- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

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, 1997

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
incorporation or organization) No.)

3420 CENTRAL EXPRESSWAY
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, $.00067 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 February 27, 1998, 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
$1,419,023,000. 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
February 27, 1998 was 45,829,896.

- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K:

(1) 1997 Annual Report to Shareholders -- Items 5, 6, 7, 8 and 14(a)(1).

(2) Proxy Statement for the 1998 Annual Meeting of Shareholders -- Items 10,
11, 12 and 13.

PART I

ITEM 1. BUSINESS

EXCEPT FOR HISTORICAL INFORMATION, 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. (including its subsidiaries, "Yahoo!" or the "Company") is a
global Internet media company that offers a network of branded World Wide Web
(the "Web") programming that serves millions of users daily. As the first online
navigational guide to the Web, WWW.YAHOO.COM is the single largest guide in
terms of traffic, advertising, household and business user reach, and is one of
the most recognized brands associated with the Internet. The Company provides
targeted Internet resources and communications services for a broad range of
audiences, based on demographic, key-subject and geographic interests. 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 California on March 5, 1995 and commenced
operations on that date. In August 1995, the Company commenced selling
advertisements on its Web pages and recognized its initial revenues. In April
1996, the Company completed its initial public offering. During October 1997,
the Company completed the acquisition of Four11 Corporation, a privately-held
online communications and Internet directory company.

Under the Yahoo! brand, the Company provides intuitive, context-based guides
to online content, Web search capabilities, aggregated third-party content,
email, and community and personalization features. In December 1997, Internet
users viewed an average of approximately 65 million Web pages per day on Yahoo!
and other Yahoo!-branded online media properties.

The Company makes its properties available without charge to users, and
generates revenue primarily through the sale of banner advertisements on
short-term contracts. During 1997, the Company also began selling a combination
of sponsorship and banner advertising contracts. Advertising on domestic Yahoo!
properties is sold through the Company's internal advertising sales force and
advertising on international Yahoo! properties is sold through a combination of
the Company's internal advertising sales force and third party agents. During
1997, approximately 2,600 customers advertised on Yahoo! properties.
Additionally during 1997, Yahoo! received revenues from electronic commerce
transactions, although not significant in amount.

PRODUCTS AND MEDIA PROPERTIES

YAHOO! MAIN SITE

The Company's principal offering, Yahoo!, provides the flagship product for
its global internet media network that offers branded programming and services
used by millions of people each day. Yahoo! offers a comprehensive, intuitive
and user-friendly online guide to Web navigation, aggregated information
content, communication services, a strong user community, and commerce. 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 1997, Yahoo! organized over 750,000 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), corporate earnings reports (Zacks), mutual
fund holdings (CDA/Wiesenberger), stock investing commentary (Motley Fool),
sports scores (ESPN SportsTicker), sports commentary (The Sporting News),
weather information (Weathernews, Inc), and entertainment industry gossip (E!
Online). 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.
Other content offered by Yahoo! includes Yellow Pages, maps, driving directions,
and classifieds listings.

Yahoo! has also established itself as a leading communications hub on the
Internet. Through its integrated chat service and message boards, Yahoo! members
can contact each other as well as communicate with the Web community at large.
Yahoo! has built a community of members who register with Yahoo!, establish a
personalized version of Yahoo!, use Web-based Yahoo! Mail for email, and submit
classifieds advertisements.

In addition, one of the Company's primary strategies is to provide a
marketplace for commerce on the Web. Through sponsorship arrangements with
premier merchants, Yahoo! offers its members the opportunity to purchase goods
and services such as books (Amazon.com), music (CDNow), videos (Reel.com,
Videoserve), automotive services (Autoweb, Microsoft Carpoint), mortgages
(E-Loan), and brokerage services (DLJ direct, E*Trade, Ameritrade, Datek).

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.

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 twenty-three geographically targeted Web properties.

INTERNATIONAL ONLINE PROPERTIES. The Company has developed 11 international
online properties including localized versions of Yahoo! in Australia/New
Zealand, Canada, Denmark, France, Germany, Japan, Korea, Norway, Singapore
(English language), Sweden, and the United Kingdom/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.

YAHOO! JAPAN -- Yahoo!'s first geographic property was developed during
1996 through a joint venture with SOFTBANK, a holder of approximately 31% of the
Company's Common Stock at December 31, 1997 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. Yahoo! Japan was formed to
establish and manage in Japan a Japanese version of Yahoo!, develop related
Japanese online navigational services, and conduct other related business.
Yahoo! Japan completed its initial public offering on the Japanese
over-the-counter market in November 1997. At December 31, 1997, the Company
owned approximately 34% of Yahoo! Japan.

YAHOO! EUROPE -- During November 1996, the Company signed a joint venture
agreement with a subsidiary of SOFTBANK whereby separate companies were formed
in Germany, the United Kingdom, and France ("Yahoo! Europe") to establish and
manage versions of Yahoo! for those countries, develop related online
navigational services, and conduct other related business. The Company owns
approximately 70% of each of the Yahoo! Europe entities.

YAHOO! KOREA -- During August 1997, the Company signed a joint venture
agreement with SOFTBANK and other SOFTBANK affiliate companies to develop and
operate Yahoo! Korea, a Korean version of Yahoo!, to develop related Korean
online navigational services, and to conduct other related business. The Company
owns approximately 60% of the joint venture.

REGIONAL ONLINE PROPERTIES. As of the date of this Report, the Company
offered twelve regional Yahoo! properties for Atlanta, Austin, Boston, Chicago,
Dallas/Ft. Worth, Los Angeles, Miami, Minneapolis, 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.

LOCAL ONLINE PROPERTIES. As an extension of Yahoo!'s comprehensive regional
programming, the Company offers Yahoo! Get Local, which provides users with
local online resources for more than 30,000 U.S. cities which is organized and
presented to users on the basis of the user's zip code. Get Local automatically
creates a specialized page for the chosen locale with city and regional news,
scores from local sports teams, weather reports, and zip code-specific links to
a wide variety of resources for entertainment, businesses and activities that
affect the local area. 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! Sports (sports scores and information), Yahoo! Autos (new and used car
buying information), Yahoo! Travel (travel arrangement and booking information),
Yahoo! Games (Java-based games), and Yahoo! Finance (stock quotes and company
and industry information). The Company also developed the VISA Shopping Guide by
Yahoo! focused on Internet resources for online shopping for goods and services
and MTV/Yahoo! UnfURLed 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. In March 1996, the Company
introduced Yahooligans!, 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 March 1998, the Company launched Yahoo! Seniors'
Guide which is designed for the growing population of active, older adults. 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!, 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
selected 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, Yahoo! Mail,
Yahoo! Portfolios, Yahoo! Message Boards, and Yahoo! Classifieds. The Company
has also developed and operates a property known as Netscape Guide By Yahoo!
which is a personalized navigation and information service made available in
connection with Netscape's Web site and browser. See "Strategic Alliances --
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 continued its agreement
with Ziff-Davis Publishing Company, a subsidiary of SOFTBANK, for the
publication of Yahoo! Internet Life, 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 ELECTRONIC COMMERCE

The Company has derived substantially all of its revenues to date from the
sale of banner advertisements. Other revenue sources include placement fees,
promotions, and transactions on Yahoo! properties. The Company's advertising
products currently consist primarily of banner advertisements that appear on
pages within Yahoo! properties, higher profile promotional sponsorships that are
typically focused on a particular event, such as a sweepstakes, and merchant
buttons on targeted advertising inventory encouraging users to complete a
transaction. Hypertext links are embedded in each banner advertisement or button
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 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.

ADVERTISING SALES ORGANIZATION

In late 1996, the Company established an internal sales force. As of
February 28, 1998, advertising sales professionals were employed in eight
locations across the U.S., including Atlanta, Boston, Chicago, Dallas, Detroit,
Los Angeles, New York, and San Francisco. 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 by a
combination of the Company's internal sales representatives and, in some
countries, the international affiliate responsible for localization and
operation of the service within the territory.

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!. Yahoo! has also created special
holiday- and event-oriented promotional spaces for holidays and events such as
Back to School, Halloween, Mother's Day, Father's Day, Valentine's Day, Home
Improvement, and Christmas.

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 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, Sporting News, ESPN SportsTicker, E! Online, MSNBC, 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.

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!. During March 1997, the Company entered into an
agreement with Netscape Communications Corporation ("Netscape") whereby it was
designated as one of four "Premier Providers" of domestic navigational services
within the Netscape Web site. Under the terms of the agreement, the Company is
required to make minimum payments of $3,200,000 in cash and is obligated to
provide $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 commenced in May 1997. The minimum payments are amortized over
the term of the agreement. To the extent that the minimum guaranteed exposures
are exceeded, the Company is obligated to remit additional payments to Netscape.

During June 1997, the Company entered into certain agreements with Netscape
whereby it was designated as a Premier Provider of international search and
navigational guide services for the Netscape Net Search program. Under the terms
of the agreements, the Company will provide services in 12 countries, including
Australia, Denmark, France, Germany, Italy, Japan, Korea, the Netherlands,
Portugal, Spain, Sweden, and the United Kingdom. Under the terms of the
agreements, the Company made a cash payment of $2,900,000 in July 1997 and is
obligated to provide $100,000 in the Company's advertising services in return
for certain minimum guaranteed exposures over the course of the one-year term of
the agreements, which commenced in July 1997. The Company amortizes the total
cost of these agreements over their one-year term.

During March 1997, the Company entered into certain agreements with Netscape
under which the Company has developed and operates an Internet information
navigation service called Netscape Guide by Yahoo! (the "Guide"). The
personalized guide is designed to provide Internet users with a central
comprehensive source of sites, news and other valuable services on the Web.
Netscape Guide by Yahoo! is 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 provides users with central
access to eight of the most popular information categories on the Web. The
Co-Marketing agreement provides that revenue from advertising on the Guide,
which is managed by the Company, is to be shared between the Company and
Netscape. Under the terms of the Trademark License agreement, the Company made a
one-time non-refundable trademark license fee payment of $5,000,000 in March
1997 which is being amortized over the initial two-year term, which commenced in
May 1997. Under the terms of the Co-Marketing agreement as amended in June 1997,
the Company also provided Netscape with a minimum of up to $4,660,000 in
guarantees against shared advertising revenues in the first year of the
agreement, subject in the first year to a minimum level of gross revenue being
met, and up to $15,000,000 in the second year of the agreement, subject in the
second year to certain minimum levels of impressions being reached on the Guide.
Actual payments will relate directly to the overall revenue and impressions
recognized from the Guide. See "Risk Factors -- Risks Associated With Netscape
Guide By Yahoo!."

The Company also has short-term distribution relationships with Microsoft
Corporation ("Microsoft"). The Company is one of the premier navigational guides
distributed through Microsoft Internet Explorer, the Microsoft home page, and
the Microsoft Network. In addition, Microsoft and the Company have entered into
an agreement under which MSN, the Microsoft Network online service, has made
Yahoo! the exclusive third-party consumer-branded provider of global directory
services on the MSN Premier subscription service and on MSN.com, the online
service's free Web site. Yahoo!'s directory will complement the current search
and directory services on MSN.

INTERNET ACCESS PROVIDERS. The Company also has relationships with
companies such as AT&T, MCI, @Home, MediaOne, Roadrunner, US West, and WebTV,
and under which these Internet access providers feature Yahoo! as a key
navigational tool and engage in certain promotional activities.

OEM'S. Yahoo! has established distribution agreements with Compaq and
Gateway whereby links to Yahoo! services will be offered on the desktop of new
computers. My Yahoo!, Yahoo! Search, Yahoo! Weather, and My Yahoo! NewsTicker
are integrated into customized versions of Microsoft Internet Explorer.

YAHOO! ONLINE SERVICE. The Company and MCI entered into a co-marketing and
distribution agreement to launch a new co-branded, co-marketed online service.
The service, Yahoo! Online powered by MCI Internet which currently is expected
to launch by the end of March 1998, is designed to provide consumers with an
integrated and simple solution to easily explore the Internet with nationwide
dial-up access coverage.

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. 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 regularly view, such as
stock quotes, news categories, sports scores, and weather. The Company utilizes
the Web-wide searching technology and Web index from a third party.

COMPETITION

The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. There are no
substantial barriers to entry in these markets, and the Company expects that
competition will continue to intensify. Although the Company currently 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, America
Online Inc. (Netfind), Digital Equipment Corporation (AltaVista), Excite, Inc.
(including WebCrawler), Infoseek Corporation, Inktomi Corporation, Lycos, Inc.
(including Tripod), C--NET, Inc. (Snap! Online), and Wired Ventures, Inc.
(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 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, incorporate prominent search buttons and
similar features, such as features based on "push" technologies, that direct
search traffic to competing services, including those that may be developed or
licensed by such parties. In the future, Netscape and Microsoft and other
browser suppliers may more tightly integrate

products and services similar to Yahoo!'s into their browsers or their browsers'
pre-set home pages. In addition, entities that sponsor or maintain high-traffic
Web sites or that provide an initial point of entry for Internet users, such as
the Regional Bell Operating Companies or Internet Service Providers ("ISPs")
such as Microsoft and America Online ("AOL"), currently offer and could further
develop, acquire or license Internet search and navigation functions that
compete with those offered by the Company and could take actions that make it
more difficult for consumers to find and use Yahoo! services. For example,
Microsoft recently announced that it will offer Internet search engine services
provided by Inktomi in the Microsoft Network and other Microsoft online
properties. The Company expects that such search services may be tightly
integrated into the Microsoft operating system, the Internet Explorer browser
and other software applications, and that Microsoft may promote such services
within the Microsoft Network or through other end-user services such as WebTV.
Insofar as Microsoft's Internet navigational offerings may be more conveniently
accessed by users than those of the Company, this may provide Microsoft with
significant competitive advantages that could have a material adverse effect on
the Company's business. A large number of Web sites and online services
(including, among others, the Microsoft Network, 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 email
listings, weather news, chat services and bulletin board listings that are
competitive with the services offered by the Company. A number of companies,
including HotMail (which was recently acquired by Microsoft) and WhoWhere?,
offer Web-based email service similar to those offered by the Company, and such
companies have and are expected to continue to provide such services in tandem
with larger navigational sites and online services. 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 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, marketing and distribution
resources. 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 AOL.
For example, AOL is a significant shareholder of Excite, and a version of the
Excite service (AOL NetFind) 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.

The Company also competes with online services, other Web site operators and
advertising networks, 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
recent periods. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements and reductions in the Company's advertising revenues.

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, the availability of high-quality, targeted
content and focused value added products and services, quality and brand appeal,
access to end users, and, with respect to advertisers and sponsors, the number
of users, duration and frequency of visits and user demographics. Competition
among current and future suppliers of Internet navigational and informational
services, high-traffic Web sites and ISPs, as well as competition with other
media for advertising placements, could result in significant price competition
and reductions in advertising revenues. Additionally, the Company has faced and
expects to continue to face competition with respect to the acquisition of
strategic businesses and technologies. There can be no assurance that the
Company will be able to compete successfully 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

EMPLOYEES

As of December 31, 1997, the Company had 386 full-time employees including
199 in sales and marketing, 80 "surfers" involved in the classification and
organization of listings within Yahoo!, 75 in research and product development,
and 32 in administration and finance. 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 (including under the
captions "Competition" and "Proprietary Rights"), the following factors should
be considered carefully in evaluating the Company's business and prospects:

EXTREMELY LIMITED OPERATING HISTORY

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
inability of the Company to maintain and increase the levels of traffic on
Yahoo! properties, the development or acquisition 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 as a result of competition
or other factors, the failure of the Company to effectively generate
commerce-related revenues through sponsored services and placements in Yahoo!
properties, the inability of the Company to effectively integrate the technology
and operations or any other acquired businesses or technologies with its
operations such as the recent acquisition of Four11 Corporation, the failure of
the Company to successfully develop and offer personalized Web-based services,
such as email services, to consumers without errors or interruptions in service,
and the inability to continue 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, 1997, the Company had an accumulated deficit of
$27,971,000. The 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. The Company currently
expects to continue to significantly increase its operating expenses related to
expanding its sales and marketing operations, to continue to develop and extend
the Yahoo! brand, to fund greater levels of product development, to develop and
commercialize additional media properties, and to acquire complementary
businesses and technologies. As a result of these factors, there is no assurance
that the Company will not incur significant losses on a quarterly and annual
basis in the future.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

As a result of the Company's 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 the majority 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 advertising revenue
guarantees of up to $18,500,000 over the next 15 months ending March 31, 1999
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 or sponsorship 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. In such a case, any significant revenue
shortfall in relation to the Company's 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 related to expanding its sales and marketing operations,
to continue to develop and extend the Yahoo! brand, to fund greater levels of
product development, and to develop and commercialize additional media
properties. To the extent 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, 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, the timing of initial
set-up, engineering or development fees that may be paid in connection with
larger advertising and distribution arrangements, technical difficulties with
respect to the use of Yahoo! or other media properties developed by the Company,
incurrence of costs relating to future 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 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 experience slower growth
or decline. Additionally, seasonality may 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.

A key element of the Company's strategy is to generate advertising revenues
through sponsored services and placements by third parties in Yahoo! online
properties in addition to banner advertising. In connection with these
arrangements, the Company may receive sponsorship fees as well as a portion of
transaction revenues received by the third-party sponsor from users originated
through the Yahoo! placement, in return for minimum levels of user impressions
to be provided by the Company. To the extent implemented, these arrangements
expose the Company to potentially significant financial risks, including the
risk that the Company fails to deliver required minimum levels of user
impressions and that third party sponsors do not renew the agreements at the end
of their term. In addition, because the Company has limited experience with
these arrangements, the Company is unable to determine what effect such
arrangements will have on gross margins and results of operations. Although
transaction-based fees have not to date represented a material portion of the
Company's net revenues, if and to the extent such revenues become significant,
the foregoing factors could result in greater variations in the Company's
quarterly operating results and could have a material adverse effect on the
Company's business, results of operations, and financial condition.

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 an event, the trading price of the Company's Common Stock
would likely be materially and adversely affected.

RISKS ASSOCIATED WITH NETSCAPE GUIDE BY YAHOO!

During March 1997, the Company entered into certain agreements with Netscape
under which the Company has developed and operates an Internet information
navigation service called Netscape Guide by Yahoo! (the "Guide"). The
Co-Marketing agreement provides that revenue from advertising on the Guide,
which is managed by the Company, is to be shared between the Company and
Netscape. Under the terms of the Trademark License agreement, the Company made a
one-time non-refundable trademark license fee payment of $5,000,000 in March
1997 which is being amortized over the initial two-year term, which commenced in
May 1997. Under the terms of the Co-Marketing agreement as amended in June 1997,
the Company also provided Netscape with a minimum of up to $4,660,000 in
guarantees against shared advertising revenues in the first year of the
agreement, subject in the first year to a minimum level of gross revenue being
met, and up to $15,000,000 in the second year of the agreement, subject in the
second year to certain minimum levels of impressions being reached on the Guide.
Actual payments will relate directly to the overall revenue and impressions
recognized from the Guide.

The Guide agreements expose the Company to a number of significant risks and
uncertainties, including, without limitation: the risk that the Company 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);
the risk that projected user traffic levels for the Guide will not be achieved,
which may be affected by several factors, such as declines or slower growth in
the number of users of Netscape's browser product, particularly as a result of
continued increases in the market share of Microsoft's Internet Explorer browser
product; the effect of competitive personalized information services from other
parties; and 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. As a result of the foregoing factors, there
can be no assurance 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; TECHNOLOGICAL CHANGE

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. There can be no assurance
that communication or commerce over the Internet will become more 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 lack of acceptable security technologies, potentially
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development and commercialization of performance
improvements, including high 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. 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. 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. Failure of the Company to
effectively adapt to technological developments could adversely affect the
Company's business, operating results, and financial condition.

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 continue to develop or that demand for the Company's products or media
properties will be sustainable. If the market develops more slowly than expected
or becomes saturated with competitors, or if the Company's products and media
properties do not 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 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 success cannot be assured.
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. 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 continue 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. In addition, there can be no
assurance that the advertisers will determine that banner advertising, which
comprises the majority of the Company's revenues, is an effective advertising
medium, and there can be no assurance that the Company will effectively
transition to any other forms of Web-based advertising, should they develop.
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. 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 Yahoo! and the Company's online media properties,
or that such measurements will not contain errors. The Company relies primarily
on its internal advertising sales force for domestic advertising sales, 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 do so will have a material adverse effect on the Company's business,
operating results, and financial position.

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,
content development, and distribution activities.

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 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. 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 principally on a
private third-party provider, GlobalCenter, Inc. ("GlobalCenter"), for the
Company's principal Internet connections. Additionally, email service Internet
connections are provided by GTE. Any disruption in the Internet access provided
by these third-party providers or any failure of these third-party providers to
handle current or higher volumes of use 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
news, stock quotes and current financial information, chat services, street
mapping, telephone listings, and similar services. The Company has experienced
and expects to continue to experience interruptions and delays in service and
availability for such elements, such as recent interruptions in the Company's
stock quote 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, and could expose the Company to liabilities to third
parties.

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 an online
publication and a print magazine under the Yahoo! brand. The Company also
expects to rely substantially on third party affiliates, including SOFTBANK in
Japan and Korea, and Rogers Communications ("Rogers") in Canada, 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 unfavorable dilution to the Yahoo! brand.

DISTRIBUTION RELATIONSHIPS. In order to create traffic for the Company's
online properties and make them more attractive to advertisers and consumers,
the Company has entered into certain distribution agreements and informal
relationships with leading Web browser providers (Microsoft and Netscape),
operators of online networks and leading Web sites, and computer manufacturers,
such as Compaq Computer and Gateway 2000. 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 browsers, services, Web sites, or computers. The Company's
business relationships with these companies consist of arrangements for the
positioning of access to Yahoo! properties on Web browsers and 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 terminated 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 substantial payments for placement of Yahoo!
on the "Net Search" Web page accessible from a button on the Netscape Web
browser. In addition, these companies may terminate or reduce their joint
marketing activities with the Company. Any such event could have a material
adverse effect on the Company's business, results of operations, and financial
condition.

The Company recently announced a co-branding and distribution arrangement
with MCI under which the Company will provide a Web-based online service in
conjunction with dial-up Internet access provided by MCI. In this arrangement,
the Company will depend substantially upon MCI for, among other things,
effective marketing and promotion efforts and the provision of competitive
Internet access service to customers. Any failure by MCI in these respects could
materially impair the benefits received by the Company from this arrangement,
and could negatively affect the Yahoo! brand.

ENHANCEMENT OF YAHOO! PROPERTIES AND DEVELOPMENT OF NEW PROPERTIES

To remain competitive, the Company must continue to enhance and improve the
functionality, features, and content of the Yahoo! main site, as well as the
Company's other branded media properties. There can be no assurance that the
Company will be able to successfully maintain competitive user response times or
implement new features and functions, such as new search capabilities, greater
levels of user personalization, localized content filter and information
delivery through "push" or other methods, which will involve the development of
increasingly complex technologies. The Company also expects that personalized
information services, such as the Company's recently launched Web-based email
service, will require significantly greater expenses associated with, among
other things, increased server capacity and equipment and requirements for
additional customer support personnel and systems. To the extent such additional
expenses are not offset by additional revenues from such personalized services,
the Company's financial results will be adversely affected.

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 online properties 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. 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. The Company's
ability to successfully develop additional targeted media properties depends
substantially on use of Yahoo! to promote such properties. If use of Yahoo!
fails to continue to grow, the Company's ability to establish other targeted
properties would be adversely affected. 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.

INVESTMENTS IN AFFILIATES

The Company has made equity investments in affiliated companies that are
involved in the commercialization of Yahoo!-branded online properties, such as
versions of Yahoo! localized for foreign markets. The Company currently intends
to continue to make significant additional investments in such companies from
time to time in the future, as well as other companies involved in the
development of technologies or services that are complementary or related to the
Company's business, such as the December 1997 investments in GeoCities and
AudioNet. These affiliated companies typically are in an early stage of
development and may be expected to incur substantial losses. As a result, the
Company has recorded and expects to continue to record a share of the losses in
such affiliates attributable to the Company's ownership, which losses have had
and will continue to have an adverse effect on the Company's results of
operations. Furthermore, there can be no assurance that any investments in such
companies will result in any return, nor can there be any assurance as to the
timing of any such return, or that the Company will not lose its entire
investment.

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 expects that its
operational and management systems will face additional strain as a result of
the Company's recent acquisition of Four11 Corporation. The process of managing
advertising within large, high traffic Web sites such as those in the Yahoo!
network 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. Failure of the Company's advertising
management systems to effectively track and provide accurate and timely reports
on advertising results also could negatively affect the Company's relationships
with advertisers and thereby have an adverse effect on the Company's business.
There can be no assurance 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
Company's market opportunity. 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

The Company is dependent on its ability to effectively serve 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 properties. Any system failure that
causes an 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 advertisers 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. For example,
personalized information services, such as Web-based email services, involve
increasingly complex technical and operational challenges, and there can be no
assurance that the Company will successfully implement and scale such services
to the extent required by any growth in the number of users of such services, or
that the failure to do so will not materially and adversely affect the goodwill
of users of these services, or negatively affect the Company's brand and
reputation. 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, GlobalCenter, provides the Company's
principal Internet connections. In the past, users have occasionally experienced
difficulties due to system failures, including failures unrelated to the
Company's systems. Additionally, Internet connections for the Company's
Web-based email services are provided by GTE. Any disruption in the Internet
access provided by these third-party providers or any failure of these
third-party providers 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 susceptible to outages due to fire, floods,
power loss, telecommunications failures, break-ins, and similar events. In
addition, substantially all of the Company's network infrastructure is located
in Northern California, an area susceptible to earthquakes, which also could
cause system outages or failures. The Company does not presently have 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 Yahoo! users, which could
have a material adverse effect on the Company's business, operating results, and
financial condition.

INTEGRATION OF ACQUISITIONS

As part of its business strategy, the Company expects to enter into business
combinations. For example, during October 1997, the Company acquired Four11
Corporation, a privately-held online communications and directory company.
Acquisition transactions are accompanied by a number of risks, including, 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, expenses
associated with the transactions (such as expenses of $3,850,000 that the
Company incurred in the fourth quarter of 1997 in connection with the
acquisition of Four11 Corporation), additional expenses associated with
amortization of acquired intangible assets, the maintenance of 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
addressing 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 internationally, and has
applied for and obtained the registration for 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 and merchandise 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.

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. 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

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, defamation,
pricing, taxation, quality of products and services, and intellectual property
ownership. For example, although the Communications Decency Act was held to be
unconstitutional, there can be no assurance that similar legislation will not be
enacted in the future, and it is possible that such legislation could expose the
Company to substantial liability. Such legislation 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. Other nations, including Germany, have taken actions to restrict the
free flow of material deemed to be objectionable on the Web. In addition,
several telecommunications carriers are seeking to have telecommunications over
the Web regulated by the Federal Communications Commission (the "FCC") in the
same manner as other telecommunications services. For example, America's
Carriers Telecommunications Association ("ACTA") has filed a petition with the
FCC for this purpose. In addition, because the growing popularity and use of the
Web has burdened the existing telecommunications infrastructure and many areas
with high Web use have begun to experience interruptions in phone service, local
telephone carriers, such as Pacific Bell, have petitioned the FCC to regulate
ISPs and OSPs in a manner similar to long distance telephone carriers and to
impose access fees on the ISPs and OSPs. If either of these petitions is
granted, or the relief sought therein is otherwise granted, the costs of
communicating on the Web could increase substantially, potentially slowing the
growth in use of the Web, which could in turn decrease the demand for the
Company's products and media properties. A number of proposals have been made at
the federal, state and local level that would impose additional taxes on the
sale of goods and services through the Internet. Such proposals, if adopted,
could substantially impair the growth of electronic commerce, and could
adversely affect the Company's opportunity to derive financial benefit from such
activities. Also, legislation is pending in Congress that would impose liability
on online service providers such as the Company for listing or linking to
third-party Web sites that include materials that infringe copyrights or other
rights of others. Such laws and regulations if enacted could fundamentally
impair the Company's ability to provide Internet navigation services, or
substantially increase the cost of doing so, which would 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, copyright, 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
material adverse effect on the Company's business, operating results, and
financial condition.

Due to the global nature of the Web, it is possible that, although
transmissions by the Company over the Internet originate primarily in the State
of California, the governments of other states and foreign countries might
attempt to regulate the Company's transmissions or prosecute the Company for
violations of their laws. There can be no assurance that violations of local
laws will not be alleged or charged by state or foreign governments, that the
Company might not unintentionally violate such law or that such laws will not be
modified, or new laws enacted, in the future. Any of the foregoing developments
could have a material adverse effect on the Company's business, results of
operations, and financial condition.

LIABILITY FOR INFORMATION SERVICES AND COMMERCE-RELATED ACTIVITIES

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 service
providers 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. Such claims might include, among others,
that by providing hypertext links to Web sites operated by third parties, the
Company is liable for copyright or trademark infringement or other wrongful
actions by such third parties through such Web sites. 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. In connection with the acquisition of Four11 Corporation, the
Company recently began offering Web-based email services, which expose the
Company to potential risks, such as liabilities or claims resulting from
unsolicited email (spamming), lost or misdirected messages, illegal or
fraudulent use of email or interruptions or delays in email service. Even to the
extent such claims do not result in liability to the Company, the Company
expects to incur significant costs in investigating and defending such claims.

The Company also from time to time enters into arrangements to offer third
party products and services under the Yahoo! brand or via distribution on Yahoo!
properties. For example, the Company recently announced an agreement with
GeoCities under which GeoCities will offer free home page services and certain
related products to Yahoo! users. The Company also recently announced an
arrangement with AudioNet, an Internet-based broadcast network, whereby links to
AudioNet's site and content will be distributed via Yahoo! properties. These
business arrangements involve additional legal risks, such as potential
liabilities for content posted by free home page users or made available by
other third party providers. The Company may be subject to claims concerning
such services or content by virtue of the Company's involvement in marketing,
branding or providing access to such services, even if the Company does not
itself host, operate, or provide such services. While the Company's agreements
with these parties often provide that the Company will be indemnified against
such liabilities, there can be no assurance that such indemnification, if
available, will be adequate.

The Company recently began offering a Yahoo!-branded VISA credit card, which
includes a "rewards" program entitling card users to receive points that may be
redeemed for merchandise, such as books or music. This arrangement exposes the
Company to certain additional risks and expenses, including, without limitation,
those relating to compliance with consumer protection laws, loss of customer

data, disputes over redemption procedures and rules, products liability, sales
taxation and liabilities associated with any failure in performance by
participating merchants.

From time to time, the Company enters into agreements with sponsors, content
providers, service providers, and merchants under which the Company is entitled
to receive a share of revenue from the purchase of goods and services by users
of the Company's online properties. Such arrangements may expose the Company to
additional legal risks and uncertainties, including (without limitation)
potential liabilities to consumers of such products 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.

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 related entities, versions of Yahoo!
localized for Japan, Germany, France, the United Kingdom, and Korea. The Company
offers a version of Yahoo! localized for Canada under an agreement with Rogers
Communications, and the Company operates localized or mirror versions of Yahoo!
through wholly-owned subsidiaries in Australia, Denmark, Norway, Sweden, and
Singapore.

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. The Company has
experienced and expects to continue to experience higher costs as a percentage
of revenues in connection with international online properties than domestic
online properties. 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. The Company may
experience difficulty in managing international operations as a result of
distance as well as language and cultural differences, and 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. The Company also
believes that in light of substantial anticipated competition, it will be
necessary to move quickly into international markets in order to effectively
obtain market share, and there can be no assurance that the Company will be able
to do so. 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, trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity in certain
other parts of the world, and potentially adverse tax consequences. 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 February 27, 1998, the present directors, executive officers, greater
than 5% shareholders and their respective affiliates beneficially owned
approximately 55% of the outstanding Common Stock of the Company. As of February
27, 1998, SOFTBANK beneficially owned approximately 29% 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.

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 with the Company's 1998 Annual Meeting of Shareholders, the Company's
charter documents will not permit cumulative voting and will 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.

ITEM 2. PROPERTIES

Yahoo!'s headquarters facility is located in two offices in Santa Clara,
California. The Company occupies these leased facilities which aggregate
approximately 88,000 square feet and has contracted for an additional 55,000
square feet beginning January 1, 1999. Office space for the Company's
international subsidiaries is leased in London, Milan, Munich, Paris, Seoul,
Stockholm, and Sydney. The Company also leases sales offices in Atlanta, Boston,
Chicago, Dallas, Detroit, Los Angeles, New York, and San Francisco. The
Company's principal Web server equipment and operations are maintained by
GlobalCenter 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

In July 1997, GTE New Media Services Incorporated ("GTE New Media"), an
affiliate of GTE, filed suit in Dallas, Texas against Netscape and the Company,
in which GTE New Media made a number of claims relating to the inclusion of
certain Yellow Pages hypertext links in the Netscape Guide by Yahoo!, an online
navigational property operated by the Company under an agreement with Netscape.
In this

lawsuit, GTE New Media has alleged, among other things, that by including such
links to the Yellow Pages service operated by several Regional Bell Operating
Companies (the "RBOCs") within the Guide, the Company has tortiously interfered
with an alleged contractual relationship between GTE New Media and Netscape
relating to placement of links by Netscape for a Yellow Pages service operated
by GTE New Media. GTE New Media seeks injunctive relief as well as actual and
punitive damages. In October 1997, GTE New Media brought suit in the U.S.
District Court for the District of Columbia, against the RBOCs, Netscape, and
the Company, in which GTE New Media has alleged, among other things, that the
alleged exclusion of the GTE New Media Yellow Pages from the Netscape Guide
Yellow Pages service violates federal antitrust laws, and GTE New Media seeks
injunctive relief and damages (trebled under federal antitrust laws) from such
alleged actions. The Company believes that the claims against the Company in
these lawsuits are without merit and intends to contest them vigorously.
Although the Company cannot predict with certainty the outcome of these lawsuits
or the expenses that may be incurred in defending the lawsuits, the Company does
not believe that the result in the lawsuits will have a material adverse effect
on the Company's financial position or results of operations. 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 and
other intellectual property rights, and a variety of claims arising in
connection with the Company's email, message boards, and other communications
and community features, such as claims alleging defamation and invasion of
privacy. 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 1997.

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 43 of the Registrant's 1997 Annual Report to Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

Incorporated by reference from the information under the caption "Selected
Financial Data" on page 12 of the Registrant's 1997 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 13-22 of the Registrant's 1997 Annual Report to
Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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 1998
Annual Meeting of Shareholders. The following sets forth certain information
with respect to the other executive officers of Yahoo!:

David Filo (age 31), 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 33) was promoted to Chief Operating Officer in January
1998. Prior to that, he 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 39) 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 41) 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.

Farzad Nazem (age 36) was promoted to Chief Technology Officer in January
1998. Prior to that, he 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 and Other Matters," "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 1998 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 1998 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 1998 Annual Meeting of Shareholders.

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 1997 Annual Report to Shareholders:

PAGE IN
ANNUAL REPORT
-------------

Consolidated Balance Sheets at December 31, 1997
and 1996........................................................... 23

Consolidated Statements of Operations for the years ended December
31, 1997, 1996, and 1995........................................... 24

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996, and 1995.................................. 25

Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996, and 1995........................................... 26

Notes to Consolidated Financial Statements........................... 27 - 39

Report of Independent Accountants.................................... 40

(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.... 30

Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996, and 1995.................................. 31

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.

(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 Amended and Restated Articles of Incorporation of Registrant (Filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by
reference.)
3.2 Amended and Restated Bylaws of Registrant (Filed as Exhibit 3.3 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.)
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 (Filed as Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 [the "December 31, 1996 10-K"] and
incorporated herein by reference.)
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
shareholders (Filed as Exhibit 10.10 to the SB-2 Registration Statement and incorporated herein by
reference.)
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 Sublease Agreement dated June 6, 1996 relating to the Registrant's office at 3400 Central Expressway,
Suite 201, Santa Clara, California (Filed as Exhibit 10.15 to the December 31, 1996 10-K and
incorporated herein by reference.)
10.14+ 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.)
10.15 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.)

EXHIBIT
NUMBER DESCRIPTION
- - --------- --------------------------------------------------------------------------------------------------------

10.16 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.)
10.17+ 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.)
10.18 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.)
10.19+ Joint Venture Agreement dated April 1, 1996 by and between Yahoo! Inc. and SOFTBANK Corporation (Filed
as Exhibit 10.2 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.)
10.20+ 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.)
10.21+ 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.)
10.22+ Joint Venture Agreement dated November 1, 1996 by and between Yahoo! Inc. and SB Holdings (Europe) Ltd.
(Filed as Exhibit 10.30 to the December 31, 1996 10-K and incorporated herein by reference.)
10.23+ Yahoo! UK License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo! UK (Filed as
Exhibit 10.31 to the December 31, 1996 10-K and incorporated herein by reference.)
10.24+ Yahoo! Deutschland License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo!
Deutschland (Filed as Exhibit 10.32 to the December 31, 1996 10-K and incorporated herein by reference.)
10.25+ Yahoo! France License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo! France
(Filed as Exhibit 10.33 to the December 31, 1996 10-K and incorporated herein by reference.)
10.26+ Services Agreement dated November 1, 1996 by and between Yahoo! UK Ltd. and Ziff-Davis UK, Ltd. (Filed
as Exhibit 10.34 to the December 31, 1996 10-K and incorporated herein by reference.)
10.27+ Services Agreement dated November 1, 1996 by and between Yahoo! GmbH and Ziff-Davis Verlag, GmbH (Filed
as Exhibit 10.35 to the December 31, 1996 10-K and incorporated herein by reference.)
10.28+ Services Agreement dated November 1, 1996 by and between Yahoo! France, SARL and Ziff-Davis France, S.A.
(Filed as Exhibit 10.36 to the December 31, 1996 10-K and incorporated herein by reference.)
10.29+ Netscape Communications Corporation Co-Marketing Agreement dated March 17, 1997 by and between Netscape
Communications Corporation and Yahoo! Inc. (Filed as Exhibit 10.37 to the December 31, 1996 10-K and
incorporated herein by reference.)
10.30+ Trademark License Agreement dated March 17, 1997 by and between Netscape Communications Corporation and
Yahoo! Inc. (Filed as Exhibit 10.38 to the December 31, 1996 10-K and incorporated herein by reference.)
10.31+ Netscape Communications Corporation U.S. English-Language Net Search Program Premier Provider Services
Agreement dated March 17, 1997 by and between Netscape Communications Corporation and Yahoo! Inc. (Filed
as Exhibit 10.39 to the December 31, 1996 10-K and incorporated herein by reference.)

EXHIBIT
NUMBER DESCRIPTION
- - --------- --------------------------------------------------------------------------------------------------------

10.32+ Amendment One to the Co-Marketing Agreement, dated June 30, 1997 between Yahoo! Inc. and Netscape
Communications Corporation (Filed as Exhibit 10.1 to the June 30, 1997 10-Q and incorporated herein by
reference.)
10.33+ International Net Search Program Services Agreement, dated June 30, 1997 between Yahoo! Inc. and
Netscape Communications Corporation (Filed as Exhibit 10.2 to the June 30, 1997 10-Q and incorporated
herein by reference.)
10.34 Trademark License Agreement, dated June 30, 1997 between Yahoo! Inc. and Netscape Communications
Corporation (Filed as Exhibit 10.3 to the June 30, 1997 10-Q and incorporated herein by reference.)
10.35 Restructuring Agreement dated as of July 29, 1997 among the Registrant, Visa International Service
Association, Visa Marketplace, Inc., Sterling Payot Company, and Sterling Payot Capital, L.P. (Filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K, dated July 29, 1997 and incorporated herein by
reference.)
10.36 Joint Venture Agreement, dated August 31, 1997 between Yahoo! Inc., SOFTBANK Korea Corporation, SOFTBANK
Corporation, and Yahoo! Japan Corporation (Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 [the "September 30, 1997 10-Q"] and incorporated
herein by reference.)
10.37 Sublease Agreement, dated September 11, 1997 between Yahoo! Inc. and Amdahl Corporation (Filed as
Exhibit 10.2 to the September 30, 1997 10-Q and incorporated herein by reference.)
10.38 Four11 Corporation 1995 Stock Option Plan Registrant (Filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-8, Registration No. 333-39105, dated October 30, 1997, and incorporated herein by
reference.)
10.39* Amendment Agreement dated September 17, 1997 by and between Yahoo! Inc. and SOFTBANK Corporation
10.40* Amendment to Yahoo! Japan License Agreement dated September 17, 1997 by and between Yahoo! Inc. and
Yahoo! Japan Corporation
10.41* Services Agreement dated November 30, 1997 by and between Yahoo! Korea Corporation and SOFTBANK Korea
Corporation
10.42* Yahoo! Korea License Agreement dated November 30, 1997 by and between Yahoo! Inc., Yahoo! Korea
Corporation, and Yahoo! Japan Corporation
13.1 Portions of the 1997 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

On October 14, 1997, the Company filed a report on Form 8-K in
conjunction with the signing of an Agreement and Plan of Reorganization
whereby the Company would acquire Four11 Corporation.

On October 30, 1997, the Company filed an amended report on Form 8-K
which included certain financial statements of Four11 Corporation and the
supplementary consolidated financial statements of Yahoo! Inc.

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 12th day of
March, 1998.

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 Officer March 12, 1998
Timothy Koogle (Principal Executive Officer)

/s/ GARY VALENZUELA Senior Vice President, Finance and
--------------------------------- Administration, and Chief Financial Officer March 12, 1998
Gary Valenzuela (Principal Financial Officer)

/s/ JAMES J. NELSON
--------------------------------- Vice President, Finance (Principal Accounting March 12, 1998
James J. Nelson Officer)

/s/ ERIC HIPPEAU
--------------------------------- Director March 12, 1998
Eric Hippeau

/s/ ARTHUR H. KERN
--------------------------------- Director March 12, 1998
Arthur H. Kern

/s/ MICHAEL MORITZ
--------------------------------- Director March 12, 1998
Michael Moritz

/s/ JERRY YANG
--------------------------------- Director March 12, 1998
Jerry Yang

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 9, 1998 which appears in the 1997 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.

/s/ PRICE WATERHOUSE LLP
San Jose, California
January 9, 1998

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)

ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS BALANCE
BEGINNING OF COSTS AND OTHER NET OF AT END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR EXPENSES ACCOUNTS RECOVERIES YEAR
- - ------------------------------------------------------- ------------- ----------- ------------- ------------- ---------

1997................................................... $ 665 $ 2,812 $ -- $ 879 $ 2,598
1996................................................... $ 84 $ 611 $ -- $ 30 $ 665
1995................................................... $ -- $ 84 $ -- $ -- $ 84

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------

10.39* Amendment Agreement dated September 17, 1997 by and between Yahoo! Inc. and SOFTBANK Corporation

10.40* Amendment to Yahoo! Japan License Agreement dated September 17, 1997 by and between Yahoo! Inc. and
Yahoo! Japan Corporation

10.41* Services Agreement dated November 30, 1997 by and between Yahoo! Korea Corporation and SOFTBANK Korea
Corporation

10.42* Yahoo! Korea License Agreement dated November 30, 1997 by and between Yahoo! Inc., Yahoo! Korea
Corporation, and Yahoo! Japan Corporation

13.1 Portions of the 1997 Annual Report to Shareholders

21.1 List of Subsidiaries

23.1 Consent of Independent Accountants

27.1 Financial Data Schedule

- - ------------------------

* Confidential treatment requested