of
Web-based advertising, and provides clients with measurement and analysis of
advertising effectiveness.
In international markets, Yahoo!'s advertising sales are handled primarily
by the international affiliate responsible for localization and operation of the
service within the territory, with support and assistance from the Company's
internal sales representatives.
ADVERTISING PRICING
The Company's contracts with advertisers typically guarantee the advertiser
a minimum number of "impressions," or times that an advertisement appears in
pages viewed by users of Yahoo! properties. Yahoo!'s standard rates for banner
advertisements currently range from $0.02 to $0.07 per impression, depending
upon location of the advertisement within Yahoo!'s properties and the extent to
which it is targeted for a particular audience. Discounts may be provided from
standard rates for high volume, longer-term contracts.
The Company also offers context-based keyword advertising, which permits
advertisers to target users based upon specified keywords that a user enters
when searching within YAHOO!. For example, if a user enters the term
"automobile" or "car," an automobile manufacturer's advertisement could appear
on pages displaying the results of such a search. The Company's standard rate
for context-based keyword advertisements currently ranges from $0.03 to $0.08
per impression. Discounts may be provided from standard rates for high volume,
longer-term contracts.
In addition to banner advertising, the Company offers premium positions on
the top page of Yahoo! properties that typically are used in connection with
promotions and special events. The Company's strategy is to use these
sponsorship positions for high-profile promotions that can also result in
additional visibility and awareness for Yahoo!. Promotions partners during 1996
included American Express, Citibank, Sony, Toyota, Wells Fargo, and Southwest
Airlines. Yahoo! has also created special holiday- and event-oriented
promotional spaces for events such as New Year's Eve in Times Square, the Grammy
Awards, and the Presidential Inauguration.
7
STRATEGIC ALLIANCES
In order to serve users more effectively and to extend the "Yahoo!" brand
to new media properties, the Company has entered into strategic relationships
with business partners who offer unique content, technology and distribution
capabilities.
CONTENT AND COMMERCE ALLIANCES
Yahoo! has entered into strategic alliances with selected leading
providers--including Ziff-Davis, SOFTBANK, Rogers Communications, Reuters,
Granite Broadcasting, Women's Wire, MTV, and the Motley Fool--which permit the
Company to bring "Yahoo!"-branded, targeted media products to market more
quickly, while avoiding the cost of producing original editorial content. The
Company's agreements with its third-party content providers typically provide
for the sharing of advertising revenues received from banners appearing on pages
with licensed content.
TECHNOLOGY ALLIANCES
The Company supplements its Internet directory listings with full-text Web
search results provided by AltaVista, a division of Digital Equipment
Corporation, under a non-exclusive, multi-year agreement signed in July 1996.
The Company has agreed to share revenues from advertising on pages returning
results from Web-wide searches using the AltaVista search engine. YAHOO! users
continue to experience YAHOO!'S popular look and feel, directory services,
unique content and search results, while gaining the benefits of AltaVista's
powerful, comprehensive performance for full-text searching of the World Wide
Web.
DISTRIBUTION ALLIANCES
In order to broaden YAHOO!'s user base, the Company has established
co-promotional relationships with commercial online services, Internet access
providers and operators of leading Web sites. The Company believes these
arrangements are important to the promotion of YAHOO!, particularly among new
Web users who may first access the Web through these services or Web sites.
These co-promotional arrangements typically are terminable upon short or no
notice.
LEADING WEB SITES AND BROWSERS. The Company seeks to establish
co-promotional relationships with the operators of leading Web sites in order
to draw additional users to YAHOO!. In March 1997, the Company entered into
an agreement with Netscape Communications Corporation whereby it will be
designated as one of four "Premier Providers." Under the terms of the
agreement, the Company will be required to make minimum payments of
$3,200,000 in cash and $1,500,000 in the Company's advertising services in
return for certain minimum guaranteed exposures over the course of the
one-year term of the agreement, which will commence in May of 1997. To the
extent that the minimum guaranteed exposures are exceeded, the Company is
obligated to purchase additional traffic in return for additional payments of
cash and the Company's advertising services.
In March 1997, the Company entered into an agreement with Netscape
Communications Corporation under which the Company will develop and operate
an Internet information navigation service to be called "NETSCAPE GUIDE BY
YAHOO!." The personalized guide will be designed to provide Internet users
with a central comprehensive source of sites, news and other valuable
services on the Web. NETSCAPE GUIDE BY YAHOO! will be accessible through
the Netscape Internet site and from the tool bar of Netscape Communicator by
clicking on the "Guide" button or a comparably titled button. The
navigational service will provide users with central access to eight of the
most popular information categories on the Web. The agreement provides that
revenue from advertising on the Guide, which will be managed by the Company,
will be shared between the Company and Netscape. Under the terms of this
agreement, the Company will be required to make a one-time non-refundable
trademark license fee payment of $5,000,000 in March 1997 and the Company
will provide Netscape with guarantees against shared advertising revenues of
$10,000,000 in the first year of the agreement and $15,000,000 in the second
year of the agreement, subject in the second year to certain minimum levels
of advertising impressions being reached on the Guide. See "Risk Factors --
Risks Associated With NETSCAPE GUIDE BY YAHOO!."
INTERNET ACCESS PROVIDERS. The Company also has relationships with
companies such as Pacific Bell, US West, WebTV, and Bell South under which these
Internet access
8
providers feature YAHOO! as a key navigational tool and engage in certain
promotional activities.
OPERATIONS AND TECHNOLOGY
The Company makes YAHOO! available to users through a set of network
servers operating with public domain server software that has been optimized
internally to provide an efficient and responsive user experience. The Company
has developed a set of proprietary database tools that it uses to maintain and
update directory listings on YAHOO! and other directory properties.
Substantially all of the listings on YAHOO! are submitted by Web site
developers. The Company's "surfers" review submissions and categorize them into
appropriate category headings. The Company also uses automated systems to
regularly check Web sites in the YAHOO! directory listings, and to remove sites
that are no longer available.
YAHOO! includes an internally developed responsive keyword search function
that is used to locate listings within the directory. This search function not
only returns relevant Web site listings but also appropriate category headings,
which link to further listings that may be relevant to the user's query. In
establishing other media properties, including international versions of YAHOO!,
the Company licenses its directory and search tools to affiliates that operate
and maintain these properties. The Company has also internally developed an
extensive classifieds system capable of listing and searching millions of items
in multiple categories. Additionally, Yahoo! has internally developed a
personalization system, MY YAHOO!, to allow users to customize and localize the
information they would normally view like stock quotes, sports scores, and
weather.
The Company utilizes the Web-wide searching technology and Web index from
AltaVista, under a multi-year agreement. Yahoo! features AltaVista as its
preferred search engine, with the results displayed on the YAHOO! web site.
YAHOO! users continue to experience YAHOO!'S popular look and feel, directory
services, unique content and search results, while gaining the benefits of
AltaVista's powerful, comprehensive performance for full-text searching of the
World Wide Web.
COMPETITION
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. In addition, the
Company expects the market for Web-based advertising, to the extent it continues
to develop, to be intensely competitive. There are no substantial barriers to
entry in these markets, and the Company expects that competition will continue
to intensify. Although the Company believes that the diverse segments of the
Internet market will provide opportunities for more than one supplier of
products and services similar to those of the Company, it is possible that a
single supplier may dominate one or more market segments.
The Company competes with many other providers of online navigation,
information and community services. Many companies offer competitive
products or services addressing Web navigation services, including, among
others, Digital Equipment Corporation (AltaVista), Excite, Inc. (including
WebCrawler and NetFind), Infoseek Corporation, Inktomi, Lycos, Inc. (Lycos
and A2Z), Open Text Corporation (Open Text Index) and Wired
9
(hotbot). In addition, the Company competes with metasearch services and
software applications, such as C|NET's search.com service, that allow a user
to search the databases of several directories and catalogs simultaneously.
The Company also competes indirectly with database vendors that offer
information search and retrieval capabilities with their core database
products. The Company also faces competition from providers of Web browser
software and other Internet products and services that incorporate search and
retrieval features into their offerings. For example, Web browsers offered
by Netscape and Microsoft, which are the most widely used browsers, may
incorporate prominent search buttons or similar features that direct search
traffic to competing services. In addition, entities that sponsor or
maintain high-traffic Web sites, such as the Regional Bell Operating
Companies, could develop or acquire Internet search and navigation functions
that compete with those offered by the Company. A large number of Web sites
and online services (including, among others, the Microsoft Network, America
Online ("AOL"), and other Web navigation companies such as Excite, Lycos and
Infoseek) offer informational and community features, such as news, stock
quotes, sports coverage, Yellow Pages and e-mail listings, weather news, chat
services and bulletin board listings, that are competitive with the services
offered by the Company. Several companies, including large companies such as
Microsoft and AOL and their affiliates, also are developing or currently
offer online information services for local markets, which compete with the
Company's regional Yahoo! online properties. The Company also faces intense
competition for "Yahoo!" branded online properties in international markets,
including competition from U.S.-based competitors as well as media and online
companies that are already well established in those foreign markets. Many
of the Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical and marketing
resources than the Company. In addition, providers of Internet tools and
services may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies, such as Microsoft or Netscape. For example, AOL is a significant
shareholder of Excite, and Excite has been designated as the exclusive
Internet search service for use by AOL's subscribers. Greater competition
resulting from such relationships could have a material adverse effect on the
Company's business, operating results and financial condition.
In the future, the Company expects to face competition in the various
special interest, demographic and geographic markets addressed by media
properties that are under development. This competition may include
companies that are larger and better capitalized than the Company and that
have expertise and established brand recognition in these markets. There can
be no assurance that the Company's competitors will not develop Internet
products and services that are superior to those of the Company or that
achieve greater market acceptance than the Company's offerings. Moreover, a
number of the Company's current advertising customers, licensees and partners
have also established relationships with certain of the Company's
competitors, and future advertising customers, licensees and partners may
establish similar relationships.
The Company also competes with online services and other Web site
operators, as well as traditional offline media such as television, radio and
print for a share of advertisers' total advertising budgets. The Company
believes that the number of companies selling Web-based advertising and the
available inventory of advertising space have increased substantially during
the past year. Accordingly, the Company may face increased pricing pressure
for the sale of advertisements. There can be no assurance that the Company
will be able to compete successfully against its current or future
competitors or that competition will not have a
10
material adverse effect on the Company's business, operating results and
financial condition.
The Company believes that the principal competitive factors in its markets
are brand recognition, ease of use, comprehensiveness, independence, quality and
responsiveness of search results and the availability of targeted content and
focused value added products and services. Competition among current and future
suppliers of Internet navigational and informational services, high-traffic Web
sites, as well as competition with other media for advertising placements, could
result in significant price competition and reductions in advertising revenues.
Moreover, many of the Company's current and potential competitors have
significantly greater financial, technical, marketing and other resources than
the Company. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition.
PROPRIETARY RIGHTS
The Company regards its copyrights, trademarks, trade dress, trade secrets
and similar intellectual property as critical to its success, and the Company
relies upon trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The Company pursues the
registration of its trademarks in the United States and (based upon anticipated
use) internationally, and has applied for the registration of a number of its
trademarks, including "Yahoo!" and "Yahooligans!." Effective trademark,
copyright and trade secret protection may not be available in every country in
which the Company's products and media properties are distributed or made
available through the Internet. The Company has licensed in the past, and it
expects that it may license in the future, elements of its distinctive
trademarks, trade dress and similar proprietary rights to third parties,
including in connection with branded mirror sites of YAHOO! and other media
properties that may be controlled operationally by third parties. Substantially
all content appearing in the Company's online properties, such as news, weather,
sports scores and stock quotes, is licensed from third parties under short-term
agreements.
EMPLOYEES
As of December 31, 1996, the Company had 155 full-time employees, including
44 "surfers" involved in the classification and organization of listings within
YAHOO!, 58 in sales and marketing, 17 in administration and finance, and 35 in
research and product development. Yahoo!'s future success is substantially
dependent on the performance of its senior management and key technical
personnel, and its continuing ability to attract and retain highly qualified
technical and managerial personnel.
RISK FACTORS
In addition to the other information in this Report, the following factors
should be considered carefully in evaluating the Company's business and
prospects:
11
EXTREMELY LIMITED OPERATING HISTORY; ANTICIPATED LOSSES
The Company was incorporated in March 1995 and did not commence generating
advertising revenues until August 1995. Accordingly, the Company has a limited
operating history upon which an evaluation of the Company can be based, and its
prospects are subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
products and services, including the Web-based advertising market.
Specifically, such risks include, without limitation, the failure to continue to
develop and extend the "Yahoo!" brand, the failure to develop new media
properties, the failure to effectively develop and implement the NETSCAPE
GUIDE BY YAHOO!, the rejection of the Company's services by Web consumers
and/or advertisers, the inability of the Company to maintain and increase the
levels of traffic on Yahoo! properties, the development of equal or superior
services or products by competitors, the failure of the market to adopt the
Web as an advertising medium, the failure to successfully sell Web-based
advertising through the Company's recently developed internal sales force,
potential reductions in market prices for Web-based advertising, the
inability of the Company to effectively integrate the technology and
operations or any other acquired businesses or technologies with its
operations, and the inability to identify, attract, retain and motivate
qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks. As of December 31, 1996, the Company
had an accumulated deficit of $2,968,000. The extremely limited operating
history of the Company and the uncertain nature of the markets addressed by
the Company make the prediction of future results of operations difficult or
impossible and, therefore, the recent revenue growth experienced by the
Company should not be taken as indicative of the rate of revenue growth, if
any, that can be expected in the future. The Company believes that period to
period comparisons of its operating results are not meaningful and that the
results for any period should not be relied upon as an indication of future
performance. Although the Company reported a nominal profit for the quarter
ended December 31, 1996, the Company currently expects to significantly
increase its operating expenses to expand its sales and marketing operations,
to fund greater levels of product development and to develop and
commercialize additional media properties. The Company also has made $25
million in advertising revenue guarantees to Netscape over the next two years
in connection with a co-branded navigational service to be developed and
operated by the Company under an agreement with Netscape. See "Risks
Associated With NETSCAPE GUIDE BY YAHOO!". As a result of these factors, there
can be no assurance that the Company will not incur significant losses on a
quarterly and annual basis for the foreseeable future.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data for a significant number of
periods on which to base planned operating expenses. The Company derives
substantially all of its revenues from the sale of advertisements under
short-term contracts, which are difficult to forecast accurately. The
Company's expense levels are based in part on its expectations concerning
future revenue and to a large extent are fixed. The Company also has fixed
expenses in the form of prepaid license fees and advertising revenue
guarantees of up to $30 million over the next two years relating to the
NETSCAPE GUIDE BY YAHOO!, which subject the Company to additional risk in the
event that advertising revenues from this property are not sufficient to
offset guaranteed payments and related operating expenses. Quarterly revenues
and operating results depend substantially upon the advertising revenues
received within the quarter, which are difficult to forecast accurately.
Accordingly, the cancellation or deferral of a small number of advertising
contracts could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue in relation to the
Company's
12
expectations would have an immediate adverse effect on the Company's
business, operating results and financial condition. In addition, the
Company plans to continue to significantly increase its operating expenses to
expand its sales and marketing operations, to continue to develop and extend
the "Yahoo!" brand, to develop and implement the NETSCAPE GUIDE BY YAHOO!, to
fund greater levels of product development and to develop and commercialize
additional media properties. To the extent that such expenses precede or are
not subsequently followed by increased revenues, the Company's business,
operating results and financial condition will be materially and adversely
affected.
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. These factors include the level of usage of the Internet, demand for
Internet advertising, seasonal trends in Internet usage and advertising
placements, the addition or loss of advertisers, the level of user traffic on
YAHOO! and the Company's other online media properties, the advertising
budgeting cycles of individual advertisers, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or its
competitors, pricing changes for Web-based advertising, technical difficulties
with respect to the use of YAHOO! or other media properties developed by the
Company, incurrence of costs relating to acquisitions, general economic
conditions and economic conditions specific to the Internet and online media.
As a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company also has
experienced, and expects to continue to experience, seasonality in its business,
with user traffic on YAHOO! and the Company's other online media properties
being lower during the summer and year-end vacation and holiday periods, when
usage of the Web and the Company's services typically decline. Additionally,
seasonality may also affect the amount of customer advertising dollars placed
with the Company in the first and third calendar quarters as advertisers
historically spend less during these quarters.
Due to all of the foregoing factors, in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock would
likely be materially and adversely affected.
RISKS ASSOCIATED WITH NETSCAPE GUIDE BY YAHOO!
In March 1997, the Company entered into an agreement to develop and
operate an Internet information navigation service to be called "NETSCAPE
GUIDE BY YAHOO!." The personalized guide will be designed to provide Internet
users with a central comprehensive source of sites, news and other valuable
services on the Web. NETSCAPE GUIDE BY YAHOO! will be accessible through the
Netscape Internet site and from the tool bar of Netscape Communicator by
clicking on the "Guide" button or a comparably titled button. The agreement
provides that revenue from advertising on the Guide, which will be managed by
the Company, will be shared between the Company and Netscape. Under the
terms of this agreement, the Company will be required to make a one-time
non-refundable trademark license fee payment of $5,000,000 in March 1997 and
the Company will provide Netscape with guarantees against shared advertising
revenues of $10,000,000 in the first year of the agreement and $15,000,000 in
the second year of the agreement, subject in the second year to certain
minimum levels of advertising impressions being reached on the Guide.
The Netscape Guide agreement exposes the Company to a number of
significant risks and uncertainties, including, without limitation: the risk
that the Company and its sales agents will fail to generate sufficient
advertising revenue to offset the initial and future guaranteed payments to
Netscape, including any failure that results from negative trends in the
Web-based advertising business (such as price erosion) or the inability of
the Company and its agents to rapidly expand their advertising sales and
management efforts to match the additional inventory currently anticipated
from the Guide; the risk that projected user traffic levels for the Guide
will not be achieved, which could occur as a result of several factors, such
as the Company's failure to successfully implement or market the Guide or to
provide a compelling user experience, the effect of competitive personalized
information services from other parties, or declines or slower growth in the
number of users of Netscape's browser products, particularly as a result of
increased competition from Microsoft Corporation products, such as Internet
Explorer; the risk that the Netscape Guide and any related services will
divert substantial user traffic away from the Company's other online media
properties, including the YAHOO! main site and the MY YAHOO! personalized
information service, and thus reduce the Company's advertising revenues from
such other services (which are not subject to the revenue sharing
arrangements with Netscape), and potentially dilute the strength of the
Company's "Yahoo!" brand; the risk that Netscape does not elect to renew the
agreement at the end of the two year term, after which the agreement permits
Netscape to use certain elements of the user interface developed by the
Company without payment of any consideration to the Company; and the risk
that the Company will not effectively manage the substantial additional
complexity and scope of operations required for successful development and
operation of the Guide, including, among others, the difficulties associated
with higher levels of user traffic and challenges in licensing and
integrating content from a large number of third party content providers on
acceptable terms. As a result of the foregoing factors, there can be no
assurance that the Company will implement the Guide successfully, or that the
Guide activities will not have a material adverse effect on the Company's
business, operating results or financial condition.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web in order to support the sale of
advertising on the Company's online media properties. Rapid growth in the use
of and interest in the Internet and the Web is a recent phenomenon. There can
be no assurance that communication or commerce over the Internet will become
widespread or that extensive content will continue to be provided over the
Internet. The Internet may not prove to be a viable commercial marketplace for
a number of reasons, including potentially inadequate development of the
necessary infrastructure, such as a reliable network backbone, or timely
development and commercialization of performance improvements, including high
13
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, there can
be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by such potential growth or that the
performance or reliability of the Web will not be adversely affected by this
continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times and
adversely affect usage of the Web and the Company's online media properties. If
use of the Internet does not continue to grow, or if the Internet infrastructure
does not effectively support growth that may occur, the Company's business,
operating results and financial condition would be materially and adversely
affected.
DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS AND MEDIA
PROPERTIES
The markets for the Company's products and media properties have only
recently begun to develop, are rapidly evolving and are characterized by an
increasing number of market entrants who have introduced or developed
information navigation products and services for use on the Internet and the
Web. As is typical in the case of a new and rapidly evolving industry, demand
and market acceptance for recently introduced products and services are subject
to a high level of uncertainty and risk. Because the market for the Company's
products and media properties is new and evolving, it is difficult to predict
the future growth rate, if any, and size of this market. There can be no
assurance either that the market for the Company's products and media properties
will develop or that demand for the Company's products or media properties will
emerge or become sustainable. The Company's ability to successfully develop
additional targeted media properties depends substantially on use of the YAHOO!
main site to promote such properties. If use of YAHOO! fails to continue to
grow, the Company's ability to establish other targeted properties would be
materially and adversely affected. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, or if the
Company's products and media properties do not achieve or sustain market
acceptance, the Company's business, operating results and financial condition
will be materially and adversely affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
The Company believes that establishing and maintaining the "Yahoo!" brand
is a critical aspect of its efforts to attract and expand its Internet audience
and that the importance of brand recognition will increase due to the growing
number of Internet sites and the relatively low barriers to entry. Promotion
and enhancement of the "Yahoo!" brand will depend largely on the Company's
success in providing high quality products and services, which cannot be
assured. If consumers do not perceive the Company's existing products and
services to be of high quality, or if the Company introduces new products and
services or enters into new business ventures that are not favorably received by
consumers, the Company will be unsuccessful in promoting and maintaining its
brand, and will risk diluting its brand and decreasing the attractiveness of its
audiences to
14
advertisers. Furthermore, in order to attract and retain Internet users and to
promote and maintain the "Yahoo!" brand in response to competitive pressures,
the Company may find it necessary to increase substantially its financial
commitment to creating and maintaining a distinct brand loyalty among consumers.
If the Company is unable to provide high quality products and services or
otherwise fails to promote and maintain its brand, or if the Company incurs
excessive expenses in an attempt to improve its products and services or promote
and maintain its brand, the Company's business, operating results and financial
condition will be materially and adversely affected.
RELIANCE ON ADVERTISING REVENUES AND UNCERTAIN ADOPTION OF THE WEB AS AN
ADVERTISING MEDIUM
The Company derives substantially all of its revenues from the sale of
advertisements on its Web pages under short-term contracts, and expects to
continue to do so for the foreseeable future. Most of the Company's advertising
customers have only limited experience with the Web as an advertising medium,
have not devoted a significant portion of their advertising expenditures to Web-
based advertising and may not find such advertising to be effective for
promoting their products and services relative to traditional print and
broadcast media. The Company's ability to generate significant advertising
revenues will depend upon, among other things, advertisers' acceptance of the
Web as an effective and sustainable advertising medium, the development of a
large base of users of the Company's services possessing demographic
characteristics attractive to advertisers, and the ability of the Company to
develop and update effective advertising delivery and measurement systems. No
standards have yet been widely accepted for the measurement of the effectiveness
of Web-based advertising, and there can be no assurance that such standards will
develop sufficiently to support Web-based advertising as a significant
advertising medium. Certain advertising filter software programs are available
that limit or remove advertising from an Internet user's desktop. Such
software, if generally adopted by users, may have a materially adverse effect
upon the viability of advertising on the Internet. The Company also recently
completed the transition from a third-party advertising sales agent to internal
advertising sales personnel, which involves additional risks and uncertainties,
including (among others) risks associated with the recruitment, retention,
management, training and motivation of sales personnel. As a result of these
factors, there can be no assurance that the Company will sustain or increase
current advertising sales levels. Failure to so will have a material adverse
effect on the Company's business, operating results and financial position.
In addition, there is intense competition in the sale of advertising on the
Internet, including competition from other Internet navigational tools as well
as other high-traffic sites, which has resulted in a wide range of rates quoted
by different vendors for a variety of advertising services, which makes it
difficult to project future levels of Internet advertising revenues that will be
realized generally or by any specific company. Competition among current and
future suppliers of Internet navigational services or Web sites, as well as
competition with other traditional media for advertising placements, could
result in significant price competition and reductions in advertising revenues.
There also can be no assurance that the Company's advertising customers will
accept the internal and third-party measurements of impressions received by
advertisements on
15
YAHOO!, the Company's online media properties, or that such measurements will
not contain errors.
SUBSTANTIAL DEPENDENCE UPON THIRD PARTIES
The Company depends substantially upon third parties for several critical
elements of its business including, among others, technology and infrastructure,
development of targeted content for localized Internet navigational guides,
distribution activities and advertising sales.
TECHNOLOGY AND INFRASTRUCTURE
The Company supplements its Internet directory listings with full-text Web
search results provided by AltaVista, a division of Digital Equipment
Corporation ("Digital"), under a non-exclusive agreement. The Company believes
that these search results provide a key competitive element for its Internet
navigation services. The Company therefore depends substantially upon ongoing
maintenance and technical support from Digital to ensure accurate and rapid
presentation of such search results to the Company's customers. Any failure of
Digital to effectively provide such search results could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, any termination of the agreement with Digital or Digital's failure to
renew such agreement upon expiration could result in substantial additional
costs to the Company in developing or licensing replacement technology, and
could result in a loss of levels of use of the Company's navigational services.
The Company also relies on a private third party provider, I-Systems, Inc.
("ISI"), to provide the Company with access to three partial T3 (45 megabit per
second) Internet connections. Any disruption in the Internet access provided by
ISI or any failure of ISI to handle current or higher volumes of queries could
have a material adverse effect on the Company's business, operating results and
financial condition. The Company also licenses technology and related databases
from third parties for certain elements of Yahoo! properties, including, among
others, technology underlying chat services, street mapping, telephone and e-
mail listings and similar services. Any errors, failures or delays
experienced in connection with these third party technologies and information
services could negatively impact the Company's relationship with users and
adversely affect the Company's brand and its business.
CONTENT DEVELOPMENT
A key element of the Company's strategy involves the implementation of
Yahoo! branded media properties targeted for interest areas, demographic groups
and geographic areas. In these efforts, the Company has relied and will
continue to rely substantially on content development and localization efforts
of third parties. For example, the Company has entered into an agreement with
Ziff-Davis pursuant to which Ziff-Davis publishes two online publications and a
print magazine under the "Yahoo!" brand. The Company also expects to rely
exclusively on third party affiliates, including SOFTBANK in Japan, Rogers
Communications ("Rogers") in Canada, and Ziff-Davis in European countries to
localize, maintain and promote these services and to sell advertising in local
markets. There can be no assurance that the Company's current or future third-
party affiliates will effectively implement these properties, or that their
efforts will result in significant revenue to the Company. Any failure of these
parties to develop and maintain high-quality and successful media properties
also could result in dilution to the "Yahoo!"
16
brand, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
DISTRIBUTION RELATIONSHIPS
The Company has entered into certain distribution agreements and
informal relationships with software vendors and operators of online networks
and leading Web sites, such as Microsoft Corporation ("Microsoft") and
Netscape. The Company believes these arrangements are important to the
promotion of the Company's online media properties particularly among new Web
users who may first access the Web through these services or Web sites. The
Company's business relationships with these companies consist of cooperative
marketing programs and licenses to include YAHOO! in online networks or
services offered by these parties, which are intended to increase the use and
visibility of YAHOO!. These distribution arrangements typically are not
exclusive, and may be terminable upon little or no notice. Third parties that
provide distribution channels for the Company may also assess fees or
otherwise impose additional conditions on the listing of YAHOO! or other
online properties of the Company, such as Netscape's requirement of payments
for placement of YAHOO! on the "Net Search" Web page accessible from a button
on the Netscape Web browser for a twelve month period beginning in April
1996, and the similar one-year agreement commencing May 1997, which involves
minimum payments of $3.2 million in cash and $1.5 million in barter
advertising. The Company also recently entered into an agreement with
Netscape to develop and operate a property to be accessible from the Netscape
browser. See "Risks Associated With NETSCAPE GUIDE BY YAHOO!." In addition,
these companies may terminate or reduce their joint marketing activities with
the Company, or develop and market their own Internet navigational guides or
those of the Company's competitors. Any such events could have a material
adverse effect on the Company's business, results of operations and financial
condition.
THIRD PARTY ADVERTISING SALES AGENTS
Although the Company has recently established an internal sales force, the
Company continues to rely on a third party sales representative firm, SOFTBANK
Interactive Marketing, Inc. ("SIM") for the sale of a substantial amount of
advertising. The Company also relies and expects to continue to rely on third
parties to sell advertising on mirror sites of YAHOO! and targeted media
products, particularly versions of YAHOO! that are localized for international
markets. There can be no assurance that the Company's advertising
representatives will achieve the Company's advertising sales objectives, or
that such advertising sales will be sufficient to offset advertising revenue
guarantees that the Company may make to third parties, such as the
advertising revenues made to Netscape in connection with the NETSCAPE GUIDE
BY YAHOO!. Because advertising sales have constituted and are expected to
continue to constitute substantially all of the Company's revenues, any
failure of the Company's third party sales representatives to achieve
successful advertising sales could have a material adverse effect on the
Company's business, operating results and financial condition.
ENHANCEMENT OF YAHOO! MAIN SITE AND DEVELOPMENT OF NEW MEDIA PROPERTIES
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality, features and content of the YAHOO! main site, as
well as the Company's other branded media properties, such as the NETSCAPE
GUIDE BY YAHOO!. There can be no assurance that the Company will be able to
successfully maintain competitive user response time or implement new
features and functions, such as greater levels of user personalization,
localized content filter and information delivery through "push" methods,
which will involve the development of increasingly complex technologies.
17
The Company's future success also depends in part upon the timely
processing of Web site listings submitted by users and Web content providers,
which have increased substantially in recent periods. The Company has from time
to time experienced significant delays in the processing of submissions, and
further delays could have a material adverse effect on the Company's goodwill
among Web users and content providers, and on the Company's business.
A key element of the Company's business strategy is the development and
introduction of new YAHOO! branded navigational products targeted for specific
interest areas, user groups with particular demographic characteristics and
geographic areas. There can be no assurance that the Company will be successful
in developing, introducing and marketing such products or media properties or
that such products and media properties will achieve market acceptance, enhance
the Company's brand name recognition or increase traffic on Yahoo!'s online
properties. The Company depends substantially on third party efforts in the
development and peration of these new media properties. The introduction of
new media properties also may be subject to delays that may negatively affect
advertising revenues and the Company's competitive position. Furthermore,
enhancements of or improvements to YAHOO! or new media properties may contain
undetected errors that require significant design modifications, resulting in a
loss of customer confidence and user support and a decrease in the value of the
Company's brand name recognition. Any failure of the Company to effectively
develop and introduce these properties, or failure of such properties to achieve
market acceptance, could adversely affect the Company's business, results of
operations and financial condition.
TECHNOLOGICAL CHANGE
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of this market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. The Company's future success will depend in
significant part on its ability to continually improve the performance, features
and reliability of YAHOO! and other properties in response to both evolving
demands of the marketplace and competitive product offerings, and there can be
no assurance that the Company will be successful in doing so. In addition, the
widespread adoption of new Web functionality through developments such as the
Java programming language and increasingly personalized information filtering
and delivery could require fundamental changes in the Company's services and
could fundamentally affect the nature, viability and measurability of Web-based
advertising, which could adversely affect the Company's business, operating
results and financial condition.
18
MANAGEMENT OF POTENTIAL GROWTH
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. To manage its potential growth, the Company must continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The Company also currently intends to establish
mirror, or duplicate, sites in other geographic locations, which will create
additional operational and management complexities, including the need for
continual updating and maintenance of directory listings among geographically
dispersed network servers. The Company also expects that its operational and
management systems will face additional strain as a result of the development
and operation of the NETSCAPE GUIDE BY YAHOO!. See "Risks Associated with
NETSCAPE GUIDE BY YAHOO!". The process of managing advertising within large,
high traffic Web sites such as YAHOO! is an increasingly important and
complex task. The Company relies on both internal and licensed third party
advertising inventory management and analysis systems. To the extent that
any extended failure of the Company's advertising management system results
in incorrect advertising insertions, the Company may be exposed to "make
good" obligations with its advertising customers, which, by displacing
advertising inventory, could defer advertising revenues and thereby have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able
to effectively manage the expansion of its operations, that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that Company management will be able to achieve the rapid
execution necessary to fully exploit the market opportunity for the Company's
products and media properties. Any inability to effectively manage growth,
if any, could have a material adverse effect on the Company's business,
operating results and financial condition.
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES
A key element of the Company's strategy is to generate a high volume of use
of its online media properties. Accordingly, the performance of the Company's
online media properties is critical to the Company's reputation, its ability to
attract advertisers to the Company's Web sites and to achieve market acceptance
of these products and media
19
properties. Any system failure that causes interruption or an increase in
response time of the Company's products and media properties could result in
less traffic to the Company's Web sites and, if sustained or repeated, could
reduce the attractiveness of the Company's products and media properties to
advertisers and licensees. An increase in the volume of queries conducted
through the Company's products and media properties could strain the capacity of
the software or hardware deployed by the Company, which could lead to slower
response time or system failures, and adversely affect the number of impressions
received by advertising and thus the Company's advertising revenues. In
addition, as the number of Web pages and users increase, there can be no
assurance that the Company's products and media properties and infrastructure
will be able to scale accordingly. The Company also faces technical challenges
associated with higher levels of personalization and localization of content
delivered to users of its services, which adds strain to the Company's
development and operational resources. The Company is also dependent upon Web
browsers and Internet and online service providers for access to its products
and media properties. In particular, a private third party provider, ISI,
provides the Company with access to three partial T3 (45 megabit per second)
Internet connections. In the past, users have occasionally experienced
difficulties due to system failures, including failures unrelated to the
Company's systems. Any disruption in the Internet access provided by ISI or any
failure of ISI to handle higher volumes of user traffic could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, the Company is dependent on hardware suppliers for
prompt delivery, installation and service of servers and other equipment used to
deliver the Company's products and services.
The Company's operations are dependent in part upon its ability to protect
its operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events. The
Company does not presently have redundant, multiple site capacity in the event
of any such occurrence. Despite the implementation of network security measures
by the Company, its servers are vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with the Company's computer
systems. The occurrence of any of these events could result in interruptions,
delays or cessations in service to users of the Company's products and media
properties, which could have a material adverse effect on the Company's
business, operating results and financial condition.
INTEGRATION OF POTENTIAL ACQUISITIONS
During 1996, the Company formed a number of joint ventures. As part of its
business strategy, the Company expects to enter into further business
combinations and/or make significant investments in, complementary companies,
products or technologies. Any such transactions would be accompanied by the
risks commonly encountered in such transactions. Such risks include, among
other things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's ongoing business,
the inability of management to maximize the financial and strategic position of
the Company through the successful incorporation of acquired technology or
content and rights into the Company's products and media properties, the
difficulties of integrating personnel of acquired entities, additional expenses
associated with amortization of acquired intangible assets, the maintenance of
20
uniform standards, controls, procedures and policies, the impairment of
relationships with employees and customers as a result of any integration of new
management personnel, and the potential unknown liabilities associated with
acquired businesses. There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions.
TRADEMARKS AND PROPRIETARY RIGHTS
The Company regards its copyrights, trademarks, trade dress, trade secrets
and similar intellectual property as critical to its success, and the Company
relies upon trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The Company pursues the
registration of its trademarks in the United States and (based upon anticipated
use) internationally, and has applied for the registration of certain of its
trademarks, including "Yahoo!" and "Yahooligans!." Effective trademark,
copyright and trade secret protection may not be available in every country in
which the Company's products and media properties are distributed or made
available through the Internet. The Company has licensed in the past, and it
expects that it may license in the future, elements of its distinctive
trademarks, trade dress and similar proprietary rights to third parties,
including in connection with branded mirror sites of YAHOO! and other media
properties that may be controlled operationally by third parties. While the
Company attempts to ensure that the quality of its brand is maintained by such
licensees, no assurances can be given that such licensees will not take actions
that could materially and adversely affect the value of the Company's
proprietary rights or the reputation of its products and media properties,
either of which could have a material adverse effect on the Company's business.
Also, the Company is aware that third parties have from time to time copied
significant portions of YAHOO! directory listings for use in competitive
Internet navigational tools and services, and there can be no assurance that the
distinctive elements of YAHOO! will be protectible under copyright law. There
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and similar
proprietary rights. In addition, there can be no assurance that other parties
will not assert infringement claims against the Company.
Many parties are actively developing search, indexing and related Web
technologies at the present time. The Company believes that such parties have
taken and will continue to take steps to protect these technologies, including
seeking patent protection. As a result, the Company believes that disputes
regarding the ownership of such technologies are likely to arise in the future.
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by the Company and its licensees.
Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. As of the date of this Report,
the Company is not aware of any legal proceedings or claims that the
21
Company believes will have, individually or in the aggregate, a material adverse
effect on the Company's financial position or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its senior management and key technical personnel. In particular, the Company's
success depends substantially on the continued efforts of its senior management
team, which currently is composed of a small number of individuals who only
recently joined the Company. The Company does not carry key person life
insurance on any of its senior management personnel. The loss of the services
of any of its executive officers or other key employees could have a material
adverse effect on the business, operating results and financial condition of the
Company.
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to retain its key managerial and technical employees or
that it will be able to attract and retain additional highly qualified technical
and managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material and adverse
effect upon the Company's business, operating results and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency in the United States, other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. Due to the increasing popularity and
use of the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services. For example,
the Company may be subject to the provisions of the recently enacted
Communications Decency Act (the "CDA"). Although the constitutionality of the
CDA, the manner in which the CDA will be interpreted and enforced and its effect
on the Company's operations cannot be determined, it is possible that the CDA
could expose the Company to substantial liability. The CDA could also dampen
the growth in use of the Web generally and decrease the acceptance of the Web as
a communications and commercial medium, and could, thereby, have a material
adverse effect on the Company's business, results of operations and financial
condition. A number of other countries also have enacted or may enact laws that
regulate Internet Content. The adoption of such laws or regulations may
decrease the growth of the Internet, which could in turn decrease the demand for
the Company's products and media properties. Such laws and regulations also
could increase the Company's cost of doing business or otherwise have an adverse
effect on the Company's business, operating results and financial condition.
Moreover, the applicability to the Internet of the existing laws governing
issues such as property ownership, defamation, obscenity and personal privacy is
uncertain, and the Company may be subject to claims that its services violate
such laws. Any such new legislation or regulation or the application of
existing laws and regulations to the Internet could have a
22
material adverse effect on the Company's business, operating results and
financial condition.
LIABILITY FOR INFORMATION SERVICES
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company and may be subsequently distributed to
others, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement, personal injury
or other theories based on the nature and content of such materials. Such
claims have been brought, and sometimes successfully pressed against online
services in the past. In addition, the Company could be exposed to liability
with respect to the selection of listings that may be accessible through the
Company's YAHOO! branded products and media properties, or through content
and materials that may be posted by users in classifieds, bulletin board and
chat room services offered by the Company. It is also possible that if any
information provided through the Company's services, such as stock quotes,
analyst estimates or other trading information, contains errors, third
parties could make claims against the Company for losses incurred in reliance
on such information. Also, to the extent that the Company provides users
with information relating to purchases of goods and services, the Company or
its operating subsidiaries could face claims relating to injuries or other
damages arising from such goods and services. Although the Company carries
general liability insurance, the Company's insurance may not cover potential
claims of this type or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability or legal defense
expenses that are not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on the Company's business,
operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A key part of the Company's strategy is to develop "Yahoo!" branded
online properties in international markets. The Company has developed and
operates, through joint ventures with SOFTBANK and SB Holdings (Europe) Ltd.,
versions of the YAHOO! Internet Guide localized for Japan, Germany, France
and the U.K, and the Company offers a version of YAHOO! localized for Canada
under an agreement with Rogers Communications. International revenues (sales
outside of North America) were approximately 1% of total revenues for the
year ended December 31, 1996.
To date, the Company has only limited experience in developing localized
versions of its products and marketing and operating its products and
services internationally, and the Company relies substantially on the efforts
and abilities of its foreign business partners in such activities. If the
international revenues are not adequate to offset investments in such
activities, the Company's business, operating results and financial condition
could be materially adversely affected. There can be no assurance that the
Company or its partners will be able to successfully market and operate its
products and services in foreign markets. In addition to the uncertainty as
to the Company's ability to continue to generate revenues from its foreign
operations and expand its international presence, there are certain risks
inherent in doing business on an international level, such as unexpected
changes in regulatory requirements, export restrictions, trade barriers,
difficulties in staffing and managing foreign operations, longer payment
cycles, problems in collecting accounts receivable, political instability,
fluctuations in currency exchange rates, software piracy, seasonal reductions
in business activity in certain other parts of the world and potentially
adverse tax consequences, which could adversely impact the success of the
Company's international operations. There can be no assurance that one or
more of such factors will not have a material adverse effect on the Company's
future international operations and, consequently, on the Company's business,
operating results and financial condition.
CONCENTRATION OF STOCK OWNERSHIP
As of January 31, 1997, the present directors, executive officers, greater
than 5% shareholders and their respective affiliates beneficially owned
approximately 81% of the outstanding Common Stock of the Company. As of January
31, 1997, SOFTBANK beneficially owned approximately 35% of the outstanding
Common Stock of the Company. As a result of their ownership, the directors,
executive officers, greater than 5% shareholders (including SOFTBANK) and their
respective affiliates collectively are able to control all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been and may continue
to be subject to wide fluctuations in response to a number of events and
factors, such as quarterly variations in operating results, announcements of
technological innovations or new products and media properties by the Company or
its competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other
companies that investors may deem comparable to the Company, and news reports
relating to trends in the Company's markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the trading price of the Company's Common
Stock, regardless of the Company's operating performance.
23
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the shareholders. The rights of the holders of Common Stock
may be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company without further action by the shareholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The Company has no present plans to issue shares of Preferred Stock. Further,
certain provisions of the Company's charter documents, including provisions
eliminating the ability of shareholders to take action by written consent and
limiting the ability of shareholders to raise matters at a meeting of
shareholders without giving advance notice, may have the effect of delaying or
preventing changes in control or management of the Company, which could have an
adverse effect on the market price of the Company's Common Stock. In addition,
effective upon qualification of the Company as a "listed corporation," as
defined in Section 301.5(d) of the California Corporations Code, the Company's
charter documents eliminated cumulative voting and provide that, at such time as
the Company has at least six directors, the Company's Board of Directors will be
divided into two classes, each of which serves for a staggered two-year term,
which may make it more difficult for a third party to gain control of the
Company's Board of Directors.
24
Item 2. Properties
Yahoo!'s headquarters facility is located in an office suite in Santa
Clara, California. The Company occupies this leased facility which is
approximately 33,579 square feet. The Company's previous headquarters facility
was located in one building in Sunnyvale, California. The Company does not
currently occupy this leased facility which is approximately 11,220 square feet,
but anticipates moving certain employees to this facility during 1997. Office
space for the Company's international subsidiaries is leased on a monthly basis
in London, Munich, and Paris. The Company also leases sales offices in Chicago,
Dallas, Los Angeles, and New York. The Company's principal Web server equipment
and operations are maintained by I-Systems, Inc. in Mountain View, California.
The Company believes that its existing facilities are adequate to meet
current requirements, and that suitable additional or substitute space will be
available as needed to accommodate any further physical expansion of corporate
operations and for any additional sales offices.
Item 3. Legal Proceedings
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings or claims that the Company believes will have,
individually or in the aggregate, a material adverse effect on the Company's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
25
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Incorporated by reference from the information under the caption "Stock
Information" on page 38 of the Registrant's 1996 Annual Report to Shareholders.
Item 6. Selected Financial Data
Incorporated by reference from the information under the caption "Selected
Financial Data" on page 17 of the Registrant's 1996 Annual Report to
Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 18 - 22 of the Registrant's 1996 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements together with the report thereon of
Price Waterhouse LLP dated January 14, 1997, appearing in the Registrant's 1996
Annual Report to Shareholders, are incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective February 1, 1996, Price Waterhouse LLP was engaged as the
Company's independent accountants. Prior to February 1, 1996, Coopers & Lybrand
L.L.P. had been the Company's independent accountants. The decision to change
independent accountants was approved by the Company's Board of Directors.
Coopers & Lybrand L.L.P. has not audited or reported on any financial statements
of the Company as of any date or for any period and has not consulted with the
Company on any matters of accounting principles or practices. Prior to February
1, 1996, the Company had not consulted with Price Waterhouse LLP on any items
which involved the Company's accounting principles or the form of audit opinion
to be issued on the Company's financial statements.
26
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the information under the caption "Proposal
No. 1 - Election of Directors" in the Registrant's Proxy Statement for its 1997
Annual Meeting of Shareholders. The following sets forth certain information
with respect to the other executive officers of Yahoo!:
David Filo (age 30), Chief Yahoo and a founder of the Company, has served
as an officer of the Company since March 1995, and served as a director of the
Company from its founding through February 1996. Mr. Filo co-developed YAHOO!
in 1994 while working towards his Ph.D. in electrical engineering at Stanford
University, and co-founded the Company in 1995. Mr. Filo holds a B.S. degree in
computer engineering from Tulane University and a M.S. degree in electrical
engineering from Stanford University.
Jeff Mallett (age 32) has served as the Company's Senior Vice President,
Business Operations since October 1995. Prior to joining the Company, Mr.
Mallett was Vice President and General Manager of the WordPerfect consumer
division of Novell, Inc., a network operating system software company, from 1993
to 1995 and a member of Novell's Corporate Executive Marketing Group. Prior to
that, Mr. Mallett was a member of the founding team of Reference Software
International where he held various positions from 1988 to 1992, including Vice
President, Sales and Marketing. From 1985 to 1987, Mr. Mallett held the
position of Director, Sales and Marketing at IPT Corp., a privately held
telecommunications company. Mr. Mallett holds a degree in Business
Administration from Santa Rosa College.
Anil Singh (age 38) was promoted to Vice President, Advertising Sales in
December 1996. Prior to that, Mr. Singh served as the Company's Director of
Sales since November 1995. Prior to joining the Company, Mr. Singh was Vice
President of Sales for Socket Communications from 1994 to 1995. From 1992 to
1994, Mr. Singh was Vice President of Sales for Mountain Inc. From 1991 to
1992, Mr. Singh was Director of Sales for Novell Inc. Mr. Singh holds a B.S.
degree in computer science from Imperial College at the University of London,
England.
Gary Valenzuela (age 40) has served as the Company's Senior Vice President,
Finance and Administration, and Chief Financial Officer since February 1996.
From 1994 to 1996, Mr. Valenzuela served as Senior Vice President, Finance and
Administration, and Chief Financial Officer of TGV Software, Inc., a publicly
held developer of TCP/IP software products. Prior to joining TGV, Mr.
Valenzuela was employed by Pyramid Technology Corporation, a then-publicly held
manufacturer of UNIX minicomputers, where he last served as Senior Vice
President, Finance and Chief Financial Officer. Mr Valenzuela holds a B.S.
degree in Business Administration from San Jose State University, and is a
Certified Public Accountant in the State of California.
27
Farzad Nazem (age 35) has served as the Company's Senior Vice President,
Product Development and Site Operations since March 1996. From 1985 to 1996,
Mr. Nazem held a number of technical and executive management positions at
Oracle Corporation, including, most recently, Vice President of Oracle's Media
and Web Server Division and member of the Product Division Management Committee.
Prior to that, Mr. Nazem was a member of the technical staff at SYDIS, Inc. and
Rolm Corporation. Mr. Nazem holds a B.S. in Computer Science from California
Polytechnic State University.
Item 11. Executive Compensation
Incorporated by reference from the information under the captions
"Executive Officer Compensation," "Report of the Compensation Committee of the
Board of Directors on Executive Compensation," "Compensation Committee
Interlocks and Insider Participation," and "Performance Graph" in the
Registrant's Proxy Statement for its 1997 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the information under the captions "Record
Date; Voting Securities" and "Information Regarding Beneficial Ownership of
Principal Shareholders and Management" in the Registrant's Proxy Statement for
its 1997 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the information under the captions
"Certain Transactions" and "Compensation Committee Interlocks and Insider
Participation" in the Registrant's Proxy Statement for its 1997 Annual
Meeting of Shareholders.
28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements:
The following consolidated financial statements of Yahoo! Inc.
and the Report of Independent Accountants are incorporated herein
by reference to the Registrant's 1996 Annual Report to
Shareholders:
Page in
Annual Report
-------------
Consolidated Balance Sheets
at December 31, 1996 and 1995 23
Consolidated Statements of Operations
for the two years ended December 31, 1996 24
Consolidated Statements of Shareholders' Equity
for the two years ended December 31, 1996 25
Consolidated Statements of Cash Flows
for the two years ended December 31, 1996 26
Notes to Consolidated Financial Statements 27
Report of Independent Accountants 37
(2) Financial Statement Schedule:
The following financial statement schedule of Yahoo! Inc. is
submitted herewith and should be read in conjunction with the
consolidated financial statements:
Page in
Form 10-K
---------
Report of Independent Accountants
on Financial Statement Schedule 35
Schedule II - Valuation and Qualifying
Accounts for the two years ended
December 31, 1996 36
All other financial statement schedules required by Item 14(a)(2)
have been omitted because they are inapplicable or the required
information has been included in the consolidated financial
statements or notes thereto.
29
(3) Exhibits are incorporated herein by reference or are filed with
this report as indicated below (numbered in accordance with Item
601 of Regulation S-K):
Exhibit
Number Description
------- -----------
3.1 Form of Amended and Restated Articles of Incorporation of
Registrant (Filed as Exhibit 3.2 to the Company's
Registration Statement on the Form SB-2, Registration No.
333-2142-LA, declared effective on April 11, 1996 [the "SB-2
Registration Statement"] and incorporated herein by
reference.)
3.2 Amended and Restated Bylaws of Registrant (Filed as Exhibit
3.3 to the SB-2 Registration Statement and incorporated
herein by reference.)
10.1 Form of Indemnification Agreement with the Registrant's
officers and directors (Filed as Exhibit 10.1 to the SB-2
Registration Statement and incorporated herein by
reference.)
10.2 1995 Stock Plan, as amended, and form of stock option
agreement
10.3 Form of Management Continuity Agreement with the
Registrant's Executive Officers (Filed as Exhibit 10.3 to
the SB-2 Registration Statement and incorporated herein by
reference.)
10.4 Stock Purchase Agreement dated March 3, 1995 with each of
David Filo and Jerry Yang (Filed as Exhibit 10.4 to SB-2
Registration Statement and incorporated herein by
reference.)
10.5 Series A Preferred Stock Agreement dated April 7, 1995
between the Registrant and Purchasers of Series A Preferred
Stock (Filed as Exhibit 10.5 to the SB-2 Registration
Statement and incorporated herein by reference.)
10.6 Form of Stock Restriction Agreements dated April 7, 1995
between the Registrant and Jerry Yang and David Filo
(Filed as Exhibit 10.6 to the SB-2 Registration Statement
and incorporated herein by reference.)
10.7 Series B Preferred Stock Agreement dated November 22, 1995
between the Registrant and Purchasers of Series B Preferred
Stock (Filed as Exhibit 10.7 to the SB-2 Registration
Statement and incorporated herein by reference.)
10.8 Series C Preferred Stock Agreement dated March 12, 1996
between the Registrant and SOFTBANK Holdings Inc. (Filed as
Exhibit 10.8 to the SB-2 Registration Statement and
incorporated herein by reference.)
10.9 Second Amended and Restated Investor Rights Agreement dated
March 12, 1996 between the Registrant and certain
shareholders (Filed as Exhibit 10.9 to the SB-2 Registration
Statement and incorporated herein by reference.)
10.10 Second Amended and Restated Co-Sale Agreement dated March
12, 1996 between the Registrant and certain (Filed as
Exhibit 10.10 to the SB-2 Registration Statement and
incorporated herein by reference.)
30
10.11 Second Amended and Restated Voting Agreement dated March 12,
1996 between the Registrant and certain shareholders (Filed
as Exhibit 10.11 to the SB-2 Registration Statement and
incorporated herein by reference.)
10.12+ Publishing Agreement dated June 2, 1995 between the
Registrant and IDG Books Worldwide, Inc. (Filed as Exhibit
10.12 to the SB-2 Registration Statement and incorporated
herein by reference.)
10.13+ Agency Agreement dated June 6, 1995 between the Registrant
and Interactive Marketing, Inc. (Filed as Exhibit 10.13 to
the SB-2 Registration Statement and incorporated herein by
reference.)
10.14 Lease Agreement relating to the Registrant's office at 635
Vaqueros Avenue, Sunnyvale, California (Filed as Exhibit
10.18 to the SB-2 Registration Statement and incorporated
herein by reference.)
10.15 Sublease Agreement dated June 6, 1996 relating to the
Registrant's office at 3400 Central Expressway, Suite 201,
Santa Clara, California
10.16+ Agreement dated January 15, 1996 between the Registrant and
Ziff-Davis Publishing Company (Filed as Exhibit 10.19 to the
SB-2 Registration Statement and incorporated herein by
reference.)
10.17 1996 Employee Stock Purchase Plan and form of subscription
agreement (Filed as Exhibit 10.20 to the SB-2 Registration
Statement and incorporated herein by reference.)
10.18 1996 Directors' Stock Option Plan and form of option
agreement (Filed as Exhibit 10.21 to the SB-2 Registration
Statement and incorporated herein by reference.)
10.19+ Yahoo! Canada Affiliation Agreement dated February 29, 1996
between the Registrant and Rogers Multi-Media Inc. (Filed as
Exhibit 10.23 to the SB-2 Registration Statement and
incorporated herein by reference.)
10.20+ Directory Development Agreement dated February 14, 1996
between the Registrant and Ingenius, a Colorado Partnership
(Filed as Exhibit 10.24 to the SB-2 Registration Statement
and incorporated herein by reference.)
10.21 Standstill and Voting Agreement dated March 12, 1996 between
the Registrant and SOFTBANK Holdings Inc. (Filed as Exhibit
10.26 to the SB-2 Registration Statement and incorporated
herein by reference.)
31
10.22 Premier Provider Agreement dated March 15, 1996 between the
Registrant and Netscape Communications Corporation (Filed as
Exhibit 10.27 to the SB-2 Registration Statement and
incorporated herein by reference.)
10.23 Form of Common Stock Purchase Warrant issued by the
Registrant to Visa International (Filed as Exhibit 10.29 to
the SB-2 Registration Statement and incorporated herein by
reference.)
10.24+ Value-Added Link Agreement dated July 3, 1996 by and between
Yahoo! Inc. and Digital Equipment Corporation (Filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-
Q/A for the quarter ended June 30, 1996 [the "June 30, 1996
10-Q"] and incorporated herein by reference.)
10.25+ Joint Venture Agreement dated April 1, 1996 by and between
Yahoo! Inc. and SOFTBANK Corporation (Filed as Exhibit 10.2
to the June 30, 1996 10-Q and incorporated herein by
reference.)
10.26+ Yahoo! Japan License Agreement dated April 1, 1996 by and
between Yahoo! Inc. and Yahoo! Japan Corporation (Filed as
Exhibit 10.3 to the June 30, 1996 10-Q and incorporated
herein by reference.)
10.27+ SOFTBANK Letter Agreement dated April 1, 1996 by and between
Yahoo! Inc. and SOFTBANK Group (Filed as Exhibit 10.4 to the
June 30, 1996 10-Q and incorporated herein by reference.)
10.28+ Yahoo! Marketplace Limited Liability Company Agreement dated
August 26, 1996 by and between Yahoo! Inc., Visa Marketplace
Inc., and Sterling Payot Capital, L.P. (Filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 [the "September 30, 1996
10-Q"] and incorporated herein by reference.)
10.29+ Yahoo! Marketplace Operating Agreement dated August 26, 1996
by and between Yahoo! Marketplace, Yahoo! Inc., and Visa
International Service Association (Filed as Exhibit 10.2 to
the September 30, 1996 10-Q and incorporated herein by
reference.)
10.30* Joint Venture Agreement dated November 1, 1996 by and
between Yahoo! Inc. and SB Holdings (Europe) Ltd.
10.31* Yahoo! UK License Agreement dated November 1, 1996 by and
between Yahoo! Inc. and Yahoo! UK
10.32* Yahoo! Deutschland License Agreement dated November 1, 1996
by and between Yahoo! Inc. and Yahoo! Deutschland
10.33* Yahoo! France License Agreement dated November 1, 1996 by
and between Yahoo! Inc. and Yahoo! France
10.34* Services Agreement dated November 1, 1996 by and between
Yahoo! UK Ltd. and Ziff-Davis UK, Ltd.
10.35* Services Agreement dated November 1, 1996 by and between
Yahoo! GmbH and Ziff-Davis Verlag, GmbH
10.36* Services Agreement dated November 1, 1996 by and between
Yahoo! France, SARL and Ziff-Davis France, S.A.
32
10.37* Netscape Communications Corporation Co-Marketing Agreement
dated March 17, 1996 by and between Netscape Communications
Corporation and Yahoo! Inc.
10.38* Trademark License Agreement dated March 17, 1996 by and
between Netscape Communications Corporation and Yahoo! Inc.
10.39* Netscape Communications Corporation U.S. English-Language
Net Search Program Premier Provider Services Agreement
dated March 17, 1996 by and between Netscape Communications
Corporation and Yahoo! Inc.
11.1 Computation of Net Loss Per Share
13.1 Portions of the 1996 Annual Report to Shareholders
16.1 Letter dated March 6, 1996 from Coopers & Lybrand L.L.P.,
prior accountant of the Registrant (Filed as Exhibit 10.25
to the SB-2 Registration Statement and incorporated herein
by reference.)
21.1 List of Subsidiaries
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
+ Confidential treatment granted.
* Confidential treatment requested.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused the report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 31st day of March,
1997.
YAHOO! INC.
By: /s/ Timothy Koogle
-------------------------
Timothy Koogle
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy Koogle and Gary Valenzuela, his
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with Exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or substitute or substitutes may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Timothy Koogle President and Chief Executive March 31, 1997
- -------------------- Officer (Principal Executive Officer)
Timothy Koogle
/s/ Gary Valenzuela Senior Vice President, Finance and March 31, 1997
- -------------------- Administration, and Chief Financial
Gary Valenzuela Officer (Principal Financial Officer)
/s/ James J. Nelson Corporate Controller March 31, 1997
- -------------------- (Principal Accounting Officer)
James J. Nelson
/s/ Eric Hippeau Director March 31, 1997
- --------------------
Eric Hippeau
/s/ Arthur H. Kern Director March 31, 1997
- --------------------
Arthur H. Kern
/s/ Michael Moritz Director March 31, 1997
- --------------------
Michael Moritz
/s/ Jerry Yang Director March 31, 1997
- --------------------
Jerry Yang
34
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Yahoo! Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 14, 1997 which appears in the 1996 Annual Report to Shareholders
of Yahoo! Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Jose, California
January 14, 1997
35
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
-------------------------
Balance at Charged to Charged to Write-offs Balance at
Allowance for Beginning Costs and Other Net of End of
Doubtful Accounts of Year Expenses Accounts Recoveries Year
- ----------------- ---------- ---------- ---------- ----------- ------------
* 1995 $ - $ 82,000 $ - $ - $ 82,000
1996 $ 82,000 $ 524,000 $ - $ 6,000 $ 600,000
* Period comprised of only ten months from March 5, 1995 (Inception) through
December 31, 1995.
36
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
10.2 1995 Stock Plan, as amended, and form of stock option agreement
10.15 Sublease Agreement dated June 6, 1996 relating to the Registrant's
office at 3400 Central Expressway, Suite 201, Santa Clara, California
10.30* Joint Venture Agreement dated November 1, 1996 by and between
Yahoo! Inc. and SB Holdings (Europe) Ltd.
10.31* Yahoo! UK License Agreement dated November 1, 1996 by and between
Yahoo! Inc. and Yahoo! UK
10.32* Yahoo! Deutschland License Agreement dated November 1, 1996 by and
between Yahoo! Inc. and Yahoo! Deutschland
10.33* Yahoo! France License Agreement dated November 1, 1996 by and between
Yahoo! Inc. and Yahoo! France
10.34* Services Agreement dated November 1, 1996 by and between Yahoo! UK
Ltd. and Ziff-Davis UK, Ltd.
10.35* Services Agreement dated November 1, 1996 by and between Yahoo! GmbH
and Ziff-Davis Verlag, GmbH
10.36* Services Agreement dated November 1, 1996 by and between Yahoo!
France, SARL and Ziff-Davis France, S.A.
10.37* Netscape Communications Corporation Co-Marketing Agreement dated March
17, 1996 by and between Netscape Communications Corporation and Yahoo!
Inc.
10.38* Trademark License Agreement dated March 17, 1996 by and between
Netscape Communications Corporation and Yahoo! Inc.
10.39* Netscape Communications Corporation U.S. English-Language Net Search
Program Premier Provider Services Agreement dated March 17, 1996 by
and between Netscape Communications Corporation and Yahoo! Inc.
11.1 Computation of Net Loss per Share
13.1 Portions of the 1996 Annual Report to Shareholders
21.1 List of Subsidiaries
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
- ---------------------------------------
*Confidential treatment requested
37