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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number 0-28018

YAHOO! INC.
(Exact name of Registrant as specified in its charter)

701 First Avenue
Sunnyvale, California 94089
(Address of principal executive offices)

Registrant's telephone number, including area code: (408) 349-3300

Indicate by check mark whether the Registrant (1) has filed all reports required 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 ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

YAHOO! INC.

Table of Contents

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

YAHOO! INC.

Condensed Consolidated Statements of Operations
(unaudited, in thousands except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

YAHOO! INC.

Condensed Consolidated Balance Sheets
(unaudited, in thousands, except par values)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

YAHOO! INC.

Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)

5

YAHOO! INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(unaudited, in thousands)

Supplemental schedule:

Acquisition-related activities (in thousands):

See Note 3—"Acquisitions" for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

YAHOO! INC.

Condensed Consolidated Statements of Stockholders' Equity
(unaudited, in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

YAHOO! INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 1—The Company and Basis of Presentation

The Company.    Yahoo! Inc., together with its consolidated subsidiaries, ("Yahoo!" or the "Company") is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! seeks to provide Internet services that are essential and relevant to users and businesses through the provision of online properties (the "Yahoo! Network") to Internet users and a range of tools and marketing solutions for businesses to market to that community of users.

Stock Split.    On April 7, 2004, the Yahoo! Board of Directors approved a two-for-one split of the Company's shares of common stock effected in the form of a stock dividend. As a result of the stock split, Yahoo! stockholders received one additional share of Yahoo! common stock for each share of common stock held of record on April 26, 2004. The additional shares of Yahoo! common stock were distributed on May 11, 2004. All share and per share amounts in these condensed consolidated financial statements and related notes have been retroactively adjusted to reflect the stock split for all periods presented.

Basis of Presentation.    The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items, which in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future period.

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to uncollectible receivables, the useful lives of long-lived assets including property and equipment, investment fair values, goodwill and other intangible assets, income taxes and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes option valuation model to estimate the fair value of stock options granted for pro forma disclosure purposes. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results may differ from these estimates.

The results of operations of companies acquired during the period have been included in the Company's consolidated statements of operations since the closing dates of the acquisitions. See Note 3—"Acquisitions."

These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

Certain prior period balances have been reclassified to conform to the current year presentation. A new subtotal is being presented in the consolidated statement of operations: Income before income taxes, earnings in equity interests, and minority interests. Earnings in equity interests and minority interests in operations of consolidated subsidiaries are now presented below the provision for income taxes. In accordance with generally accepted accounting principles, these items have consistently been presented net of income taxes. In addition, beginning in the fourth quarter of 2004, the Company made reclassifications in the consolidated balance sheets and consolidated cash flow statements related to the classification of auction rate securities. Certain of these securities were included in the cash and cash

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equivalents lines in prior periods. These amounts have been reclassified to short term marketable debt securities.

Stock-Based Compensation.    The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method. The Company recorded compensation expense of approximately $13 million and $9 million in the three months ended March 31, 2004 and 2005, respectively. If the fair value based method had been applied in measuring stock compensation expense, the pro forma effect on net income and net income per share would have been as follows (in thousands, except per share amounts):

*

For the three months ended March 31, 2004, the stock compensation expense amount has been adjusted to reflect lower calculated fair values for employee stock options which resulted in an increase of $3 million in pro forma net income and no change in pro forma net income per share. The adjustment was required as the Company's estimate of the fair value of employee stock options was incorrectly based on a five-and-one-half year expected life rather than the three-and-one-half year expected life intended by management.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected life of the options granted. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options.

See "Recent Accounting Pronouncements" below regarding the impact of the adoption of Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" ("SFAS 123R").

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standard Board's Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("EITF 03-01"). EITF 03-01 provides guidance on the meaning of "other-than-temporary" impairment and its application to certain marketable debt and equity securities accounted for under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and non-marketable securities accounted for under the cost method. The EITF developed a

9

basic three-step model to evaluate whether an investment is other-than-temporarily impaired. In September 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position EITF 03-01-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-01 to investments in securities that are impaired. However, the disclosure requirements were effective for annual periods ended after June 15, 2004 and have been adopted by the Company. The Company is currently evaluating the effect of this proposed statement on its financial position and results of operations.

In December 2004, the FASB issued SFAS 123R, which requires companies to recognize in the statement of operations all share-based payments to employees, including grants of employee stock options, based on their fair values. Accounting for share-based compensation transactions using the intrinsic method supplemented by pro forma disclosures will no longer be permissible. The new statement will be effective for public entities no later than the beginning of the first fiscal year beginning after June 15, 2005. The Company will adopt the new statement on January 1, 2006. The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

Note 2—Basic and Diluted Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of unvested restricted stock (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company's zero coupon senior convertible notes (the "Notes") (using the if-converted method). For the three months ended March 31, 2004 and 2005, approximately 69 million and 61 million options to purchase common stock, respectively, were excluded from the calculation, as their exercise prices were greater than the average market price of the common stock during the period. See Note 7—"Long-Term Debt" for additional information related to the Notes.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

10

Note 3—Acquisitions

During the three months ended March 31, 2005 the Company acquired a software development company. The transaction was treated as an asset acquisition for accounting purposes and therefore no goodwill was recorded. The total estimated purchase price was approximately $58 million and consisted of $54 million in cash consideration, $3 million related to stock options exchanged and $1 million of direct transaction costs. For accounting purposes, approximately $93 million was allocated to amortizable intangible assets, with lives not exceeding three years, $37 million to liabilities, primarily deferred income tax liabilities, and $2 million to deferred stock-based compensation. In connection with the acquisition, the Company also issued approximately 1 million shares of restricted stock valued at $35 million that will be recognized as expense over three years.

In January 2004, the Company acquired 3721 Network Software Company Limited ("3721"), a Hong Kong-based software development company, for approximately $74 million consisting of $51 million of cash, $2 million related to stock options exchanged, direct transaction costs of $1 million and $20 million related to a contingent earnout that will be paid in 2005. In April 2004, the Company acquired Kelkoo S. A. ("Kelkoo"), a leading European online comparison shopping service, for approximately $571 million consisting of $562 million of cash, $6 million in incurred liabilities and direct transaction costs of $3 million. In October 2004, the Company acquired Musicmatch, Inc. ("Musicmatch"), a leading provider of personalized music software and services, for approximately $157 million consisting of $156 million of cash and direct transaction costs of $1 million. The Company also completed a number of smaller acquisitions during the last twelve months. The results of operations of companies acquired have been included in the Company's consolidated statements of operations since the closing dates of the acquisitions. Pro forma results of operations have not been presented for the acquisitions completed during the last twelve months as the results of the acquired companies either individually or in the aggregate were not material to the Company. For details of these acquisitions see Note 3—"Acquisitions" in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

Note 4—Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2005 are as follows (in thousands):

*

Other primarily includes certain purchase price adjustments that affect existing goodwill, and foreign currency translation adjustments. Foreign currency translation adjustments, reflecting movement in the currencies of the underlying entities, totaled approximately $(13) million for the three months ended March 31, 2005.

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Note 5—Intangible Assets, Net

The following table summarizes the Company's intangible assets, net (in thousands):

*

Foreign currency translation adjustments, reflecting movement in the currencies of the underlying entities, totaled approximately $11 million as of March 31, 2005.

The Company recognized amortization expense on intangible assets of approximately $31 million and $40 million for the three months ended March 31, 2004 and 2005, respectively. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows: nine months ending December 31, 2005: $138 million; 2006: $178 million; 2007: $134 million; 2008: $73 million, and 2009: $12 million.

Note 6—Other Income, Net

Other income, net is comprised of (in thousands):

Investment gains (losses), net include realized investment gains, realized investment losses, realized gains on derivatives and impairment charges related to declines in values of privately held companies judged to be other than temporary. Investment gains in the three months ended March 31, 2005 include gains related to the sale of a portion of our marketable equity securities which are classified as current assets and are not considered strategic to the Company. The Company plans to continue to sell these investments opportunistically in varying amounts in the coming quarters.

Note 7—Long-Term Debt

In April 2003, the Company issued $750 million of zero coupon senior convertible notes (the "Notes") due April 2008, which resulted in net proceeds to the Company of approximately $733 million after transaction fees of $17 million, which have been deferred and are included on the consolidated balance sheets in other assets. As of March 31, 2005, approximately $10 million of the transaction fees remain to be amortized. The Notes were issued at par and bear no interest. The Notes are convertible into Yahoo! common stock at a conversion price of $20.50 per share, which would result in the issuance of an aggregate of approximately 37 million shares, subject to adjustment upon the occurrence of specified events. Each $1,000 principal amount of the Notes will initially be convertible into 48.78 shares of Yahoo! common stock.

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The Notes are convertible prior to the final maturity date (1) during any fiscal quarter if the closing sale price of the Company's common stock for at least 20 trading days in the 30 trading-day period ending on the last trading day of the immediately preceding fiscal quarter exceeded 110 percent of the conversion price on that 30^th trading day, (2) during the period beginning January 1, 2008 through the maturity date, if the closing sale price of the Company's common stock on the previous trading day was 110 percent or more of the then current conversion price, and (3) upon specified corporate transactions. Upon conversion, the Company has the right to deliver cash in lieu of common stock. The Company may be required to repurchase all of the Notes following a fundamental change of the Company, such as a change of control, prior to maturity at face value. The Company may not redeem the Notes prior to their maturity.

As of March 31, 2005, the market price condition for convertibility of the Notes was satisfied with respect to the fiscal quarter beginning April 1, 2005 and ending on June 30, 2005. During this period holders of the Notes will be able to convert their Notes into shares of Yahoo! common stock at the rate of 48.78 shares of Yahoo! common stock for each Note. The Notes will also be convertible into shares of Yahoo! common stock in subsequent fiscal quarters, if any, with respect to which the market price condition for convertibility is met. No Notes have been converted since their issuance.

As of March 31, 2005, the fair value of the Notes was approximately $1.3 billion based on quoted market prices. The shares issuable upon conversion of the Notes have been included in the computation of diluted net income per share since the Notes were issued.

Note 8—Stockholders' Equity

Stock Repurchase Programs.    In March 2001, the Company's Board of Directors authorized the Company to repurchase up to $500 million of its outstanding shares of common stock from time to time over the next two years, depending on market conditions, share price and other factors. In March 2003, the Company's Board of Directors authorized a two-year extension of the stock repurchase program until March 2005. Under this program, from March 2001 through December 31, 2004, the Company repurchased 32.9 million shares of common stock at an average price of $4.86 per share for a total amount of approximately $160 million. During this period, of the shares repurchased, 32.1 million shares were purchased from SOFTBANK Corp. ("SOFTBANK") at an average price of $4.84 per share. During the three months ended March 31, 2005, the Company repurchased an additional 4.9 million shares in the open market, at an average price of $33.60 per share, for total consideration of $165 million. Treasury stock is accounted for under the cost method.

In March 2005, the Company's Board of Directors authorized a new stock repurchase program for the Company to repurchase up to $3 billion of its outstanding shares of common stock from time to time over the next five years, depending on market conditions, share price and other factors.

Structured Stock Repurchases.    In August 2004, the Company entered into a $100 million structured stock repurchase transaction which matured in four separate tranches through March 31, 2005. One of the four tranches matured and settled in December 2004. In the quarter ended March 31, 2005, the remaining three tranches matured and two of them were settled, resulting in the Company receiving approximately $54 million. In February 2005, the Company entered into $150 million in structured stock repurchase transactions which will mature in three separate tranches in June 2005, July 2005 and August 2005, respectively. On each of the maturity dates, if the market price of Yahoo! common stock is at or above $30.69 for the June 2005 maturing tranche, $29.00 for the July 2005 maturing tranche, and $31.49 for the August 2005 maturing tranche, the Company will have its investment returned with a premium. If the market price of the Company's common stock is below the pre-determined prices, the Company will repurchase shares of its common stock, up to an aggregate of 5.3 million shares.

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Note 9—Commitments and Contingencies

Operating Leases.    The Company has entered into various non-cancelable operating lease agreements for offices throughout the United States, and for international subsidiaries, for original lease periods up to 23 years and expiring between 2005 and 2027.

Net lease commitments as of March 31, 2005 can be summarized as follows (in millions):

Other Commitments.    In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company's breach of agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and officers, and former directors and officers of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any liabilities related to such indemnification obligations in its financial statements.

On April 21, 2003, Overture Services Inc. ("Overture") completed its purchase of the Web Search unit of Fast Search and Transfer ASA, a Norway based developer of search and real-time filtering technologies, for $70 million in cash, plus a contingent earn-out payment of up to $30 million over three years based on specified operating criteria. The earn-out payment is not included in the contractual obligations table below.

On January 2, 2004, the Company completed the acquisition of 3721, a Hong Kong-based software development company. In January 2004, approximately $51 million in cash consideration was paid. Under the terms of the acquisition, the Company also contingently agreed to pay an additional amount up to a maximum of $70 million in cash, part of which will be an increase to the purchase price and the remainder will be operating expense, over the two-year period ending December 31, 2005, if certain performance criteria are met. At December 31, 2004, the Company recorded an additional $20 million of additional purchase price and $3 million of additional operating expense, as 3721 achieved certain

14

performance-based milestones. As of March 31, 2005, these amounts were included in accrued expenses and other current liabilities and will be paid in 2005. The remaining contingent payment of up to $35 million is not included in the contractual obligations table below.

Contractual Obligations.    The following table presents certain payments due under contractual obligations with minimum firm commitments as of March 31, 2005 (in millions):

(1)

The long-term debt matures in April 2008, unless converted into Yahoo! common stock at a conversion price of $20.50 per share, subject to adjustment upon the occurrence of certain events. Upon conversion, the Company has the right to deliver cash in lieu of common stock. See Note 7—"Long-Term Debt" for additional information related to the long-term debt.

(2)

The Company is obligated to make payments under contracts to provide sponsored search services to its affiliates, which represent traffic acquisition costs.

(3)

The Company is obligated to make payments under various arrangements with vendors and other business partners, principally for marketing, bandwidth and content arrangements.

As of March 31, 2005, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships.

Contingencies.    From time to time, third parties assert patent infringement claims against the Company. Currently, the Company is engaged in several lawsuits regarding patent issues and has been notified of a number of other potential patent disputes.

In addition, from time to time the Company is subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights and other intellectual property rights, and a variety of claims, including claims alleging defamation or invasion of privacy, arising in connection with its email, message boards, auction sites, shopping services, and other communications and community features.

In October 2000, 800-JR-Cigar, Inc. filed a complaint in the United States District Court for the District of New Jersey against Overture, a wholly-owned subsidiary of the Company acquired in October 2003. The plaintiff in this case, and in certain other cases which have been brought against Overture in the past, claims, among other things, that it has trademark rights in certain search terms and that Overture violates these rights by allowing its advertisers to bid on these search terms. The complaints seek injunctive relief and damages. The Company and Overture believe that Overture has meritorious defenses to liability and damages and are contesting the lawsuit vigorously. In August 2003, Accor filed a similar complaint in the Nanterre District Court in France against Overture and Overture S.A.R.L., Overture's wholly-owned subsidiary in France. On January 17, 2005, the Nanterre District

15

Court ruled in favor of Accor and found Overture and Overture S.A.R.L. liable for trademark infringement. Overture S.A.R.L. has appealed, and Overture intends to appeal, this decision.

On May 24, 2001, Arista Records, Inc., Bad Boy Records, BMG Music d/b/a The RCA Records Label, Capitol Records, Inc., Virgin Records America, Inc., Sony Music Entertainment Inc., UMG Recordings, Inc., Interscope Records, Motown Record Company, L.P., and Zomba Recording Corporation filed a lawsuit alleging copyright infringement against LAUNCH in the United States District Court for the Southern District of New York. The plaintiffs allege, among other things, that the consumer-influenced portion of LAUNCH's LAUNCHcast service is "interactive" within the meaning of Section 114 of the Copyright Act and therefore does not qualify for the compulsory license provided for by the Copyright Act. The Complaint seeks declaratory and injunctive relief and damages for the alleged infringement. After the lawsuit was commenced, the Company entered into an agreement to acquire LAUNCH. In June 2001, LAUNCH settled the LAUNCH litigation as to UMG Recordings, Inc. The Company's acquisition of LAUNCH closed in August 2001, and since that time LAUNCH has been a wholly owned subsidiary of the Company. The Company and LAUNCH do not believe that LAUNCH has infringed any rights of plaintiffs and intend to vigorously contest the lawsuit. In January 2003, LAUNCH settled the LAUNCH litigation as to Sony Music Entertainment, Inc. In October 2003, LAUNCH settled the litigation as to Capitol Records, Inc. and Virgin Records America, Inc. Accordingly, BMG Music d/b/a/ The RCA Records Label is the sole remaining plaintiff in this proceeding. On March 16, 2004, plaintiffs filed motions for partial summary judgment on the issues of willful infringement and whether the consumer-influenced portion of Launch's LAUNCHcast service is "interactive" within the meaning of Section 114 of the Copyright Act and therefore does not qualify for the compulsory license provided for by the Copyright Act. LAUNCH filed its opposition to the motions for partial summary judgment on April 30, 2004, and a hearing on the motions was held on June 18, 2004. The Court has not yet ruled on the motions for summary judgment. The Company does not believe it is feasible to predict or determine the outcome or resolution of the remaining LAUNCH litigation at this time. The range of possible resolutions of such LAUNCH litigation could include judgments against LAUNCH or settlements that could require substantial payments by LAUNCH.

On July 12, 2001, the first of several purported securities class action lawsuits was filed in the United States District Court for the Southern District of New York against certain underwriters involved in Overture's initial public offering, Overture, and certain of Overture's current and former officers and directors. The Court consolidated the cases against Overture. Plaintiffs allege, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed compensation to the underwriters, and improper practices by the underwriters, and seek unspecified damages. Similar complaints were filed in the same court against numerous public companies that conducted initial public offerings of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin. On April 19, 2002, plaintiffs filed an amended complaint, alleging Rule 10b-5 claims of fraud. On July 15, 2002, the issuers filed a motion to dismiss for failure to comply with applicable pleading standards. On October 8, 2002, the Court entered an Order of Dismissal as to all of the individual defendants in the Overture IPO litigation, without prejudice. On February 19, 2003, the Court denied the motion to dismiss the Rule 10b-5 claims against certain defendants, including Overture. Settlement discussions relating to this case on behalf of the named defendants have occurred over the last year, resulting in a final settlement memorandum of understanding with the plaintiff and Overture's insurance carriers. This settlement proposal includes the settlement of and release of claims against the issuer defendants, including Overture. The settlement is subject to a number of conditions, including approval of the court. If the settlement does not occur, and litigation against Overture continues, the Company and Overture believe that Overture has meritorious defenses to liability and damages and intend to defend the case vigorously.

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On or about February 4, 2004, a shareholder derivative action was filed in the Court of Chancery of the State of Delaware in and for New Castle County, against the Company (as nominal defendant) and certain of the Company's current and former officers and directors (the "Derivative Defendants"). Two similar shareholder derivative actions were filed in the California Superior Court for the County of San Mateo on February 13, 2004. The complaints generally allege breaches of fiduciary duties by the Derivative Defendants related to the alleged purchase of shares in initial public offerings or the alleged acquiescence in such conduct. The complaints seek unspecified monetary damages and other relief purportedly on behalf of the Company from the Derivative Defendants. In April 2004, the Company filed a motion to dismiss the Delaware action for failure to plead demand futility. On August 2, 2004, the Delaware Court of Chancery granted the motion to dismiss. On October 18, 2004, the plaintiffs appealed the granting of the motion to dismiss. On January 21, 2005, the Supreme Court of the State of Delaware affirmed the opinion of the Delaware Court of Chancery granting the motion to dismiss. The Company understands the Derivative Defendants deny any impropriety and intend to defend the remaining lawsuits vigorously.

The Company does not believe, based on current knowledge, that any of the foregoing legal proceedings or claims are likely to have a material adverse effect on its financial position, results of operations or cash flows. However, the Company may incur substantial expenses in defending against third party claims. In the event of a determination adverse to the Company or its subsidiaries, the Company may incur substantial monetary liability, and be required to change its business practices. Either of these could have a material adverse effect on the Company's financial position, results of operations or cash flows.

Note 10—Segments

The Company manages its business geographically. The primary areas of measurement and decision-making are the United States and International. Management relies on an internal management reporting process that provides revenue and segment operating income before depreciation and amortization for making financial decisions and allocating resources. Segment operating income before depreciation and amortization includes income from operations before depreciation, amortization of intangible assets and amortization of stock compensation expense. Management believes that segment operating income before depreciation and amortization is an appropriate measure of evaluating the operational performance of the Company's segments. However, this measure should be considered in addition to, not as a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with generally accepted accounting principles.

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The following tables present summarized information by segment (in thousands):

Revenue is attributed to individual countries according to the international online property that generated the revenue. No single foreign country accounted for more than 10 percent of revenues in the three months ended March 31, 2004 and 2005.

The following table presents revenues for groups of similar services (in thousands):

*

In the three months ended March 31, 2004, Fees revenue includes certain revenue previously classified as Marketing services revenues of approximately $4 million. This reclassification was done to refine the alignment of revenue sources within these classifications of revenue.

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Note 11—Related Party Transactions

The Company and other third parties are limited partners in Softbank Capital Partners LP ("Softbank Capital"), a venture capital fund which is an affiliate of SOFTBANK. A Managing Partner of Softbank Capital is also a member of the Company's Board of Directors. The total investment by the Company in Softbank Capital is approximately $36 million and represents less than a 5% holding in Softbank Capital. A significant portion of this investment has been impaired by the Company, with the remaining value included on the condensed consolidated balance sheets in other assets. Pursuant to the Partnership Agreement, the Company invested on the same terms and on the same basis as all other limited partners.

The Company has a joint venture with SOFTBANK in Japan ("Yahoo! Japan"). The Company has a 34 percent ownership in Yahoo! Japan and accordingly this investment is being accounted for using the equity method. The Company records its share of the results of Yahoo! Japan one quarter in arrears within earnings in equity interests.

The Company has commercial arrangements with Yahoo! Japan including algorithmic search services, sponsored search services and the related traffic acquisition costs, and license fees. The net cost of these arrangements was approximately $8 million and $34 million for the three months ended March 31, 2004 and 2005, respectively.

Note 12—Subsequent Events

Structured Stock Repurchases.    In April 2005, the Company entered into $500 million in structured stock repurchase transactions which will mature in three separate tranches, of which one tranche will mature in June 2005 and two tranches will mature in October 2005. On each of the maturity dates, if the market price of Yahoo! common stock is at or above $33.34 for the $150 million June 2005 maturing tranche and $35.11 for both the $150 million and $200 million October 2005 maturing tranches, the Company will have its investment returned with a premium. If the market price of the Company's common stock is below the pre-determined prices, the Company will repurchase shares of its common stock, up to an aggregate of 15.7 million shares.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

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

•

expectations about revenues for marketing services and fees;



•

expectations about costs of revenues, operating costs and expenses;



•

anticipated capital expenditures;



•

evaluation of possible acquisitions of, or investments in, businesses, products and technologies; and



•

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

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

Overview

We are a leading global Internet brand and one of the most trafficked Internet destinations worldwide. We seek to provide Internet services that are essential and relevant to users and businesses through the provision of the Yahoo! Network to Internet users and a range of tools and marketing solutions for businesses to market to that community of users.

We seek to leverage the power of the Yahoo! Network to create the most innovative and highest quality Internet services for users, and to provide the most efficient and effective marketing services for businesses to reach these users. Our focus is to increase our user base and to achieve deeper engagement of our users on the Yahoo! Network thereby enhancing the value of that user base and increasing the spending by our advertisers.

We are also focused on extending our marketing platform and access to Internet users beyond the Yahoo! Network through our distribution network of affiliates who have integrated our sponsored search offerings into their websites.

Many of our services are free to our users. We generate revenues by providing marketing services to businesses across the majority of our properties and by establishing paying relationships with our users for premium services. We classify these revenues as either Marketing Services or Fees. Our offerings to users and businesses currently fall into three categories—Search and Marketplace; Information and Content; and Communications and Consumer Services. The majority of our offerings are available

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globally. We manage and measure our business geographically; our principal geographies being the United States and International.

During the first year of owning a significant acquired company, our practice has been to disaggregate the results and disclose any material impact on our revenues and expenses separately. As a result, until the first anniversary of the acquisition date, the revenues and expenses of our acquired businesses are described as "acquisition related" in the discussion that follows. Thereafter the underlying results of these acquisitions are considered part of our organic base. Our historical financial statements reflect the impact of these acquired businesses from their respective dates of acquisition and the discussion of our results of operations that follows explains the impact of these acquisitions on our consolidated results to provide information that will assist in understanding the changes in the periods presented. Our year over year reported growth rates, calculated on a consolidated basis, include the impact from acquisitions. Excluding the impact from acquisitions, our growth rates would be lower.

Our revenue growth in the first quarter of 2005 over the same period of 2004 can be attributed to a combination of organic growth and acquisition related growth but is primarily from our organic businesses. On an organic level, we continued to benefit from an expanding user base and from increased user activity levels across our offerings on the Yahoo! Network. The growth in our engaged audience, both in terms of the number of users and the amount of time spent by our users on our properties, attracted more advertisers to our advertising services and resulted in an increase in our revenues. Our increases in income from operations and our higher operating margins were a result of our ability to grow our revenues without a commensurate increase in expenses.

Cash generated from our operations is a measure of the cash productivity of our business model and is an area of focus for us. The growth of cash flow from operations is primarily a function of our increasing net income, net of increases in our net working capital balances. As of March 31, 2005, we had cash, cash equivalents and marketable debt securities totaling approximately $3,852 million, an increase of $110 million compared to $3,742 million as of December 31, 2004. The principal components of the increase in cash, cash equivalents and marketable debt securities were cash generated from operating activities of approximately $386 million, proceeds of $90 million from the exercise of employee stock options, offset by net cash used in structured stock repurchase activities of $96 million, $165 million for direct share repurchases, $54 million for acquisitions and $68 million for net capital expenditures.

We continue to believe the search queries, page views, click-throughs and the related marketing services and fees revenues that we generate are correlated to the number of users and the amount of time that these users are spending on our network. By providing a platform for our users that brings together our search technology, content, and community while allowing for personalization and integration across devices, we seek to become more essential to our users and increase our share of users and deepen their engagement with our products and services. We believe this deeper engagement of new and existing users, coupled with the expansion of the online advertising market as advertisers shift their spending from traditional media to the Internet, will increase our revenues for the remainder of 2005 over 2004. We also continue to believe that our operating expenses for the remainder of 2005 will

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increase over 2004 as we continue to invest in all areas of our business and will incur a full year of costs in 2005 related to acquisitions completed in 2004.

Results of Operations

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

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

(1)

Percent of total revenues.

(2)

For the quarter ended March 31, 2004, we have reclassified previously reported Marketing Services revenues of $4 million as Fees in order to refine our alignment of revenue sources with these classifications.

Marketing Services Revenue.    Marketing Services revenue for the first quarter of 2005 increased by approximately $360 million, or 54 percent as compared to the same period in 2004, of which $31 million related to acquisitions. The year-over-year organic growth in our marketing services revenue can be attributed to a combination of factors that are driving increased advertising revenue across the entire Yahoo! Network, including an increase in our user base and the average amount of time our

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users spent on our Yahoo! Network, as well as higher levels of search queries, page views and click-throughs.

On the Yahoo! Network, our number of unique users worldwide as of March 31, 2005 was approximately 36 percent higher than the number of unique users as of March 31, 2004. Unique users are the estimated number of people who visited the Yahoo! Network in a given time period.

The combined number of page views and searches, including those from our affiliate network, increased by approximately 36 percent in the first quarter of 2005 as compared to the first quarter of 2004. This increase can be attributed to an increased number of users, an increased number of affiliates, an expanded offering of properties which increased our inventory of page views and greater market acceptance of new sponsored search offerings. The combined average revenue per page view and search increased by approximately 13 percent in the first quarter of 2005 compared to the same period of 2004. Our combined revenue per page view and search is influenced by sales mix changes period to period as we expand our offerings on the Yahoo! Network and introduce new inventory with differing yields. The growth in our marketing services revenue in the first quarter of 2005 when compared to the same period in 2004 was influenced more by increased inventory levels than increased prices for our inventory.

Fees Revenue.    Fees revenue for the first quarter of 2005 increased approximately $56 million, or 61 percent, as compared to the same period in 2004, of which $14 million relates to acquisitions. The remainder of the increase was primarily associated with an increase in the number of paying users for our fee-based services, which were 8.9 million at March 31, 2005 compared to 5.8 million at March 31, 2004. Our increased base of fee paying users was due to a greater penetration of our services with our existing users as well as our continued expansion of service offerings including new business relationships with BT Group plc and Rogers Cable Inc. for fee-based services and new users from our acquisition of Musicmatch in 2004. Our fee-based services include Internet broadband and dial-up services, our premium mail, music and personals offerings, as well as our services for small businesses. Average monthly revenue per paying user declined to approximately $4 for the first quarter of 2005 from $5 for the same period in 2004 as a result of faster subscriber growth in some of the lower priced offerings.

Costs and Expenses:    Operating costs and expenses were as follows (dollars in thousands):

(1)

Percent of total revenues.

Cost of Revenues.    Cost of revenues consists of traffic acquisition costs ("TAC") and other expenses associated with the production and usage of the Yahoo! Network. TAC consists of payments made to affiliates that have integrated our sponsored search offerings into their websites and payments made to companies that direct consumer and business traffic to the Yahoo! website. Other cost of revenues consists of fees paid for content included on our online media properties, Internet connection charges, server equipment depreciation, technology license fees and compensation related expenses.

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Cost of revenues for the first quarter of 2005 increased approximately $172 million, or 61 percent, as compared to the same period of 2004, of which $10 million related to acquisitions. The remainder of the increase included approximately $144 million of additional TAC which represents the largest component of cost of revenues. This year over year increase of 61 percent is driven by our 55 percent growth in revenues for the same period.

Sales and Marketing.    Sales and marketing expenses consist primarily of advertising and other marketing related expenses, compensation related expenses, sales commissions and travel costs.

Sales and marketing expenses for the first quarter of 2005 increased approximately $64 million, or 39 percent, as compared to the same period of 2004, of which $13 million related to acquisitions. The remainder of the increase was primarily due to increases of $5 million in advertising spending and $30 million in compensation and outside services expenses as we increased our headcount, expanded our sales coverage model and increased our advertiser base and presence in certain territories.

Product Development.    Product development expenses consist primarily of compensation related expenses incurred for enhancements to and maintenance of the Yahoo! Network, classification and organization of listings within Yahoo! properties and research and development as well as depreciation expense and other operating costs.

Product development expenses for the first quarter of 2005 increased approximately $42 million, or 55 percent, as compared the same period of 2004, of which $13 million related to acquisitions. Of the remaining increase, $14 million related to increased compensation related expenses as we continued to invest in engineers to further develop and build new properties and services on the Yahoo! Network. Additionally, $7 million of the increase related to increased depreciation expense arising from our additional investments in property and equipment to support further product development.

General and Administrative.    General and administrative expenses consist primarily of compensation related expenses and fees for professional services.

General and administrative expenses for the first quarter of 2005 increased approximately $16 million, or 28 percent, as compared to the same period of 2004, of which $6 million related to acquisitions. The remainder of the increase was primarily due to compensation related expenses, which reflects the expansion of our team to support increased compliance and infrastructure needs.

Stock Compensation.    Stock compensation expense relates to the amortization of the intrinsic value of Yahoo! stock options issued and assumed in connection with acquisitions and other equity-based awards. This expense is generally being amortized using the accelerated amortization method in accordance with Financial Accounting Standards Board Interpretation No. 28 "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans".

The decrease in stock compensation expense for the first quarter of 2005 was primarily a result of decreased costs associated with options assumed in acquisitions which are amortized using the accelerated amortization method. Accelerated amortization results in declining amortization of awards over their vesting periods.

Amortization of Intangibles.    We have purchased, and expect to continue purchasing, assets or businesses, which may include the purchase of intangible assets.

Amortization of intangibles for the first quarter of 2005 was approximately $40 million compared to $31 million for the same period of 2004. The year-over-year increase in amortization of intangibles was the result of our continued acquisition activity which has resulted in increased amortizable intangible assets.

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Other Income, Net.    Other income, net was as follows (in thousands):

Other income, net increased for the first quarter of 2005 primarily due to the sale of certain equity securities during the quarter which generated gains of $19 million. Certain of these securities were part of our marketable equity securities classified as current assets which are not considered strategic to the Company. We plan to continue to sell these investments opportunistically in varying amounts in the coming quarters. In addition, interest and investment income earned in the first quarter of 2005 was higher than 2004 as a result of larger invested balances as well as higher yields on our investment portfolio.

Income Taxes.    The provision for income taxes for the first quarter of 2005 and 2004 differs from the amount computed by applying the statutory federal income tax rate principally due to state taxes and foreign losses for which no tax benefit is provided. The effective tax rate for the first quarter of 2005 was 41 percent compared to 44 percent for the same period in 2004. The effective tax rate for the first quarter of 2005 was lower than the rate for the first quarter of 2004 principally due to a reduction in foreign losses for which no tax benefit was provided.

Earnings in Equity Interests.    Earnings in equity interests was approximately $29 million for the first quarter of 2005 compared to $20 million for the same period of 2004, as a result of our investment in Yahoo! Japan. This increase resulted from increased net income earned by Yahoo! Japan.

Minority Interests in Operations of Consolidated Subsidiaries.    Minority interests in operations of consolidated subsidiaries represents the minority holders' percentage share of income or losses from such subsidiaries in which we hold a majority ownership interest, but less than 100 percent, and consolidate the subsidiaries' results in our financial statements. Minority interests in income from operations of consolidated subsidiaries was approximately $2 million for the first quarter of 2005 compared to less than $1 million for the same period of 2004.

Business Segment Results

We manage our business geographically. Our primary areas of measurement and decision-making are the United States and International. Management relies on an internal management reporting process that provides revenue and segment operating income before depreciation and amortization for making financial decisions and allocating resources. Segment operating income before depreciation and amortization, includes income from operations before depreciation, amortization of intangible assets and amortization of stock compensation expense. Management believes that segment operating income before depreciation and amortization is an appropriate measure for evaluating the operational performance of the Company's segments. However, this measure should be considered in addition to, not as a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with generally accepted accounting principles.

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Summarized information by segment was as follows (dollars in thousands):