search
Yahoo! to Charge Developers for BOSS; Releases Structured Data
Yahoo! has announced that they will begin charging developers for their use of BOSS. It won’t take effect until sometime in the second quarter at the earliers. They also won’t be charging for the first 10,000 API calls per day (depending on the call).
Yahoo! is also releasing SearchMonkey structured data to BOSS developers. Yahoo! gets this data by crawling microformats and RDF, which include embedded semantic markup. Now, API users can access this data.
BOSS was launched last year and it gives web developers the ability to build search engines for websites using Yahoo’s search technology.
SearchMonkey was also launched last year to let site owners develop custom listings for search results. So far, several of these listings (aka apps) have been set to default in Yahoo’s listings including Yelp, LinkedIn, and Wikipedia.
Microsoft to Announce Second Quarter Earnings January 22, 2009
Microsoft will announce second quarter earnings (their fiscal year begins July 1) on January 22, 2009.
A live webcast will be available at 2:30pm PST at http://www.microsoft.com/msft.
It will be interesting to see if anything is said about Cashback and its affect on Live Search. In November came word that the program was working. But a glitch on Black Friday turned some Cashback customers sour.
Still, the program expanded to offer instant Cashback on eBay purchases made via PayPal.
Of course, Microsoft is much more than a search company, but with recent hires coming into the company from Yahoo, we’ll be looking for any statements made about search during the call.
Microsoft Strikes Toolbar Agreement with Sun Microsystems
Microsoft has struck a deal with Sun Microsystems to have the MSN toolbar downloaded with Java Runtime Environment (JRE). The agreement will give Internet Explorer users in the United States the option of downloading the toolbar when they download JRE. The toolbar offers access to Live Search features, the MSN network, Windows Live Hotmail and Windows Live Messenger.
“This agreement with Sun Microsystems is another important milestone in our strategy to secure broad-scale distribution for our search offering, enabling millions more people to experience the benefits of Live Search,†said Yusuf Mehdi, senior vice president of the Online Audience Business at Microsoft. “With the vast array of Java software-based Web applications that are downloaded every month, this deal will expose Live Search to millions more Internet users and drive increased volume for our search advertisers.â€
Earlier this year, Microsoft reached a deal with HP to have the toolbar shipped on 2009 PCs.
Related Reading:
Live Search to Be Integrated with Blackberry Browser and Maps
Live Search and Windows Live Toolbar Now Offer Translation
Baidu’s Profit Increases 91% in Third Quarter 2008
Chinese search engine Baidu saw a whopping 91% increase in the third quarter of 2008. The search engine had been seeing explosive growth leading up to the Beijing Olympics, which occurred during the third quarter.
Baidu expects profits in the fourth quarter to be around 80-85%. In the second quarter, Baidu’s profits increased by 87%.
Here’s the full press release:
Baidu Announces Third Quarter 2008 Results
Wednesday October 22, 5:00 pm ET
BEIJING, Oct. 22 /Xinhua-PRNewswire/ — Baidu.com, Inc. (Nasdaq: BIDU – News), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2008. (1)
(Logo: http://www.newscom.com/cgi-bin/prnh/20041011/BAIDULOGO )
Third Quarter 2008 Highlights
— Total revenues in the third quarter of 2008 increased to RMB919.1
million (US$135.4 million), representing an 85.1 % increase from the
corresponding period in 2007.
— Operating profit in the third quarter of 2008 increased to RMB368.3
million (US$54.2 million), representing a 119.1% increase from the
corresponding period in 2007.
— Net income in the third quarter of 2008 increased to RMB347.9 million
(US$51.2 million), representing a 91.4 % increase from the
corresponding period in 2007.
— Diluted earnings per share (”EPS”) for the third quarter of 2008 were
RMB10.00 (US$1.47); diluted EPS excluding share-based compensation
expenses (non-GAAP) for the third quarter of 2008 were RMB10.49
(US$1.54). Costs and expenses related to Baidu’s Japan operations,
incurred in both Japan and China, in the third quarter of 2008 were
RMB32.7 million (US$4.8 million), which reduced diluted EPS by RMB0.94
(US$0.14).
— The number of active online marketing customers during the third
quarter grew to over 194,000, an increase of 7.2% from the previous
quarter.
“I’m pleased to announce solid results for the third quarter,” said Robin Li, Baidu’s chairman and chief executive officer. “As China’s leader in paid search, Baidu has a large and diverse customer base covering numerous industries and sectors. Such diversity gives us great stability and positions us to capture future growth. Companies throughout China are increasingly recognizing the value of Baidu’s paid search as an effective marketing tool and we remain confident in our long-term growth potential.”
Jennifer Li, Baidu’s chief financial officer, said, “The impact of the 2008 Beijing Olympics on our business was in line with our projection for the quarter. We were also able to improve our operating margin again this quarter, highlighting the scalability of our business.”
Baidu recently launched the beta version of an online C2C platform that enables merchants to sell their products and services online via a Baidu- registered store. The new platform complements Baidu’s search business, enabling transaction fulfillment among our users. E-commerce is an emerging industry in China and there are vast opportunities for future growth in the sector. Baidu will continue to focus on providing the best quality experience for Internet users.
Third Quarter 2008 Results
Baidu reported total revenues of RMB919.1 million (US$135.4 million) for the third quarter ended September 30, 2008, representing an 85.1% increase from the corresponding period in 2007.
Online marketing revenues for the third quarter were RMB918.2 million (US$135.2 million), representing an 85.1% increase from the third quarter of 2007. Growth was mainly driven by increases in both the number of active online marketing customers and revenue per customer. Baidu had more than 194,000 active online marketing customers in the third quarter of 2008, representing a sequential increase of 7.2% and an increase of 35.7% from the corresponding period in 2007. Revenue per active online marketing customer for the third quarter increased to approximately RMB4,700 (US$692), a sequential increase of 6.8% and an increase of 34.3% from the corresponding period in 2007.
Traffic acquisition costs (TAC) as a component of cost of revenues were RMB108.8 million (US$16.0 million), representing 11.8% of total revenues, compared to 11.9% in the corresponding period in 2007.
Bandwidth costs as a component of cost of revenues were RMB48.0 million (US$7.1 million), representing 5.2% of total revenues, compared to 6.4% in the corresponding period in 2007. Depreciation costs as a component of cost of revenues were RMB56.9 million (US$8.4 million), representing 6.2% of total revenues, compared to 8.2% in the corresponding period in 2007.
Selling, general and administrative expenses were RMB163.2 million (US$24.0 million), representing an increase of 48.0% from the corresponding period in 2007, primarily due to the expansion of the direct sales force and an increase in customer service staff.
Research and development expenses were RMB78.2 million (US$11.5 million), representing a 109.0 % increase from the corresponding period in 2007, primarily due to an increase in research and development staff.
Share-based compensation expenses, which were allocated to related operating cost and expense line items, increased in aggregate by 211.1% to RMB17.0 million (US$2.5 million) in the third quarter of 2008 from RMB5.5 million in the corresponding period in 2007. The increase in share-based compensation expenses primarily reflects an increase in the number of options granted to employees.
Operating profit was RMB368.3 million (US$54.2 million), representing a 119.1% increase from the corresponding period in 2007. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB385.3 million (US$56.8 million) for the third quarter of 2008, a 122.0% increase from the corresponding period in 2007.
Adjusted EBITDA (non-GAAP), which is defined in this announcement as earnings before interest, taxes, depreciation, amortization, other non-operating income and share-based compensation expenses, were RMB457.3 million (US$67.4 million) for the third quarter of 2008, representing a 104.7% increase from the corresponding period in 2007.
Income tax expense was RMB34.8 million (US$5.1 million), compared to an income tax expense of RMB2.6 million in the third quarter of 2007. The year- on-year increase in tax expenses was due to higher tax rates applicable to some of our PRC subsidiaries as their tax holidays either expired or partially elapsed.
Net income was RMB347.9 million (US$51.2 million), representing a 91.4% increase from the corresponding period in 2007. Basic and diluted EPS for the third quarter of 2008 amounted to RMB10.15 (US$1.50) and RMB10.00 (US$1.47), respectively.
Net income excluding share-based compensation expenses (non-GAAP) was RMB364.9 million (US$53.7 million), a 94.9% increase from the corresponding period in 2007. Basic and diluted EPS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2008 were RMB10.65 (US$1.57) and RMB10.49 (US$1.54), respectively.
As of September 30, 2008, Baidu’s cash, cash equivalents and short-term investments amounted to RMB2.3 billion (US$338.0 million). Net operating cash inflow and capital expenditures on a cash basis for the third quarter of 2008 were RMB482.2 million (US$71.0 million) and RMB85.1 million (US$12.5 million), respectively. A portion of our capital expenditure for the quarter was related to the construction of Baidu’s new campus facility.
Outlook for Fourth Quarter 2008
Baidu currently expects to generate total revenues in an amount ranging from RMB1,025 million (US$151 million) to RMB1,055 million (US$155 million) for the fourth quarter of 2008, representing an 80% to 85% increase from the corresponding period in 2007 and a 12% to 15% increase from the third quarter of 2008. This fourth quarter forecast reflects Baidu’s current and preliminary view, which is subject to change.
(1) This announcement contains translations of certain RMB amounts into
U.S. dollars at specified rates solely for the convenience of the
reader. Unless otherwise noted, all translations from RMB to U.S.
dollars are made at a rate of RMB 6.7899 to USD 1.00, the effective
noon buying rate as of September 30, 2008 in The City of New York for
cable transfers of RMB as certified for customs purposes by the
Federal Reserve Bank of New York.
Conference Call Information
Baidu’s management will hold an earnings conference call on October 22, 2008 at 8:00 PM U.S. Eastern Time (8:00 AM, October 23, Beijing/Hong Kong time).
Dial-in details for the earnings conference call are as follows:
Passcode for all regions: 55689997 Hong Kong: +852-3002-1672 UK: +44-207-365-8426 US: +1-617-786-2902
A replay of the conference call may be accessed by phone at the following number until October 29, 2008:
International: +1-617-801-6888
Passcode: 69587650
Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com .
About Baidu
Baidu.com, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best way for people to find information. In addition to serving Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu’s ADSs, each of which represents one Class A ordinary share, currently trade on the NASDAQ Global Select Market under the symbol “BIDU”.
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the outlook for the fourth quarter of 2008 and quotations from management in this announcement, as well as Baidu’s strategic and operational plans, contain forward-looking statements. Baidu may also make written forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Baidu’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain users and customers; competition in the Chinese language and Japanese language Internet search markets; competition for online marketing customers; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; the expected growth of the Chinese language and Japanese language Internet search markets and the number of Internet and broadband users in China; and Chinese governmental policies relating to the Internet and Internet content providers. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of October 22, 2008, and Baidu undertakes no duty to update such information, except as required under applicable law.
About Non-GAAP Financial Measures
To supplement Baidu’s consolidated financial results presented in accordance with GAAP, Baidu uses the following measures which are non-GAAP financial measures: adjusted EBITDA, operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures” and “Reconciliation from net cash provided by operating activities to adjusted EBITDA” set forth at the end of this release.
Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses and expenditures that may not be indicative of its operating performance from a cash perspective. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to Baidu’s historical performance and liquidity. Baidu computes its non-GAAP financial measures using the same consistent method from quarter to quarter since April 1, 2006. We believe these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses is that these non-GAAP measures exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. A limitation of using non-GAAP Adjusted EBITDA is that it does not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
Baidu.com, Inc.
Condensed Consolidated Balance Sheets
September 30 December 31,
Unaudited Audited (in RMB thousands) 2008 2007
ASSETS
Current assets:
Cash and cash equivalents 2,088,554 1,350,600
Short-term investments 206,360 242,037
Accounts receivable, net 100,193 64,274
Prepaid expenses and other current
assets 109,597 65,996
Deferred tax assets, net 2,587 2,587
Total current assets 2,507,291 1,725,494
Non-current assets:
Fixed assets, net 748,582 678,886
Land use right, net 95,008 96,472
Intangible assets, net 33,814 40,460
Goodwill 51,081 51,093
Investments, net 20,197 15,439
Deferred tax assets, net 17,060 15,716
Other non-current assets 84,394 32,348
Total non-current assets 1,050,136 930,414
TOTAL ASSETS 3,557,427 2,655,908
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other
liabilities 371,745 359,310
Customers’ deposits 357,884 257,577
Deferred revenue 9,149 11,832
Deferred income 633 2,485
Total current liabilities 739,411 631,204
Non-current liabilities:
Long-term payable — 3,000
Deferred income — 332
Total non-current liabilities — 3,332
Total liabilities 739,411 634,536
Shareholders’ equity
Class A Ordinary Shares, Par value
US$0.00005 per share, 825,000,000
shares authorized, and 25,136,147
shares and 25,413,789 shares issued
and outstanding as at December 31,
Class B Ordinary Shares, Par value
US$0.00005 per share, 35,400,000
shares authorized, and 8,996,842
shares and 8,873,986 shares issued
and outstanding as at December 31,
2007 and September 30, 2008 4 4
Additional paid-in capital 1,254,593 1,171,575
Accumulated other comprehensive loss (127,770) (81,953)
Retained earnings 1,691,178 931,736
Total shareholders’ equity 2,818,016 2,021,372 2007 and September 30, 2008 11 10
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY 3,557,427 2,655,908
Baidu.com, Inc.
Condensed Consolidated Statements of Income
For the Three Months Ended
September September
30, 30, June 30,
per share information) Unaudited Unaudited Unaudited (in RMB thousands except for share, 2008 2007 2008
Revenues:
Online marketing services 918,179 496,120 802,183
Total revenues 919,125 496,530 802,611 Other services 946 410 428
Operating costs and expenses:
Cost of revenues (note 1, 2) (309,342) (180,704) (280,980)
Selling, general and administrative
(note 2) (163,247) (110,312) (174,213)
Research and development (note 2) (78,231) (37,433) (71,078)
Total operating costs and expenses (550,820) (328,449) (526,271)
Operating profit 368,305 168,081 276,340
Other income:
Interest income 11,375 12,519 10,378
Exchange loss, net (5) (331) (204)
Other income, net 3,009 4,040 7,032
Total other income 14,379 16,228 17,206
Income before income taxes 382,684 184,309 293,546
Income taxes (34,825) (2,580) (28,561)
Net income 347,859 181,729 264,985
Earnings per share for Class A and
Class B ordinary shares:
Basic 10.15 5.35 7.74
Diluted 10.00 5.23 7.62
Weighted average aggregate number of
Class A and Class B ordinary shares
outstanding:
Basic 34,257,974 33,983,137 34,217,081
Diluted 34,786,353 34,763,639 34,786,342
(1) Cost of revenues are detailed as
follows:
Business tax and surcharges (57,288) (30,702) (49,511)
Traffic acquisition costs (108,797) (59,155) (101,693)
Bandwidth costs (48,029) (31,837) (43,012)
Depreciation costs (56,907) (40,654) (57,790)
Operational costs (37,379) (17,979) (27,795)
Share-based compensation expenses (942) (377) (1,179)
Total cost of revenues (309,342) (180,704) (280,980)
(2) Includes share-based compensation
expenses as follows:
Cost of revenues (942) (377) (1,179)
Selling, general and administrative (6,933) (68) (16,484)
Research and development (9,149) (5,027) (11,618)
Total share-based compensation
expenses (17,024) (5,472) (29,281)
Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures (*) (in RMB thousands, unaudited)
Three months ended September 30, 2007
GAAP Result Adjustment Non-GAAP Results
Operating profit 168,081 5,472 173,553
Three months ended September 30, 2007
GAAP Result Adjustment Non-GAAP Results
Net income 181,729 5,472 187,201
Three months ended June 30, 2008
GAAP Result Adjustment Non-GAAP Results
Operating profit 276,340 29,281 305,621
Three months ended June 30, 2008
GAAP Result Adjustment Non-GAAP Results
Net income 264,985 29,281 294,266
Three months ended September 30, 2008
GAAP Result Adjustment Non-GAAP Results
Operating profit 368,305 17,024 385,329
Three months ended September 30, 2008
GAAP Result Adjustment Non-GAAP Results
Net income 347,859 17,024 364,883
(*) The adjustment is only for share-based compensation.
Reconciliation from net cash provided by operating activities to adjusted
EBITDA(*) (in RMB thousands, unaudited)
Three As a Three As a Three As a
months % of months % of months % of
ended total ended total ended total
September revenues June 30, revenues September revenues
Net cash
provided by
operating
activities 254,870 51% 403,378 50% 482,172 52% 30, 2007 2008 30, 2008
Changes in
assets and
liabilities,
net of
effects of
acquisitions (17,800) -4% (37,893) -5% (45,293) -5%
Income taxes
expenses 2,580 1% 28,561 4% 34,825 4%
Interest income
and other, net (16,228) -3% (17,206) -2% (14,379) -1%
Adjusted EBITDA 223,422 45% 376,840 47% 457,325 50%
(*) Definition of adjusted EBITDA: earnings before interest, taxes,
depreciation, amortization, other non-operating income, and share-
based compensation expenses.
For more information, please contact:
Investor inquiries:
China
Linda Sun
Baidu.com, Inc.
Email: ir@baidu.com Tel: +86-10-8262-1188
Helen Plummer
Ogilvy Financial, Beijing
Email: helen.plummer@ogilvy.com Tel: +86-10-8520-3090
U.S.
Thomas Smith
Ogilvy Financial, New York
Email: thomas.smith@ogilvypr.com Tel: +1-212-880-5269
Media inquiries:
Ceren Wende
Ogilvy Financial, Beijing
Email: ceren.wende@ogilvy.com Tel: +86-10-8520-6514
Yahoo Researcher Seeks to Combine Semantic Search Methods
Yahoo researcher Peter Mika has written up an extensive article on semantic search. First he talks about the limitations to syntax-based search:
It is almost impossible to return search results that relate to the secondary sense of a term—especially if a dominant sense exists—for example, try searching for George Bush the beer brewer as compared to the President The capabilities of computational advertising, which is largely also an IR problem (for example, retrieving matching ads from a fixed inventory), are clearly impacted because of the sparsity of advertisements. When no clear key exists, search engines are unable to perform queries on descriptions of objects. For example, try searching for the author of this article with the keywords ‘semantic web researcher working for yahoo.’ Current search technology is unable to satisfy any complex queries requiring information integration such as analysis, prediction, scheduling, etc. An example of such integration-based tasks is opinion mining regarding products or services. While there have been some successes in opinion mining with pure sentiment analysis, it is often the case that users like to know what specific aspects of a product or service are being described in positive or negative terms and to have the search results appear aggregated and organized. Information integration is not possible without structured representations of content. Multimedia queries are also difficult to answer, as multimedia objects are typically described with only a few keywords (tagging) or sentences. This is typically too little text for the statistical methods of IR to be effective.
Mika says there are two approaches to semantic search: Natural Language Processing (NLP) and the Semantic Web.
Natural Language Processing “builds on the automatic analysis of text.” Semantic search company hakia is an example of natural language processing. Interestingly, hakia uses Yahoo search technology, including the recently announced Yahoo’s BOSS (Build Your own Search Service). Powerset, which was recently acquired by Microsoft, is another example of NLP. These NLP semantic search providers “extract entities from text, disambiguate them against large-scale background knowledge sources (PowerSet uses Freebase, Hakia has its own ontology), and then record the relationships as found in the text.” Users can query by asking full questions, though many still use keywords.
Semantic Web “aims to make the web more easily searchable by allowing publishers to expose their metadata.” Mika says most publishers are willing to share their data if it results in increased traffic. Plus, semantic web allows publishers to avoid costs and quality issues associated with NLP. But last year, Yahoo researcher Mor Naaman declared the Semantic Web dead. Naaman’s reasoning was the limitation of microformats, but Mika says that the new RDFa standard would have greater capabilities.
What Mika wants to do is to integrate the best of NLP and semantic web. He says Yahoo’s SearchMonkey platform allows for this integration to occur.
To dig into all the technical nitty gritty, check out Mika’s full article, “Semantic Search Arrives at the Web.”
Yahoo’s Latest Letter to Shareholders: We’ll Sell for $33 Per Share
In a letter that is likely to believed by almost no one, Yahoo regurgitated much of the same old statements about Microsoft and Carl Icahn – and then slipped in something about selling the entire company for $33 a share. Of course, that’s only “if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing. This is the simplest, most straightforward way to maximize value for you.”
Rumor had it that Yahoo wanted somewhere in the neighborhood of $35-37 per share in the spring when the deal went south. Both sides have accused the other of walking away prematurely.
Then Carl Icahn created a proxy board and subsequently called for Yahoo to sell for $34.375 a share. Now Yahoo says it will go for $33 per share.
If I were Microsoft, I would just sit back, relax and continue to watch the price drop. If I were Google, I’d continue laughing all the way to the bank.
Here’s the full letter:
Dear Fellow Stockholder:
The recently-formed Carl Icahn-Microsoft alliance continues to make misleading statements about their plans for Yahoo!. Your Board of Directors believes strongly that the Icahn-Microsoft agenda -as presented to us jointly last week – will destroy stockholder value at Yahoo!, serving only their very narrow special interests, clearly not your interests.
Your Board continues to work to maximize value for you and is taking the following steps to do so:
– Moving forward with our strategic plan and strategies to lead in online advertising – with both search and display;
– Preparing to implement our recently signed commercial agreement with Google that will increase cash flow;
– Continuing to explore other ways to unlock value and return value to you such as unlocking the value of our Asia assets; and
– Remaining open to negotiating a value creating transaction (including with Microsoft) that provides real and certain value – not just the possibility of value.
In contrast, let’s review Carl Icahn’s brief involvement with the Company to date.
Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share. He is well-known as a corporate agitator with a short-term approach to his investments. His short-term approach gives Mr. Icahn a strong incentive to strike any deal with Microsoft that enables him to recover his investment and get back his money quickly, even a deal that does not provide full and fair value to you. Is that in the interests of all stockholders? Clearly, it is not.
Mr. Icahn has severely handicapped himself in his ability to negotiate a favorable transaction with Microsoft. Why?
– Mr. Icahn has made it clear that his only objective is to sell part or all of Yahoo! to Microsoft. That fact, combined with his lack of an operating plan going forward, means that he will have no leverage to negotiate a fair deal with Microsoft. He has set himself up for failure.
– Second, Mr. Icahn and his slate lack the working knowledge of Yahoo! and its Internet business needed to do two things that are required to successfully deliver a value-enhancing transaction for Yahoo! stockholders. First, they do not have the detailed knowledge to negotiate a complex restructuring of a large, innovative high technology company in a rapidly changing environment. Second, they do not have the hands-on experience to manage and lead Yahoo! during the approximately one year period estimated to be required to gain regulatory approval for a deal or to manage and lead the remainder of the Company (non-search) after a transaction is completed. Don’t take our word for that. Mr. Icahn will be calling the shots if his slate wins and yet Mr. Icahn himself told the Wall Street Journal last fall: “Technology hasn’t really been one of the things I’ve focused on too much before” and “It’s hard to understand these technology companies.” That’s why you need a knowledgeable, experienced and independent board to represent your interests vis-a-vis Microsoft.
Mr. Icahn can’t make up his mind about what he thinks will work for Yahoo!. He bought his position believing that he could bring Microsoft back to buy all of Yahoo!, at one point suggesting we publicly offer to sell Yahoo! to Microsoft for $34.375. But he didn’t do enough due diligence to determine what your Board already knew: that it was Microsoft’s decision to walk away and that it had rebuffed repeated efforts by your independent directors to get a whole company acquisition back on the table. Recognizing that a sale to Microsoft might not be an option, Mr. Icahn said as an alternative that we should enter into an agreement with Google (which we were already negotiating and subsequently signed), and that we should walk away from Microsoft’s search-only proposal (which we did after careful evaluation of that proposal). Then, in an extraordinary flip flop, Mr. Icahn teamed up with Microsoft and embraced their latest joint search-only proposal–even though it involved significant execution and operational risks and was fraught with flaws that made the “headline value” asserted by Microsoft and Mr. Icahn more illusion than reality.
How can Yahoo! stockholders trust Mr. Icahn to deliver what he claims he can deliver when his actions have been so contradictory -and when all he has delivered so far is a risky proposal of questionable value from his new friends at Microsoft? Yes, the Microsoft/Icahn proposal is somewhat of an improvement over Microsoft’s last search-only proposal, but no one should confuse a modestly improved offer with a good offer. The Icahn/Microsoft proposal was more “smoke and mirrors” than objective reality.
Now let’s turn to the recent marriage of convenience between Microsoft and Mr. Icahn.
This “odd couple” collaboration – between two parties with keenly different agendas – is indeed perplexing. Why does Mr. Icahn believe he can count on Microsoft to complete a transaction? Certainly Microsoft is a well-respected and successful company and we have been clear that we are fully prepared to do a deal with them. But Microsoft’s flip flops and inconsistencies over the past five months are so stupefying that one can only conclude that Microsoft was never fully committed to acquiring Yahoo! either because:
– Microsoft can’t decide what is and isn’t strategically important to its online business; or
– Microsoft is more interested in destabilizing a key competitor so that it can either enhance its competitive position or buy our highly valuable search business–and the enormously desirable intellectual property associated with it –at a bargain basement price.
Microsoft desperately needs to improve the performance of its online services business (consisting of its search and display assets) which, cumulatively since 2003, has lost money despite billions of dollars of investment. And yet Mr. Icahn would ignore this track record and its implications for his fellow Yahoo! stockholders, swallowing a deal that leaves Yahoo!’s future dependent, in part, on Microsoft’s ability to monetize search. And, as Mr. Icahn has himself pointed out, it would eliminate any opportunity we may have to sell the entire Company for an attractive premium.
In contrast to the conflicting and confusing statements emanating from the Icahn-Microsoft alliance, your Board and management have been crystal clear about our position.
First, we will sell the entire Company to Microsoft for $33 per share or more if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing. This is the simplest, most straightforward way to maximize value for you.
Second, we remain open to selling only search to Microsoft as long as it provides real value to our stockholders and resolves the substantial execution and operational risks associated with the separation of our search and display businesses.
Third, your Board takes seriously its obligation to examine all value-creating steps it could take and continues to actively examine many of these now, including a potential spin-off of our Asia assets and a return of cash to stockholders. These are steps Yahoo! could take, if we determine they are feasible and in our stockholders’ best interests, without any “help” from Microsoft or Mr. Icahn. But they are complex steps that require care and prudence. These should not be adopted simply because Mr. Icahn and Microsoft are trying to dress up Microsoft’s inadequate search-only proposal.
While your Board continues to evaluate the foregoing avenues, your current Board and management continue to execute on our strategy to grow the value of our unique collection of assets. That strategy is working and we believe it can result in substantial double digit growth in operating cash flow as we move forward. Our recently executed search advertising agreement with Google reflects our commitment to achieving our strategic goals, while preserving flexibility to pursue a sale of the Company or even, on the right terms, a sale of our search business.
Please compare and contrast the straightforward, responsible actions and positions of your Board of Directors with the behavior of Mr. Icahn and Microsoft.
There you have the situation, as we see it, put as simply and clearly as we can. We believe the Icahn slate and agenda present significant risk to your investment in Yahoo!. We believe you cannot count on Microsoft to bail out Mr. Icahn’s misguided agenda, at least not on terms that are in the best interests of Yahoo! stockholders.
In contrast, your Board remains fully prepared to represent your interests aggressively and conscientiously in the effort to maximize value–whether that takes the form of negotiating a transaction that provides full and fair value, with certainty; finding other ways to unlock and return value to you; or moving forward with our accelerated strategies to lead in online advertising.
Your Board of Directors remains committed to maximizing stockholder value. It is–and will remain–our number one priority. Do not be fooled into thinking otherwise by Carl Icahn.
We strongly urge you to vote your WHITE Proxy Card today for your current Board of Directors.
Thank you for your support.
Roy Bostock Jerry Yang
Chairman of the Board Chief Executive Officer
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