#1Spring Owl! Asset Management LLC Yahoo! Investor Presentation: A Better Plan For Yahoo Shareholders December 2015 1370 Avenue Of The Americas - 28th Floor New York, NY 10019 [email protected] 212.445.7829#2Disclaimer The views expressed herein represent the opinions of SpringOwl Asset Management LLC ("SpringOwl"), which opinions are based exclusively on publicly available information with respect to Yahoo! Inc. ("Yahoo"). These materials are for general informational purposes only. They do not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive these materials, and should not be taken as advice on the merits of any investment decision. Opinions expressed herein are current opinions as of the date appearing in this material only. SpringOlwl disclaims any obligation to update the data, information or opinions contained herein. Unless otherwise indicated, financial information and data used herein have been derived or obtained from filings made with the applicable regulator by yahoo or other companies that SpringOwl considers comparable, and from other third party reports Except for the historical information contained herein, the matters addressed in these materials are forward-looking statements that involve certain risks and uncertainties. You should be aware that actual results could differ materially from those contained in the forward-looking statements. Spring Owl does not assume any obligation to update the forward-looking statements. SpringOwl has not sought or obtained consent from any third party to the use herein of previously published information. Any such information should not be viewed as indicating the support of such third party for the views expressed herein. Although data and information contained herein have been obtained from sources believed to be reliable, Spring Owl does not guarantee their accuracy, completeness or fairness. SpringOwl has relied upon and assumed, without independent verification, the accuracy and completeness of all data and information available from public sources. No warranty is made that any data or information contained herein, whether delivered or obtained from filings made with a regulator or from any third party. Is accurate SpringOwl shall not be responsible or have any liability for any misinformation contained in any regulatory filing or third party report. There is no assurance or guarantee with respect to the prices at which any securities of Yahoo will trade, and such securities may not trade at prices that may be implied herein. The estimates, projections, pro forma information and potential impact of the proposals set forth herein are based on assumptions that SpringOwl believes to be reasonable, but there can be no assurance or guarantee that actual results or performance of yahoo will not differ, and such differences may be material. Spring Owl currently owns common stock of Yahoo. SpringOwl may from time to time sell all or a portion of its shares in open market transactions or otherwise (including via short sales), buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls or other derivative instruments relating to such shares. SpringOwl also reserves the right to take any actions with respect to its investment in Yahoo as it may deem appropriate. Including, but not limited to, communicating with management of Yahoo, the board of directors of Yahoo, and other investors. Neither these materials nor anything contained herein is intended to be nor should it be construed or used as, investment, tax, legal or financial advice, an opinion of the appropriateness of any security or investment, or an offer, or the solicitation of any offer, to buy or sell any security or investment. Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 2#3Table of Contents I. Executive Summary I. Company Overview...(5) II. A Breakdown of All Fundamentals... (6-15) III. Private Equity, Starboard, Turnaround...(16-18) IV. Yahoo's Potential and Value Creation Plan...(19-23) II. How Yahoo Lost Its Way I. Yahoo Once King Of The Internet...(25) II. Constantly Changing Leadership ... (26) III. How Yahoo Used To Make Money vs. Today ... (27-28) IV. Has Yet To Make the Shift To Mobile ...(29-30) III. The Status Quo At Yahoo Isn't Working I. Why Yahoo's Board Picked Mayer ...(32-35) II. A Refusal To Face Reality On Costs ... (36) III. Expensive M&A...(37-43) IV. Where Are The New Products ...(44-47) V. The Shift To Mobile ...(48-53) VI. Pay For No Performance...(54-57) VII. Worse Culture Than When She Started...(58-60) VIII.Unprofitable Deals... (61) IX. Stock Buybacks...(62) X. Poor Performance of Core Business...(63-66) Spring Owl! Asset Management LLC IV. StarBoard's "Sell At Lows" Plan I. The StarBoard Plan... (68) II. The Problems With StartBoard Plan... (69) III.Private Equity Has Tried To Buy Yahoo For Cheap Before ... (70) IV.StarBoard's "Sell At Lows" Plan Isn't Attractive... (71) V.The Downside Risk of Selling/Spinning The Core... (72) V. A Better Plan For Yahoo Shareholder I. A Yahoo Turnaround for Yahoo's Public Shareholders...(74-76) 10-Step Turnaround Plan...(77-85) II. III. Yahoo's Next CEO...(86-88) IV. Potential Buyer of Yahoo Core...(89-90) V. Summary of Yahoo Action Plan... (91-93) VI. Appendices I. Corporate Governance... (95) II. Board Profile...(96) III. Board Compensation Profile... (97) IV. Ownership Profile... (98) V. ISS Peer Group... (99) Confidential | For Discussion Purposes Only | 3#4Executive Summary Section I#5Yahoo! and "Core Business" Overview Financial Snapshot (12/09/15) ($ in millions, except per share data) $33.99 $51.68 $27.20 Current Price 52-Week High 52-Week Low LTM Revenue (ex-TAC) LTM EBITDA, Adj LTM Net Income Market Cap Net Cash Total Debt Enterprise Value EV/Revenue EV/EBITDA EV/EBITDA Ex-Asia Stakes F P/E P/FCF Total Debt/EBITDA $4,268 $477.1 $392.7 Spring Owl! Asset Management LLC $33,370 $5,500 $1,217 $25,600 6.0x 53.7x 2.2x¹ 57.8 Negative 2.6x Note: As of 12/09/2015 Source: Public Data; ISS Proxy Advisory Services 1 Assumes Asian Stakes taxed at 38% What is YAHOO! What is the "Core Business"? Yahoo! Inc. is a technology company. Its "Core" is engaged in providing Internet search, communication and digital content. The Company manages its business geographically: the Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific. The Company's products include Search, Communications, Digital content, Flickr, and Tumblr. Yahoo Search is a search engine which serves as a starting point to navigate the Internet and discover information, which is ranked and organized -based on their relevance to the query. Yahoo Mail connects users across mobile phones, tablets and PC. Yahoo.com offers news and information, including Yahoo original content and partner content. Flickr is a Web and mobile photo management and sharing service. Tumblr offers a Web platform and mobile applications (particularly on the iOS and Android platforms) that allow users to create, share and curate content. Yahoo is also a digital publisher and advertising technology provider. Confidential | For Discussion Purposes Only | 5#6Yahoo 1-Year Historical Chart ww Dec 14 Jan 15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Note: As of 12/09/2015 Source: Bloomberg (1-Year Daily Price Chart) Spring Owl! Asset Management LLC Yahoo Nasdaq Nasdaq: 7.0% Yahoo: -31.0% Confidential | For Discussion Purposes Only | 6#7Yahoo 3-Year Historical Chart Dec-12 Note: As of 12/09/2015 Source: Bloomberg (3-Year Daily Price Chart) Spring Owl! Asset Management LLC Dec-13 читы Yahoo Nasdaq Dec-14 Yahoo: 81.5% Nasdaq: 71.2% Dec-15 Confidential | For Discussion Purposes Only | 7#8Yahoo 5-Year Historical Chart Dec-10 Dec Note: As of 12/09/2015 Source: Bloomberg (5-Year Daily Price Chart) SpringOwl! Asset Management LLC Dec-12 -Nasdaq n Dec-13 Yahoo Dec-14 Nasdaq: 94.8% Yahoo: 105.6% Dec-15 Confidential | For Discussion Purposes Only | 8#9But Yahoo's Stock Has Recently Only Been A Tracking Stock For Alibaba: Alibaba.com IPO: 09/14/2014 Note: As of 12/09/2015 Source: Bloomberg (1-Year Daily Price Chart) Thur Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Spring Owl! Asset Management LLC umm m Alibaba Yahoo! Alibaba: -10.1% Yahoo: -14.9% Confidential | For Discussion Purposes Only | 9#10Yahoo's Core Business Is In Need Of A Turnaround: 1,447 FY 2010 Company 5-Year EBITDA Growth Note: Current LTM as of (09/30/2015) Source: Bloomberg SpringOwl! Asset Management LLC 1,506 FY 2011 AOL -40% 5-Year Yahoo EBITDA Trend 1,457 - 55% - FY 2012 GOOG +97% 1,206 FY 2013 FB +444% 843 FY 2014 TWTR -86% 638 Current/LTM ($) Millions Avg. +100% Confidential | For Discussion Purposes Only | 10#11Yahoo's Core Business Is In Need Of A Turnaround: 6,325 FY 2010 Company 5-Year Revenue Growth 5-Year Yahoo Revenue Trend (Including Traffic Acquisition Costs) Note: Current LTM as of (09/30/2015) Source: Bloomberg SpringOwl! Asset Management LLC 4,984 FY 2011 AOL +6% 4,987 FY 2012 GOOG +144% - 21% 4,680 FY 2013 FB +640% 4,618 FY 2014 TWTR +690% 4947.98 Current/LTM ($) Millions Avg. +370% Confidential | For Discussion Purposes Only | 11#12Yahoo's Core Business Is In Need Of A Turnaround: 223 Dec 2010A Source: Company Fillings (DEF14A) Spring Owl! Asset Management LLC 4-Year Yahoo Stock-Based Compensation Expenses 203 Dec 2011A 88% 224 Dec 2012A 278 Dec 2013A 420 ($) Millions Dec 2014A Confidential | For Discussion Purposes Only | 12#13Yahoo's Headcount Still Excessively High Given Revenues: 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 3,574 '04 Yahoo Full Time Employee Headcount (2004-2015) vs. Revenue (2004-2015) Spring Owl! Asset Management LLC 5,257 '05 6.425 '06 Source: Company Filings (10K), Analyst calls 6,969 '07 7,208 '08 6,460 '09 Revenues 6,324 '10 HeadCount 4,984 '11 4,986 '12 8 4,680 '13 Marissa Mayer Hired: July 2012 4,618 '14 ¹15 8,000 7,000 6,000 5,000 -4,000 3,000 2,000 1,000 ($) Millions Confidential | For Discussion Purposes Only | 13#14Product Development Expenses Have Yet To Pan Out 2014 R&D/Product Development Expenses as a % of Revenue SpringOwl! Asset Management LLC 18% $885M Yahoo Note: As of 10/22/2015 Source: Company Fillings (10K) 15% $9.83B Google 3% $6.04B Apple Confidential | For Discussion Purposes Only | 14#15Selected Peer Group Comparison Enterprise Value ($M) Note: As of 12/09/2015 Source: Bloomberg Spring Owl! Asset Management LLC Company AOL GOOG FB TWTR YHOO 3,920 461,890 285,450 15,010 25,600 Total Revenue ($M with TAC) 2,569 71,763 15,940 1,990 4,948 TTM EBITDA ($M) 433 23,305 6,600 -208 477 EV/EBITDA (Trailing) 7x 19.82x 42.9x -72.0x 2.2x ex-Asian Stakes Taxed at 38% Total Debt / EBITDA 1.0x 0.4x 0.01X -7.6x 2.6x Confidential | For Discussion Purposes Only | 15#16Private Equity Has Tried To Buy Yahoo For Cheap Before ■ ■ ■ In 2011, before Dan Loeb announced Third Point's stake, it was reported that Silver Lake and Marc Andreessen wanted to buy Yahoo for $16.50/share or $18 billion¹ Many commentators on CNBC at the time said this price sounded like a "good deal" for Yahoo shareholders because Yahoo was too hard to turn around If Silver Lake/Andreessen had been successful, they would have received not only Yahoo's Core Business, its $9 billion stake in Yahoo Japan, but also its then 44% stake in Alibaba which today would be worth $89 billion When you hear people say that "Yahoo should be chopped up" by private equity because Yahoo is "hopeless", what they're really saying is that Yahoo's public market shareholders should do a wealth transfer to some private equity LPs or public holders of companies like Verizon It's nonsense to think Yahoo can't be turned around as a public company Source: 1. http://allthingsd.com/20111130/yahoo-bidders-come-in-at-16-50-to-17-50-with-plan-to-keep-jerry-yang-staying-on-board/ Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 16#17Starboard's "Sell At the Lows" Plan Isn't Attractive Starboard - a Yahoo shareholder - on Nov. 19/15 argued that Yahoo not spin off the Alibaba stake but instead sell the core business ■ ■ ■ ■ ■ We Disagree With Starboard's Suggestion Because: We don't think their "sell at the lows" argument will be compelling to either the Yahoo board or other Yahoo shareholders Yahoo's stock didn't increase at all the day after the letter was revealed; we believe that's because Yahoo investors don't believe Starboard's plan will work and/or won't be adopted We think Starboard's credibility has been substantially weakened in taking this "sell at the lows" approach We disagree with their projected cost savings estimates of $370 - $500M/year; we think at least $2B in annual savings are possible from headcount reductions and cost cuts While we agree with their estimates about the deterioration of the Core, we can't understand why they would then conclude that now is the time to sell off the core business at its lowest possible value Starboard's plan - at best - will get Yahoo shareholders an extra $3-4/share for their investment (Selling the core at $6B) Our plan will deliver at least an additional $30/share of value to all Yahoo shareholders What Needs to Happen Now? The right turnaround plan and the right partner to help unlock the full value of Yahoo embedded in its current assets A turnaround for public shareholders, not a fire sale for a return and strategies wanting to buy a great asset on the cheap Source: 1. http://www.starboardvalue.com/publications/Starboard Value LP Letter to YHOO 08.10.15.pdf 2. http://www.starboardvalue.com/publications/Starboard Value LP Letter to YHOO 11.19.15.pdf SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 17#18The Downside Risk of Selling/Spinning The Core Yahoo's board announced on December 9th, 2015 that it won't continue with the planned spinoff of its Alibaba stake, as the potential tax bill for proceeding was too great a risk for the directors to assume that responsibility. Instead, Yahoo's board said it would being working on a plan to spin off the core business and the Yahoo Japan stake ■ This would leave just the Alibaba stake as part of the Yahoo stock; the core Yahoo business and Yahoo Japan stake would trade under another ticker Some shareholders think Yahoo's board is now simply going to sell the core The Problem With Simply Selling Or Spinning The Core¹: ■ ■ ■ There is a risk - not a certainty - that if Yahoo Core is sold or spun, the stake in Alibaba would become taxable on the gains from the time of Yahoo's investment in 2005 to today under the Investment Company Act of 1940² Therefore, Yahoo shareholders would owe a tax bill on the gains of the Core as well as the BABA stake Why not instead: ● Start the real turnaround of the Core with new management and a new board to create $20 - 30/share in value for current shareholders? Study the tax issues in more detail with the help of a partner like a Liberty? Yahoo Shareholders Want $30/Share More - Not $3/Share And Full Tax On BABA Source: 1 http://www.thestreet.com/story/13391744/1/yahoo-shareholders-need-a-better-solution-than-the-one-just-proposed.html 2. https://www.sec.gov/about/laws/ica40.pdf Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 18#19A Better Plan For Yahoo Shareholders I ▪ The notion that some in the media - who usually have no specific knowledge about Yahoo - have recklessly put forward that Yahoo is "unfixable" and that it should be simply "chopped up" and handed over for nothing to private equity or strategies is insulting to all long-term public shareholders Every public shareholder knows that Yahoo can do much better with the right plan and better governance Selling the core for scrap value is not the answer ■ Rather than "sell the core at the lows," we believe a new realistic plan and an augmented board with relevant financial and operating experience can turn around and unlock the true value embedded within Yahoo ■ If all aspects of our value creation plan are implemented by the company, and if Alibaba continues to recover, we believe that Yahoo's shares may trade over $100/share Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 19#20A Better Plan For Yahoo Shareholders ■ ■ H ■ ■ ■ Re-cast Yahoo management and the board to have a clear focus on properly operating the business Bring In Someone Like a Liberty as a Partner through a PIPE with board representation to advise on tax and operating an Internet business for a 14x multiple Aggressively cut costs across the Core the way Private equity surely will Cut Non-Performing Businesses & Internal Search Plans Focus on Best Bets Moving Forward including Finance and Sports Milk The PC Business Longer Than Anyone Expects (a la AOL) Build Back The Company Day by Day and Not Through Hail Mary Expensive Acquisitions Reduce the share count as a sign of confidence in our plan which will benefit all shareholders Image: Google Images SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 20#21Key Drivers to Unlocking Value In Yahoo's Share Price ■ ■ ■ ■ Getting The Core Business EBITDA back to $2-3B a year Reducing 9,000 employees as well as free food and other expensive sponsorships would generate at least $2B a year in EBITDA ● ● The existing core business is generating $600 million a year in EBITDA and can hopefully get back to its more historical levels of $1B a year With new operator-focused management and someone like a Liberty as a partner, we expect the core business would receive an 8x multiple on that EBITDA rather than the current 2x This change would lead to an incremental $18B in value over the current implied value of the core beyond the value for which the core could be sold today following Starboard's "sell at the lows" plan Finding an optimal solution to the 384 million Alibaba shares while Alibaba tracks back to $120/share → $25.7B in incremental value Finding an optimal solution for the 35% stake in Yahoo Japan → $4.3B in incremental value Optimizing the value of the Sunnyvale real estate → $1.8B in incremental value Reducing the share count Just reorganizing the core business through cost cuts could create an extra $30/share in value above a Starboard sell it now outcome; with a recovery in BABA shares and tax efficiencies, Yahoo could break $100/share Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 21#22Key Drivers to Unlocking Value In Yahoo's Share Price ($B Unless Noted) How Yahoo Is Valued By The Market Today (Asian Stakes Taxed at 38%) EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 20.4 5.3 SpringOwl! Asset Management LLC 5.5 0 2.8 Mkt Cap 33.9 PER SHARE $35.91 Extra Value Created By Starboard's Plan EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE 20.4 5.3 5.5 0 CORE 6 Mkt Cap 37.2 PER SHARE $39.41 Our Plan E2. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 46.1¹ 9.61 1.5 1.8² 24 Mkt Cap 81.2 PER SHARE $113.41 Difference Between Starboard and Our Plan = 25.7 4.3 1.8² 18 44 $61.45 $4B Cash $1.8B Real Estate $4B Debt Can Retire 228M Shares At $43/Share New Share Count: 716M Shares If our plan is implemented by the company and just the core busin ess is fixed (with no additional improvement in the value of the Alibaba and stakes), we believe that Yahoo's stock would trade about $60/share or more than $30/share higher than the plan advocated by Starboard. Source: Spring Owl Asset Management LLC Confidential | For Discussion Purposes Only | 22 Note: 1. Although Real Estate value is being realized, it is being used to retire shares. 2. Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12%#23Starboard's Plan Sells Yahoo At The Lows; Our Plan Unlocks Meaningful Upside for Shareholders $35.00 $4.411 SpringOwl! Asset Management LLC $22.46² Starboard's Plan $31.783 Current Price Core Business Asian Stakes Tax Savings Note: 1 Selling Yahoo Core now at the lows for $6B 2 - 8x EV/EBITDA Multiple for Core Doing $3B EBITDA ($750M Normalized EBITDA plus $2.25B in Headcount Reductions 3- Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12% 4 - Retiring 228 million shares at $43/share from $4B cash, $1.8B in real estate sales, and $4B in debt Source: Spring Owl Asset Management LLC $23.474 Share Count Reduction $113.41 Potential Total Value Confidential | For Discussion Purposes Only | 23#24How Yahoo Lost Its Way Section II#25Yahoo Was Once The King Of The Internet When Yahoo took public shareholders' money in 1996 in their IPO, the Internet was just getting started ■ ■ The Internet was a wild and woolly place and Yahoo was there to help you mak sense of it Consumers gravitated to Yahoo's quirky branding and trusted that the company would help them find interesting content that was meaningful to them They pioneered the Internet portal concept which let you come to one destination and get the bulk of the information needed Yahoo - A Guide to WWW [What's New? I What's Cool? What's Popular? Stats | A Random Link ] Y Top Up Search Mail Add Help Art(466) NEW • Business(6426) NEW • Computers(2609) NEW • Economy(743) NEW • Education (1487) NEW • Entertainment(6199) NEW • Environment and Nature (193) NEW Spring Owl! Asset Management LLC • Events(53) NEW . Government(1031) NEH • Health (367) NEW • Humanities(163) NEW • Law (163) HEW • News(185) • Politics (148) NEW • Reference(474) NEW • Regional Information(2606) Ew • Science(2634) NEW • Social Science (93) NEW • Society and Culture(648) NEW 23836 entries in Yahoo [ Yahoo! Up | Search | Mall! Add! Help] [email protected] Copyright © 1994 David Filo and Jerry Yang YAHOO Twok What FORTUNE ARCHIVES Image: Google Images New Pamela Lee Speaks Out 5 Cool YAHOO! [Win a Viper!] • Arts and Humanities Architecture. Photography, Literature... Business and Economy [Xtra!] Companies. Investing. Employment.... Search options Yellow Pages - People Search - Maps - Classifieds - News - Stock Quotes - Sports Scores • Computers and Internet [Xtra!] Internet, WWW. Software. Multimedia... • Education Universities, K-12, College Entrance.... Entertainment [Xtra!] Cool Links, Movies, Music, Humor... Today's . Government Military, Politics [Xtra!], Law, Taxes... • Health [Xtra!] Medicine. Druga, Diseases, Fitness... MLB Playoffs News and Media [Xtra!] Current Events, Magazines. TV. Newspapers... • Recreation and Sports [Xtra] Sports. Games. Travel. Autos. Outdoors... • Reference Libraries, Dictionaries, Phone Numbers.... • Regional Countries, Regions. US States.... • Science CS. Biology, Astronomy, Engineering • Social Science Anthropology, Sociology, Economics... Society and Culture People. Environment, Religion.... My Yahoo!- Yahooligans! for Kids - Beatrice's Web Guide - Yahoo! Internet Life Weekly Picks - Today's Web Events - Chat - Weather Forecasts Visa Shopping Guide - Random ink-Yahoo! Store World Yahoos Australia & N.Z. - Canada - France - Germany - Japan - Korea - U.K. & Ireland Yahoo! Metros Atlanta - Austin - Boston - Chicago - Dallas/Fort Worth - Los Angeles Get Local Miami - Minneapolis/St. Paul - New York - SF Bay - Seattle-Wash DC Smart Shopping with VISA Image: Google Images Confidential | For Discussion Purposes Only | 25#26Constantly Changing Yahoo Leadership While the world has shifted from desktop revenues to mobile ones, Yahoo has experienced a number of changes in leadership, changes in the board, and outside distractions including: 2012 A Revamping of Yahoo's Board SpringOwl! Asset Management LLC Yahoo's board selling half its stake in Alibaba for $7 billion 2007 Terry Semel Quits Source: Spring Owl Asset Management LLC Jerry Yang Becomes CEO Marissa Mayer Becomes CEO 2008 Carl Icahn Seeking And Receiving Board Seats 2009 Hostile Takeover by Microsoft 2013 New Mayer- friendly Board Appointments And Executives More Board Turnover & Executive Departure 2010 Carol Bartz becomes CEO Dan Loeb Quits The Board 2011 Board Fires Carol Bartz Only 2.5 Yrs Into Her Tenure Proxy Fight Of Dan Loeb From Third Point 2014 Starboard Value Challenging Yahoo's Leadership Mayer Firing Her Former Colleague From Google As Her Hand-picked COO A Year After Hiring 2012 Thompson Resigns After Having Lied About His Scott Thompson Becomes CEO Undergrad Major In Computer Science 2015 Yahoo Executives Quitting The Company Throughout 2015 Confidential | For Discussion Purposes Only | 26#27How Yahoo Used To Make Money Yahoo tries to get people to get into the habit of showing up on one of their properties every day in the hope that they can a) get them on other Yahoo properties and b) show ads. ■ I ■ ■ Historically, a lot of users show up every day to check their email, the Yahoo homepage, check their portfolio on Finance, check scores and playing fantasy on Sports, and do a few searches (all boosted by search/toolbar/homepage deals) In the really old days, Yahoo even ventured into commerce by trying to sell people stuff An example of all their product categories from a decade ago is below Content SpringOwl! Asset Management LLC Personalization Vertical Search Community Source: Yahoo Investor Presentation, 2006 1 Billion Global Internet Users Communications (38%) IMVironment, Avatars Email, IM, Y! 360 (Blogging) Web Email Search, Desktop Search Message Boards Y! 360 (Blogging) Info/Entertainment (39%) Stock Quotes Music Engine Stock Portfolios, RSS Feeds, Music Ratings News Search, Local Search, Media Search User Groups, Multiplayer Games Flickr Commerce (18%) Smart Sort Expert Reviews Preference-Based Recommendations Product Search User / Merchant Reviews Note: Figures shown in percentages above represent share of time spent online. Source: Online Publishers Association (2006). Search (5%) Flickr Search Shortcuts, Direct Display My Web Desktop Search Web Search Y! Answers Del.icio.us, Social Search Confidential | For Discussion Purposes Only | 27#28How Money On The Internet Is Made Today Mobile Migration Estimated ad spending (billions) Desktop Mobile ■ W ■ ■ ■ But with the transition from desktop to mobile, the reasons to come to Yahoo Properties have either atrophied or the audiences have churned. Yahoo mail isn't as competitive with the rise of Gmail and Apple mail People are messaging more via iMessage, Messenger, WhatsApp, Snapchat, Kik and others instead of emailing Users spend a lot of time these days on social media like Facebook and Twitter Users don't go to the homepage as much as they used to; therefore, they don't look at display ads or do searches as much These trends are only likely to increase, further hurting Yahoo Source: Wall Street Journal $70 SpringOwl! Asset Management LLC $60 $20 Yahoo has under-invested in Sports and Finance, $10 given their seize and popularity $50 $40 $30 $0 2013 2014 2015 2016 2017 2018 Source: eMarketer | WSJ.com Confidential | For Discussion Purposes Only | 28#29Yahoo Hasn't Made Shift To Mobile From Desktop YAHOO! facebook. twitter 1H2013 1H2014 1H2015 "Not Material" Yahoo's Mobile Revenue $308M Yahoo's Mobile Revenue Spring Owl! Asset Management LLC $485M Yahoo's Mobile Revenue Company Fillings (10K) $1,024M Facebook's Mobile Revenue $2,965M Facebook's Mobile Revenue 9.6x Bigger Than Yahoo $5,287M Facebook's Mobile Revenue Source: 1. http://www.wsj.com/articles/vahoo-be-careful-plaving-in-traffic-1449425043 10.9x Bigger Than Yahoo $165M Twitter's Mobile Revenue $406M Twitter's Mobile Revenue 1.3x Bigger Than Yahoo $744M Twitter's Mobile Revenue 1.5x Bigger Than Yahoo 0 BELL DOP 6 at would @marksa pk better YAHOO *** BELL 4:21 PM 22% O In Q315, Facebook's mobile revenue grew to 12.5x Bigger than Yahoo's¹ Confidential | For Discussion Purposes Only | 29#30Yahoo Says They're Doing Great In Mobile, But They Aren't On A Relative Basis YAHOO! twitter facebook. 1H2015 Mobile Revenue As % Of Total Revenue¹ SpringOwl! Asset Management LLC 20% 88% 74% Source: 1. Company Fillings (10K) 2. http://www.emarketer.com/Article/Facebook-Twitter-Will-Take-33-Share-of-US-Digital-Display-Market-by-2017/1012274 Confidential | For Discussion Purposes Only | 30#31The Status Quo at Yahoo Isn't Working Section III#32Why Was Marissa Mayer Picked To Run Yahoo 4 Years Ago? Image: Google Images SpringOwl! Asset Management LLC HOPE Confidential | For Discussion Purposes Only | 32#33The Old Yahoo Board Thought Product-Focused Mayer Would Create More Value Long-Term Than Levinsohn Image: Google Images Spring Owl! Asset Management LLC Marissa Mayer ■ ■ ■ New Products More long-term value created for shareholders Star name Transformative M&A VS. Ross Levinsohn ■ ■ Job Cuts More deals with media partners like ABC, CNBC & Katie Couric like he had negotiated ■ Media M&A Confidential | For Discussion Purposes Only | 33#34Tech Royalty Expected Significant Yahoo Job Cuts And Still Expects It July 2012: "Yahoo has 18,000 employees, and on paper it should have closer to 6,000 to 8,000, [Silicon Valley tech investor legend Marc] Andreessen argues. Every analyst has noted pretty much the same thing, and to date no CEO has had the guts to cut that deeply, even as each of them have been vilified for making cuts. Will Mayer be able to do what most outside observers say is necessary?" December 2015: "My view is that [Yahoo is] dramatically overstaffed" Source: https://pando.com/2012/07/16/andreessens-advice-to-marissa-mayer-cut-10000-plus-jobs/; SpringOwl! Asset Management LLC https://twitter.com/pmarca/status/673646979277131776 Confidential | For Discussion Purposes Only | 34#35What Yahoo Investors Got Instead ■ ■ ■ ■ ■ Marissa Mayer New Products ■ Spring Owl! Asset Management LLC ■ More long-term value created for shareholders Star name Transformative M&A No new products Less value ascribed to the Core Business Ineffective M&A Ross Levinsohn ■ Job Cuts More deals with media partners like ABC, CNBC & Katie Couric like he had negotiated VS: Media M&A The Result? Job Increases Before Voluntary Attrition More deals with media partners like ABC, CNBC & Katie Couric like he had negotiated Essentially, Yahoo shareholders got a watered down version of the Media strategy and a less valuable Yahoo Confidential | For Discussion Purposes Only | 35#36$10 Billion in Misallocated Capital Is A Poor Choice "We're really proud of our record on capital allocation" - - Marissa Mayer, 12/09/151 -$2.5B in value destroyed on Under-water Stock Purchases Made Since Dan Loeb left the board in July 2013 -$3B spent on M&A Valued at Zero Today By Investors -$4B spent on Product Development/R&D leading to No New Successful Products -$9.5B in Misallocated Capital Since 2012 Source: Company Fillings (10K) / 1. http://video.cnbc.com/gallery/?video=3000464388 Spring Owl! Asset Management LLC BEHIND ON MOBILE RACE OVER SPENDING PRODUCT DEVELOPMENT ON YAHOO! NOTIVAONNI JO YOUT BUSINESS WEAKER CORE Confidential | For Discussion Purposes Only | 36#37$3B In Recent M&A Is Valued By Investors at Zero In Yahoo's Current Stock Price Acquisitions at Yahoo Over the Past 4 Years: STAMPED Snip.it Qwiki Loki R bread cloudparty STUDIOS Rockmelt Summly ON AIR che tumblr. BIGNOGGINS SpringOwl! Asset Management LLC Ztelic. PlayerScale rondee pastrid h Source: Spring Owl Asset Management LLC GoPollGo Qalike PHOTODRIVE TOMFOOLERY Jybe INCORPORATED Vizify FLURRY CLARITY RAY AVIATE incredible labs BrightRoll xobni SMART VIDEO ADVERTISING ptch PEERCDN Lexity lookflow SkyPhrase sparq Blink! IQ Engines EVNTLIVE Quik-io distill LP RAYV Luminate™ Note: Logos found on Google Images, full copyright goes to the companies above Mile Wise genius MEDIAGROUPONE MessageMe bookpad This M&A has resulted in Zero Additional Value Implied in the Core Business For Yahoo Shareholders GhostBird Software. POLYVORE Confidential | For Discussion Purposes Only | 37#38Accounting for the $3 Billion In Mayer M&A Acquisition Date Oct-12 Dec-12 Jan-13 Feb-13 Mar-13 Mar-13 May-13 May-13 May-13 May-13 May-13 May-13 Jun-13 Jun-13 Company Stamped On The Air SpringOwl! Asset Management LLC Snip.it Alike Jybe Summly Astrid GoPollGo MileWise Loki Studios Tumblr PlayerScale GhostBird Software Rondee Business Social recommendation On The Air Social network Social recommendation Social recommendation News aggregation, summarization Jul-13 Bignoggins Productions Jul-13 Qwiki Jul-13 Xobni Jul-13 Ztelic Jul-13 Lexity Aug-13 Rockmelt Aug-13 IQ Engines Sep-13 Hitpost Source: Wikipedia; public reports; 10-K filings; Crunchbase VC $ raised Productivity Real-time surveys Flight rewards management Mobile gaming Blogging Online gaming Mobile Photography Apps Video Conferencing Fantasy Sports Automated Video Production CRM Social Analytics ecommerce Analytics News Aggregator Image Recognition Sports Value $3M $4M $10M $1M $1M $30M $2M $1M $2.5M $1M $1,100M $1M $1M $1M $1M $50M $60M $1M $35M $70M $4M $2M Confidential | For Discussion Purposes Only | 38#39Accounting for the $3 Billion In Mayer M&A (Cont.) Business Advertising Acquisition Date Oct-13 Oct-13 Dec-13 Dec-13 Company Bread SpringOwl! Asset Management LLC LookFlow SkyPhrase Ptch EvntLive Quik.io PeerCDN Aviate SPARQ Cloud Party Dec-13 Dec-13 Dec-13 Jan-14 Jan-14 Jan-14 Jan-14 Jan-14 Feb-14 Feb-14 Mar-14 May-14 Jun-14 Jul-14 Jul-14 Aug-14 Sep-14 Sep-14 Oct-14 Nov-14 BrightRoll Nov-14 Cooliris Dec-14 Media Group One Jul-15 Polyvore Source: Wikipedia ; public reports; 10-K filings; Crunchbase VC $ raised Tomfoolery Incredible Labs Wander Distill Vizify Blink PhotoDrive RayV Flurry ClarityRay Luminate Image Recognition Natural Language Processing Video sharing Bookpad Littlelnc Live and on demand music playing Cross Platform Video Streaming Content Delivery Network Intelligent homescreen for the Android OS Mobile Marketing Virtual world gaming Conversation platform Time Management App Social Diary Technical Recruiting Social media information transformation Mobile Messaging Photo Management Video Streaming Platform Mobile Analytics Ad Security Advertising Document Handling Messaging App Online Video Advertising Photo Viewing Advertising and online video Clothing E-commerce website Value $3.5M $1M $1M $7M $2.3M $1.3M $1M $80M $1.7M $1M $16M $1M $1.2M $1.3M $1.5M $1M $1M $16M $300M $1M $30M $15M $1M $715M $28M $1M $230M Total: $2.8 Billion Confidential | For Discussion Purposes Only | 39#40A Tale Of Two Acquisitions: Instagram vs. Tumblr Instagram tumblr. Price Paid: When: Users (Date of Acquisition): Current Users: Estimated Revenue Today: Estimated Value Today: Source: 1.WSJ, Insta-Rich: $1 Billion for Instagram, 2012. $1B¹ SpringOwl! Asset Management LLC April, 2012¹ +30M (2012)¹ +400M³ $110m (2015)² $35B (2014)³ 2. Market Watch, Instagram Revenue Forecast To Triple, 2015 3. Citi Group; http://www.wired.com/2015/09/instagram-now-tops-400-million-users-40-billion-photos/ 4. Fortune, Was Yahoo's Tumblr acquisition a flop?, 2014 5. The Guardian, Tumblr audience up to 420m as Yahoo predicts $100m revenues in 2015 Price Paid: When: Users (Date of Acquisition): Current Users: Estimated Revenue Today: Estimated Value Today: $1.1B4 May, 20134 ≈260M (2013)4 ≈400M4 $100M (2015)5 $0 Implied Confidential | For Discussion Purposes Only | 40#41A Tale Of Two Acquisitions: Instagram vs. Tumblr Instagram tumblr. Current App Store Rank: Highest App Store Rank: Date of Highest Rank: How Long Ago? Source: SpringOwl Asset Management LLC #3 Spring Owl! Asset Management LLC #1 Dec 26, 2014 Day after Christmas Current App Store Rank: Highest App Store Rank: Date of Highest Rank: How Long Ago? #104 #12 June 21, 2013 The Day Yahoo Bought Tumblr Was Virtually The Day Tumblr Started To Plummet In the App Store Rankings 1 Month Post-Yahoo Buying Confidential | For Discussion Purposes Only | 41#42▪ In 2003, Marissa Mayer started a program at Google called Associate Product Manager (APM) ▪ The two-year rotational program was designed to flag the "best and brightest" at Google and give them increased responsibilities as well as many travel opportunities and perks Mayer oversaw the program while at Google and many considered her their mentor ■ Mayer Has a History Of Buying Companies Run By Former Google APM Members ■ And she's created a similar program at Yahoo: http://yahooapms.tumblr.com/what-is-the-apm-program ▪ A decade later, Mayer now has used Yahoo's shareholders' cash to buy companies run by former APM members including: Jess Lee of Polyvore (standing in a tree): a fashion website for $230 million Paul Montoy-Wilson of Aviate: a Google Now knock-off for $80 Spring Owl! Asset Management LLC million Source: www.nytimes.com/2015/05/fashion/will-the-met-gala-make-fashion-love-yahoo.html YAHOO! Enrique Munoz Torres: was an early direct hire by Mayer and is now SVP of Search (even though Yahoo exited the Search biz in 2009) Confidential | For Discussion Purposes Only | 42#43It's Not Acceptable To Pay $230M For Zombie Companies Run By Former APM Members YAHOO! ■ ■ ■ Polyvore was an 8 year old company which has gone through multiple pivots It raised $22M over 3 rounds and was widely seen as a failure or part of the Silicon Valley "walking dead" Its CEO, Jess Lee, had known Mayer since she joined Google's APM program more than 10 years ago and used Mayer as a mentor Anonymous sources have told us that no Yahoo employees beyond Mayer wanted to do this deal through Yahoo's "deal review" process Mayer pushed for this deal at $230M even though there's no belief that Polyvore deserves that valuation; Yahoo should show its shareholders the Polyvore financials and justification for this price paid Source: 1. http://www.businessinsider.com/polyvore-ceo-jess-lee-influenced-by-marissa-mayer-2015 2. http://www.bloomberg.com/news/articles/2015-08-03/vahoo-said-to-pay-230-million-for-shopping-site-polyvore SpringOwl! Asset Management LLC Google polyvore™ Magass Confidential | For Discussion Purposes Only | 43#44No New Yahoo Products: The Livetext Fiasco ▪ The Livetext app was described by some at Yahoo as their Snapchat- and Instagram-killer ▪ The app allowed you to text with someone and see their faces but not hear them ▪ It was released on July 30, 2015 ▪ The day after its release, Livetext was ranked #132 on the App Store overall rankings but then quickly fell off the list It is no longer on any App Store ranking list ■ It's unclear how much of this years nearly $1 billion product development budget at Yahoo went towards launching Livetext but it was clearly unsuccessful 四到 SpringOwl! Asset Management LLC 20 it Image: Google Images Source: www.nytimes.com/2015/05/fashion/will-the-met-gala-make-fashion-love-yahoo.html #500 marissamayer Pool conner Enjoy the rest of your day! * 16 NEW THIS MORNING YAHOO REVEALS NEW WAY TO TEXT "LIVETEXT" A GAME CHANGER? b 4 gh 7 Confidential | For Discussion Purposes Only | 44#45Yahoo's Product on Snapchat Discover Was So Bad, Snapchat Fired Yahoo 6 months After Launch Snapchat Discover is one of the hottest new platforms for consuming news ▪ Yahoo was one of a precious few launch partners on Discover on January 27, 2015 Inexplicably, Yahoo decided to make Katie Couric the face of their Discover channel Jay Yarow of Business Insider immediately knew something was wrong¹ 10 days after the launch, Eric Jackson pointed out in Forbes that this was a terrible decision by Yahoo² ▪ 5 months later, Snapchat dropped Yahoo from Discover because the traffic was so low³ ■ ■ "This is not rocket science. What market research was done by Yahoo to determine Katie Couric should be the face of them on Snapchat?" - Eric Jackson, Feb 7, 2015, Forbes ▪ All the more embarrassing, the partner who replaced Yahoo on Discover - Buzzfeed - now gets 21% of its content traffic from Snapchat Discover4 Source: 1. https://twitter.com/ivarow/status/560097969475977216 2. http://www.forbes.com/sites/ericiackson/2015/02/07/why-is-katie-couric-doing-vahoo-news-on-snapchat-discover 3. http://adage.com/article/digital/snapchat-drops-vahoo-warner-music-discover/299682/ 4. http://www.businessinsider.com/buzzfeed-gets-21-of-its-traffic-from-snapchat-2015-9 Spring Owl! Asset Management LLC Note: Eric Jackson is a current employee of SpringOwl Asset Management LLC YAHOO! NEWS discover CNⒸ- A food REALLY? JUSTIN BIEBER IS REALLY SORRY FOR HIS BAD BEHAVIOUR. POLITES GETTING SNAPPY SORRY WITH RAND PAUL Kentucky Sen Rand Paul chatted with CNN about drones and 2016 in the first Snapchat interview with a US lawmaker Image: Google Images Confidential | For Discussion Purposes Only | 45#46Digital Magazines: OK But Not Moving The Needle Mayer has constantly pushed the idea of Yahoo's 'digital magazines" as an example of a new Yahoo product which would lead the company back to relevance. Yet, 4 years later the results are underwhelming ■ "It's not something that's been on the radar" - Alan Smith, Chief Digital Officer at Media Agency Assembly 123456 Yahoo recently put Martha Nelson, previously longtime Time Inc. senior editorial, in charge of its overall media strategy in August² BuzzFeed THE HUFFINGTON POST 200M Monthly Visitors³ 180M Monthly Visitors4 Source: BUSINESS INSIDER ESPA 72M Monthly Visitors5 17M Monthly Visitors6 1. http://digiday.com/publishers/yahoo-fails-impress-digital-magazines/ SpringOwl! Asset Management LLC 17.6 Monthly Unique Viewers Vertical Traffic of Yahoo's digital verticals¹ 17.2 An Average of 12.7M 2. http://variety.com/2015/digital/news/yahoo-martha-nelson-media-1201626127/ 3. http://adage.com/article/media/huffington-post-broke-146-million-revenue/299293/ 4. http://www.buzzfeed.com/buzzfeedpress/buzzfeed-reaches-more-than-130-million-unique-visitors-in-no#.nu MOMZWDp 5. http://fortune.com/2015/09/29/facts-business-insider/ 6. http://espnmediazone.com/us/espn-inc-fact-sheet/ 14.8 13.6 12 10.5 9.8 6.7 Parenting Health Style Movies Travel Tech Food Beauty Monthly unique, in millions Confidential | For Discussion Purposes Only | 46#47Gemini: Still A Work In Progress Gemini: What Is It? In 2013, Yahoo introduced the world to "Stream Ads". This was Yahoo's first step towards creating its own native advertising solution. Yahoo Stream Ads, which are designed to blend seamlessly into the content around it, are used in personalized content streams across the Yahoo run sites Yahoo said on December 9th that Gemini is now at a $500 million revenue run rate but has never given any financial details to demonstrate this product's success and hasn't said how much of the $500 million run rate comes from cannibalizing other Yahoo revenues ■ ■ I ■ ■ ■ ■ ■ ■ ■ What People Familiar With the Gemini Product are Saying About It: "It's 3 years behind Facebook and Google" "Why are they investing in Search and making search part of it?" "They don't understand search" "Until they reverse their user and engagement trends, their ad products don't matter" "They need to consolidate one ad tech platform like Google has AdWords. Cross-integrate it." "They have all the data they need but they don't employ people to understand how to analyze it" "The revenue they claim to have here replaced Display ads which were higher margin." "Flurry people are great at analytics but don't understand how to monetize" "We don't understand why they recently renegotiated the Microsoft search deal the way they did" "Why aren't they building a Syndication Team to sell display ads for others?" "For employing so many people, they don't know a lot" Source: SpringOwl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 47#48Yahoo Has Promised To Re-create Mobile Search ■ H H ■ Yahoo has said that it thinks it can do mobile search better than Google Yahoo's search efforts are led by a former Googler: 34 year old Enrique Munoz Torres Munoz is the SVP of Search even though ex-Yahoo CEO Carol Bartz outsourced Search to Microsoft in 2009 and all Yahoo search staff left the company Yet now, Munoz's Search group is "one of the largest groups within the company"1 Munoz said his large group is trying to "figure out what search ought to mean" Yet, his group has only been working on it since August The product also reportedly will not be ready until 2017 If this search group is 3,000 people and it will take until mid-2017 to launch this product, it will cost the company shareholders $1.5 Billion We believe this is an inefficient use of shareholders' capital Source: 1. http://www.ozy.com/rising-stars/is-yahoo-really-trying-to-beat-google/65377 Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 48#49The Shift to Mobile: Current Yahoo Apps In App Store Rankings ■ Only 2 Apps in Top 100 Overall: Y! Yahoo Mail t Tumblr Except for Tumblr, all apps pre-date Mayer According to Thelnformation, Mail, Tumblr & Search have 10 million DAUs to its apps and mobile web properties; and Fantasy and Sports crack 10 million DAUS in the Fall and Winter Spring Owl! Asset Management LLC App Store Rankings For iPhone: Reference Photography Finance Apps Apps Rankings Apps Rankings Rankings #78 Yahoo Search Sports Apps Rankings #8 Yahoo Sports #72 Flickr Sports Apps Rankings Source: App Store Rankings for iPhone as of 10/27/15; https://www.theinformation.com/whats-left-at-yahoo?shared=19695e #5 Yahoo Fantasy #39 Yahoo Finance Confidential | For Discussion Purposes Only | 49#50And The Yahoo Apps Are Dropping Fast In iPhone App Store Rankings #7 Highest Ever 05/18/2015 #12 Highest Ever 06/21/2013* Yahoo Mail Y! SpringOwl! Asset Management LLC Tumblr t Note: * One month after Yahoo paid $1.1B for it As of 10/27/2015 Source: Apple App Store #79 Today ‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒ #104 #6 Today Highest Ever 09/06/2013 #6 Yahoo Fantasy Highest Ever 05/20/2014 W YAHOO! Yahoo Sports #150 Y SPORTS Today # 150 Today Confidential | For Discussion Purposes Only | 50#51And The Yahoo Apps Are Dropping Fast In iPhone App Store Rankings #1 Highest Ever 04/30/2015 ‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒ #32 Highest Ever 05/20/2013 Note: As of 10/27/2015 Source: Apple App Store In News Category: In Photography Category: SpringOwl! Asset Management LLC YAHOO! NEWS #38 flickr Today #72 #23 Today Highest Ever 05/22/2015 ‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒ #1 In Search Category: YAHOO! Highest Ever 11/09/2013 In Finance Category: YAHOO! #78 Finance Today #153 Today Confidential | For Discussion Purposes Only | 51#52Yahoo Hasn't Made Shift To Mobile From Desktop 1H2013 1H2014 1H2015 YAHOO! facebook twitter "Not Material" Yahoo's Mobile Revenue Spring Owl! Asset Management LLC $308M Yahoo's Mobile Revenue $485M Yahoo's Mobile Revenue $1,024M Facebook's Mobile Revenue $2,965M Facebook's Mobile Revenue 9.6x Bigger Than Yahoo $5,287M Facebook's Mobile Revenue 10.9x Bigger Than Yahoo $165M Twitter's Mobile Revenue $406M Twitter's Mobile Revenue 1.3x Bigger Than Yahoo $744M Twitter's Mobile Revenue 1.5x Bigger Than Yahoo Source: Company Fillings (10K) - 1- http://www.wsj.com/articles/yahoo-be-careful-playing-in-traffic-1449425043 0 BELL 4:21 PM DOP 22% 6 at would @marksa pk better YAHOO ... BELL 4:21 PM 22% O In Q315, Facebook's mobile revenue grew to 12.5x Bigger than Yahoo's¹ Confidential | For Discussion Purposes Only | 52#53Yahoo Still Lags Far Behind Its Peers In Mobile YAHOO! twitter facebook. 1H2015 Mobile Revenue As % Of Total Revenue Spring Owl! Asset Management LLC 20% 88% 74% Source: 1. Company Fillings (10K) 2. http://www.emarketer.com/Article/Facebook-Twitter-Will-Take-33-Share-of-US-Digital-Display-Market-by-2017/1012274 Confidential | For Discussion Purposes Only | 53#54Mayer's Executive Compensation Package: Mayer is on track to receive $365 million for 5 years of work at Yahoo if she stays on for another year and a half (including her "Make Whole" payments for leaving Google) and the stock ends those 5 years at $40.34 M ▪ The vast majority of that total compensation is based on Yahoo's stock price which is effectively a proxy for the value of Alibaba ▪ The only component of her total compensation tied to Yahoo performance is the annual target bonus of $2 million or $12 million over the 5 years or 3.3% of the $365 million total Source: 1. http://www.forbes.com/sites/ericiackson/2014/08/17/marissa-mayers-compensation-and-stock-selling-not-linked-to-performance/ 2. Company filings (10K & DEFA14) SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 54#55Mayer's Executive Compensation Package: Components of Mayer's Expected 5 Year Compensation assuming stock price at $40.34/share: ▪ Base Salary: $1M annually = $5M ▪ Incentive Compensation: $4M for first year and $2M thereafter = $12M ▪ Annual Equity Awards: ● ½ in the form of RSUS = $77.2M 12 in the form of stock options = $26.1M already sold + $68.7M still held + $63.2M still to be granted = $148M ▪ Make Whole RSUS: $36M ▪ One-Time Retention Equity Award: $77.2M ■ Other Perks: $25K for Mayer's lawyers negotiating against Yahoo's Compensation Committee $50K annually for personal security Grand Total for 5 years: $365M Source: 1. http://www.forbes.com/sites/ericjackson/2014/08/17/marissa-mayers-compensation-and-stock-selling-not-linked-to-performance/ 2. http://www.sec.gov/Archives/edgar/data/1011006/000119312512307595/d384719dex101.htm 3. Company filings (10K, DEFA14, and Employment Contract) SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 55#56Mayer's Recent Stock Selling: ▪ 7 months after Dan Loeb left the Yahoo board, Mayer started using her stock options, selling over $26 million worth of Yahoo Stock Options ▪ She characterized this selling internally at an all-hands meeting as an example of "good governance" because it was part of a 10b5-1 plan, according to someone at the meeting we spoke to Selling is selling Source: 1.Company Fillings (Form 4) Date 2/7/2014 3/4/2014 4/1/2014 4/15/2014 4/30/2014 5/15/2014 5/30/2014 6/10/2014 6/26/2014 7/10/2014 8/5/2014 8/18/2014 9/5/2014 9/15/2014 10/2/2014 10/16/2014 SpringOwl! Asset Management LLC 10/31/2014 11/12/2014 11/25/2014 12/8/2014 12/22/2014 1/8/2015 1/20/2015 4/9/2015 4/16/2015 Total Non-Derivative Securities Disposed (10B5-1Plan) ¹ Amount Bought Buying Price Amount Sold Selling Price $36.83 $18.87 36000 $18.87 36000 $39.53 $18.87 36000 $36.34 $18.87 36000 $33.69 $18.87 36000 $35.86 $18.87 36000 $33.79 $18.87 $34.56 $18.87 $36.04 $18.87 $33.60 $18.87 $34.86 $18.87 $36.10 $19.87 $37.51 $18.87 $39.37 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 $18.87 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 250000 125000 2.http://www.bloomberg.com/news/articles/2015-08-19/softbank-s-arora-to-buy-483-million-of-stock-as-personal-bet- 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 36000 200000 100000 Profit ($) $646,588.80 $743,929.20 $628,750.80 $533,566.80 $611,636.40 $537,044.40 $564,811.20 $618,141.60 $530,200.80 $575,550.00 $620,409.60 $634,989.60 $738,036.00 $42.44 $848,469.60 $40.00 $760,536.00 $37.77 $680,536.80 $45.89 $972,716.40 $50.55 $1,140,418.80 $51.79 $49.45 $51.16 $49.64 $47.62 $46.00 $46.00 $1,185,246.00 $1,101,031.20 $1,162,537.20 $1,107,795.60 $1,035,093.60 $5,426,000.00 $2,713,000.00 $26,117,036.40 Confidential | For Discussion Purposes Only | 56#57When Executives Buy Stock, Shareholders Win ▪ Tim Armstrong invested $30 million of his own money in AOL stock ▪ Nikesh Arora invested $483 million of his own money in SoftBank stock ■ W Henrique De Castro was fired by Mayer 15 months after she hired him to be Yahoo's COO; the total cost to Yahoo shareholders was $109 million¹ Neither Mayer nor De Castro has ever dug into his/her own pockets to purchase any Yahoo stock on the open market SoftPak b gettyimages Semang Spring Owl! Asset Management LLC P Source: 1. http://www.businessinsider.com/henrique-de-castros-compensation-2014-1 http://www.bloomberg.com/news/articles/2015-08-19/softbank-s-arora-to-buy-483-million-of-stock-as-personal-bet- Confidential | For Discussion Purposes Only | 57#58Unnecessary Yahoo Perks Total Half An Instagram ■ ■ ■ All Yahoo Employee's receive a free iPhone For Marissa Mayer's one year anniversary at the company, she gave away 12,500 Jawbone UPS (where she is a board member) ■ Earlier this year, Yahoo was the main sponsor of the Met Ball Gala for $3M to which only Mayer and a couple of Yahoo executives attended¹ IPhone 6 = $9.3M SpringOwl! Asset Management LLC WEDD EDS Dr JawBone UP ≈ $2M Met Ball $3M/Yr M Yahoo also sent Mayer by NetJets with a handful of Yahoo execs to attend Davos. Yahoo was a major sponsor. The only other Internet company sponsors were Google and Facebook which are 100x the size of Yahoo's core business. Total costs were estimated between $1 - 2 million. What was the business case for the Met and Davos? Mayer provides free food for Yahoo's workforce. In Sunnyvale, it's catered by the Uber-Luxe and organic Bon Appetit. At 1.5 meals a day per employee, Mayer's perk has cost $450M over 4 years. That's half an Instagram right there. M The world's largest start-up? What start-up do you know that would spend $108 million a year of free food? Source: 1. www.nytimes.com/2015/05/fashion/will-the-met-gala-make-fashion-love-vahoo.html 2. SpringOwl Asset Management LLC Free Food $450M Davos $1-2M/Yr Confidential | For Discussion Purposes Only | 58#59The Party Is Still Going On... December 2014 Wizard of Oz Party Cost For Just This Photo Shoot: $70K Spring Owl! Asset Management LLC December 2015 Great Gatsby Holiday Party at Pier 48 in San Francisco Cost: $7M Image: Twitter & Google Images Source: http://recode.net/2015/11/11/marissa-mayers-convoluted-vahoo-strategy-theres-no-place-like-home and Confidential Sources Confidential | For Discussion Purposes Only | 59#60According to One Report, 15% of Yahoo's Top Performers Quit in 2015 ▪ TheInformation: 15% of Yahoo's top performers this year have quit of their own volition¹ ▪ These aren't the bottom performers leaving as a result of stack-ranking ▪ These are the best and brightest at Yahoo voluntarily quitting ▪ This is virtually unprecedented in the history of business and speaks to how poorly Mayer's leadership must be perceived internally ▪ This is not sustainable; a change in CEO must be made now before the rest of Yahoo's workforce votes with its feet Yet, Mayer portrays these quits as if she and Ken Goldman orchestrated them: I'd like to now speak about our Q3 results in the context of the key drivers of our business: people, products, traffic, and revenue. Starting with people, we ended the quarter with 10,700 full-time employees and just under 800 contractors, bringing our overall head count down 14% year over year and down 32% over the current management's tenure. We will continue to be disciplined on our head count and our thoughtful work on this area has helped appreciably on expenses. - Mayer on Q315 Earnings Call ■ If Mayer wants to be measured on people, products, traffic, and revenue, she has failed miserably on all 4 over her nearly 4 years Source: 1. https://www.theinformation.com/whats-left-at-yahoo Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 60#61Search Traffic Mozilla and Oracle Deals Have Helped Gross Revenues But Not Net Revenues 1,086,821 Source: Company Fillings (10Q) Spring Owl! Asset Management LLC Q1 1,132,730 1,042,831 Q1 1,225,970 2015 (Q1-Q3) Revenue Ex-TAC 1,040,365 1,043,035 Q2 2014 2015 2015 (Q1-Q3) Revenue Inc-TAC 1,084,191 Q2 1,243,265 2014 2015 1,093,960 Q3 1,148,140 1,002,444 ($) In thousands Q3 1,225,673 ($) In thousands Confidential | For Discussion Purposes Only | 61#62And $2.5 Billion Is Under-water on Stock Buybacks From The Last 2 Years: ▪ Since Dan Loeb left the Yahoo Board in July 2013, all of Mayer's $2.5 billion in stock buybacks are under-water Total Buybacks Year 2010 2011 2012 2013 Current $YHOO Stock Price: 33.2 As of 10/25/2015 2014 Total Value Destruction Per Share: 8.44 Total Value Destruction: SpringOwl! Asset Management LLC Shares 119,000,000 27,476,742 79,585,394 6,350,973 46,471,212 $278,884,321 $2,353,783,669.24 Value 1,749,000,000 416,272,641 1,451.637,587 231,302,437 2,103,287,055 $5,951,499,720 Note: Dan Loeb (Third Point LLC) quit Yahoo's board on July 22,2013- Since then, all of Yahoo's stock buybacks are under-water. Source: SpringOwl Asset Management LLC AVG Price 14.69 15.15 18.24 36.42 45.26 25.952 Confidential | For Discussion Purposes Only | 62#63Marissa Mayer Should Only Be Judged on The Performance Of Yahoo's Core Business In thousands 1,000,000 2010 Note: As of 10/22/2015 Source: ISS Proxy Advisory Services SpringOwl! Asset Management LLC 5-Year Development Cost Trend (2010-2015 LTM) 919,000 2011 22% 885,824 2012 1,008,487 2013 Mayer Hired: July 2012 We will continue to be disciplined on our head count and our thoughtful work on this area has helped appreciably on expenses. - Marissa Mayer, Q315 Earnings Call 1,207,146 2014 1,221,691 2015 YAHOO! ex Confidential | For Discussion Purposes Only | 63#64Marissa Mayer Should Only Be Judged on The Performance Of Yahoo's Core Business Total Display Revenues (2011-2015) ($) In thousands 2,154,886 2010 2,160,309 SpringOwl! Asset Management LLC 2011 Note: As of 10/22/2015 Source: Company Fillings (10K) - 13% 2,142,818 2012 1,949,830 2013 Mayer Hired: July 2012 1,868,035 2014 Total Search Revenues (2011-2015) ($) In thousands 3,161,589 2010 1,853,110 2011 2012 - 43% 885,860 1,741,791 2013 Mayer Hired: July 2012 1,792,861 2014 Confidential | For Discussion Purposes Only | 64#65Marissa Mayer Should Only Be Judged on The Performance Of Yahoo's Core Business In thousands Note: As of 10/22/2015 Source: Company Fillings (10K) SpringOwl! Asset Management LLC 4-Year ex-TAC Revenue Trend (2011-2015 LTM) 2012 Mayer Hired: July 2012 Total Revenue 2013 Americas 2014 EMEA Asia Pacific 2015 6% > -3% - 22% -27% Confidential | For Discussion Purposes Only | 65#66Yahoo Makes its Adjusted EBITDA Look Better With the Aid of IP Asset Sales ■ Over the years, Yahoo has struck a number of IP-related sales with Alibaba and Yahoo Japan which it has been recognizing as high margin adjusted EBITDA. If those gains are removed, the profitability of the core business is far less. Yahoo's termination of past partnerships in the next few months (TIPLA Deal, Sales of Patents, and other IP asset Sales) will bring its adjusted EBITDA back to reality this year with virtually no profits left. Source: SpringOwl Asset Management LLC and Company Fillings (10K) SpringOwl! Asset Management LLC $1,122M Projected Adjusted EBITDA 20151 - $199M TIPLA Amortization For 20151 - $253M - Revenue From Yahoo Japan At 100% Margin - $80M Amortization of Other Patents Sales¹ - $400M Stock Compensation $190M Correct Adjusted EBITDA for 2015 $1.5B 2011 -= Drop In Profitability 26% $1.1B Projected 2015 - 87% $190M Correct 2015 Confidential | For Discussion Purposes Only | 66#67Starboard's "Sell At The Lows" Plan Section IV#68The Starboard Plan Although Starboard previously advised that Yahoo spin-off its Alibaba stake, it recently suggested maintaining its Alibaba and Yahoo Japan stakes and, instead, selling its core business: ● ● ● "The proposed spin-off of Aabaco Holdings, Inc. ("Aabaco Holdings") is not Yahoo's best alternative. Instead, you should be exploring a sale of Yahoo's core Search and Display advertising businesses ("Core Business") and leave Yahoo's ownership stakes in Alibaba Group and Yahoo Japan in the existing corporate entity." Starboard argues that the market is currently valuing Yahoo's core business at 2.2x trailing Enterprise Value to EBITDA ...we believe Yahoo should hire a financial advisor to sell the Core Business as a taxable asset sale..." "We believe the current net cash of Yahoo and the cash generated from the Core Business sale can be returned to shareholders in a tax efficient manner in some combination of share buybacks, returns of capital, and dividends." Source: http://www.prnewswire.com/news-releases/starboard-delivers-letter-to-vahoos-chairman-ceo-and-board-of-directors-300181776.html Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 68#69The Problems With Starboard's Plan ■ Why sell the core business asset now when, by Starboard's own admission, it is trading at an all-time low valuation? ▪ We would prefer a buy low and sell high approach rather than the reverse. ▪ While Starboard's current stake in Yahoo is about $200 million, half of this stake was bought in Q315 likely when the stock crashed below $28/share ▪ Starboard's most recently acquired stake in Yahoo is likely already well in the money; therefore, they are incented to see a quick sale of the company for another $2 - 4/share Longer tenured Yahoo shareholders would be better served with a plan to unlock $30/share in value and not $3/ share Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 69#70Private Equity Has Tried To Buy Yahoo For Cheap Before ■ ■ ■ In 2011, before Dan Loeb announced Third Point's stake, it was reported that Silver Lake and Marc Andreessen wanted to buy Yahoo for $16.50/share or $18 billion¹ Many commentators on CNBC at the time said this price sounded like a "good deal" for Yahoo shareholders because Yahoo was too hard to turn around If Silver Lake/Andreessen had been successful, they would have received not only Yahoo's Core Business, its $9 billion stake in Yahoo Japan, but also its then 44% stake in Alibaba which today would be worth $89 billion When you hear people say that "Yahoo should be chopped up" by private equity because Yahoo is "hopeless", what they're really saying is that Yahoo's public market shareholders should do a wealth transfer to some private equity LPs or public holders of companies like Verizon It's nonsense to think Yahoo can't be turned around as a public company Source: 1. http://allthingsd.com/20111130/yahoo-bidders-come-in-at-16-50-to-17-50-with-plan-to-keep-jerry-yang-staying-on-board/ Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 70#71Starboard's "Sell At the Lows" Plan Isn't Attractive Starboard - a Yahoo shareholder - on Nov. 19/15 argued that Yahoo not spin off the Alibaba stake but instead sell the core business ■ ■ ■ ■ ■ We Disagree With Starboard's Suggestion Because: We don't think their "sell at the lows" argument will be compelling to either the Yahoo board or other Yahoo shareholders Yahoo's stock didn't increase at all the day after the letter was revealed; we believe that's because Yahoo investors don't believe Starboard's plan will work and/or won't be adopted We think Starboard's credibility has been substantially weakened in taking this "sell at the lows" approach We disagree with their projected cost savings estimates of $370 - $500M/year; we think at least $2B in annual savings are possible from headcount reductions and cost cuts While we agree with their estimates about the deterioration of the Core, we can't understand why they would then conclude that now is the time to sell off the core business at its lowest possible value Starboard's plan - at best - will get Yahoo shareholders an extra $3-4/share for their investment (Selling the core at $6B) Our plan will deliver at least an additional $30/share of value to all Yahoo shareholders What Needs to Happen Now? The right turnaround plan and the right partner to help unlock the full value of Yahoo embedded in its current assets A turnaround for public shareholders, not a fire sale for a return and strategies wanting to buy a great asset on the cheap Source: 1. http://www.starboardvalue.com/publications/Starboard Value LP Letter to YHOO 08.10.15.pdf 2. http://www.starboardvalue.com/publications/Starboard Value LP Letter to YHOO 11.19.15.pdf SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 71#72The Downside Risk of Selling/Spinning The Core Yahoo's board announced on December 9th, 2015 that it won't continue with the planned spinoff of its Alibaba stake, as the potential tax bill for proceeding was too great a risk for the directors to assume that responsibility. Instead, Yahoo's board said it would being working on a plan to spin off the core business and the Yahoo Japan stake ■ This would leave just the Alibaba stake as part of the Yahoo stock; the core Yahoo business and Yahoo Japan stake would trade under another ticker Some shareholders think Yahoo's board is now simply going to sell the core The Problem With Simply Selling Or Spinning The Core¹: ■ ■ ■ There is a risk - not a certainty - that if Yahoo Core is sold or spun, the stake in Alibaba would become taxable on the gains from the time of Yahoo's investment in 2005 to today under the Investment Company Act of 1940² Therefore, Yahoo shareholders would owe a tax bill on the gains of the Core as well as the BABA stake Why not instead: ● Start the real turnaround of the Core with new management and a new board to create $20 - 30/share in value for current shareholders? Study the tax issues in more detail with the help of a partner like a Liberty? Yahoo Shareholders Want $30/Share More - Not $3/Share And Full Tax On BABA Source: 1 http://www.thestreet.com/story/13391744/1/yahoo-shareholders-need-a-better-solution-than-the-one-just-proposed.html 2. https://www.sec.gov/about/laws/ica40.pdf Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 72#73A Better Plan For Yahoo Shareholders Section V#74A Yahoo Turnaround for Yahoo's Public Shareholders ■ ■ When Jerry Yang and David Filo agreed to take public shareholders' money in 1996, they made a compact: any future gains created by Yahoo would be shared with those public market investors When you hear people say that "Yahoo should be chopped up" by private equity because Yahoo is "hopeless", what they're really saying is that Yahoo's public market shareholders should do a wealth transfer to some private equity LPs or strategies. It's nonsense to think Yahoo can't be turned around in public just because they haven't for the past 4 years "She tried. It's impossible. It's not her fault" - @jonsteinberg, CEO of DailyMail.com North America on Mayer's efforts to turn Yahoo around on CNBC, October 21, 2015¹ It's not impossible at all, Jon. That's like watching Shaq shoot a few free throws and concluding it's impossible for all NBA players to make free throws Source: 1. https://twitter.com/carlquintanilla/status/656852009094615040 Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 74#75Key Drivers to Unlocking Value In Yahoo's Share Price ($B Unless Noted) How Yahoo Is Valued By The Market Today (Asian Stakes Taxed at 38%) EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 20.4 5.3 SpringOwl! Asset Management LLC 5.5 0 2.8 Mkt Cap 33.9 PER SHARE $35.91 Extra Value Created By Starboard's Plan EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE 20.4 5.3 5.5 0 CORE 6 Mkt Cap 37.2 PER SHARE $39.41 Our Plan E2. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 46.1¹ 9.61 1.5 1.8² 24 Mkt Cap 81.2 PER SHARE $113.41 Difference Between Starboard and Our Plan = 25.7 4.3 1.8² 18 44 $61.45 $4B Cash $1.8B Real Estate $4B Debt Can Retire 228M Shares At $43/Share New Share Count: 716M Shares If our plan is implemented by the company and just the core busin ess is fixed (with no additional improvement in the value of the Alibaba and stakes), we believe that Yahoo's stock would trade about $60/share or more than $30/share higher than the plan advocated by Starboard. Source: Spring Owl Asset Management LLC Confidential | For Discussion Purposes Only | 75 Note: 1. Although Real Estate value is being realized, it is being used to retire shares. 2. Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12%#76Starboard's Plan Sells Yahoo At The Lows; Our Plan Unlocks Meaningful Upside for Shareholders $35.00 $4.411 SpringOwl! Asset Management LLC $22.46² $31.783 $23.474 Current Price Starboard's Plan Core Business Asian Stakes Tax Savings Note: 1 Selling Yahoo Core now at the lows for $6B 2 - 8x EV/EBITDA Multiple for Core Doing $3B EBITDA ($750M Normalized EBITDA plus $2.25B in Headcount Reductions 3- Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12% 4 - Retiring 228 million shares at $43/share from $4B cash, $1.8B in real estate sales, and $4B in debt Source: Spring Owl Asset Management LLC Share Count Reduction $113.41 Potential Total Value Confidential | For Discussion Purposes Only | 76#77Step One: Bring In An Operator As CEO ▪ The status quo is not an option for Yahoo shareholders ▪ $10 Billion in capital has been misallocated over the past 4 years The board likely feels compelled to keep the current CEO because of the high compensation plan they previously granted to her but new leadership is needed ▪ The quickest way to increase the value of Yahoo's shares is to do what should have been done 4 years ago and dramatically reduce the headcount and costs of the company to something sustainable matching current revenues W and EBITDA ▪ Such a move would help create the returns which Private Equity firms are counting on when they bid for the company Why shouldn't Yahoo shareholders hire the operator CEO who Private Equity will hire themselves when they buy the core business on the cheap? Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 77#78Step Two: Replace A Number Of The Directors ▪ This board lacks sufficient experience in tech and mobile They have not exhibited enough "duty of care" to the shareholders for which they are supposed to be fiduciaries They have not shown sufficient oversight and monitoring responsibility ■ They seem not to care that upper executives are leaving the company in droves; have they done exit interviews with any of these departing executives? If so, they should immediately produce their notes to show shareholders for whom they are working ▪ Directors need to use the Yahoo products and be able to critique Katie Couric on Snapchat Discover ▪ There needs to be a new board of directors selected to pick the next CEO; this new board needs sufficient experience in the important areas of media, technology, digital, mobile and OTT Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 78#79Step Three: Bring In Someone Like a Liberty As A Partner ▪ We would like to see someone like a Liberty Media come on to the Yahoo board as a partner for two reasons: (1) We believe the board and shareholders could greatly benefit from tax advice relating to the sizable Alibaba and Yahoo Japan stakes; We believe someone with the expertise like a Liberty would be able to aid in this analysis and, over time, better unlock the value of these stakes rather than the current board making a quick decision ■ ■ (2) Liberty Media gets a 14x Enterprise Value to EBITDA multiple rather than the 2x which Yahoo currently receives on its core business; We think having a partner like a Liberty on the Yahoo board would result in a much higher multiple being given to Yahoo's core business from the market ▪ Someone like a Liberty would likely want to come on to the board through some sort of PIPE transaction and expect to receive board representation ▪ The potential tax advice benefits as well as a likely re-rating upwards in value to the Yahoo core business would still make such an outside partner very attractive to Yahoo shareholders Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 79#80Step Four: Take Headcount Down to 3,000 ▪ Marc Andreessen said on December 6, 2015 that Yahoo is still "dramatically overstaffed" ▪ At present, the company admits it has just under 12,000 full-time employees and fixed term contractors ▪ We suspect that with variable term contractors, this number is much higher ▪ Its annual revenue ex-TAC is around $4 billion Facebook has $15 Billion of revenue in the last year with 11,000 employees Doing Yahoo-like revenue numbers would necessitate 2,900 employees. ▪ Twitter had 3,700 employees and just announced they should fire 300 people because they had become bloated They're doing $2 billion in revenues now ▪ Yahoo grew its headcount significantly in the mid- to late-00s when revenue was exploding ▪ It then added to this headcount even after revenues started contracting ■ ▪ It needs to pull the band-aid off quickly and take headcount down to the appropriate levels given that it should get out of search Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 80#81Step Five: Milk the PC Biz But Focus on Finance, Sports Companies don't die from too much focus; they die from too little ▪ The last four years has seen Yahoo trying to do a little bit of everything ▪ Yahoo should still milk its PC-based revenues (which still account for 80% of its revenues and more of its unfortunately now non-existent profits) coming from Home Page/Mail for as long as it can; just as Tim Armstrong milked AOL's dial-up; but this should be done with the bare minimum of headcount required ■ However, more of an effort should be made to double down on the winners it possesses in Finance and Sports and help invest in growing traffic ▪ Yahoo needs more usable mobile apps for Finance and Sports; they also need to continue to invest in unique content they can syndicate to others (like Buzzfeed does), show off partner content, and develop more helpful portfolio tools Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 81#82■ Step Six: End All Search Investment, Write Off Mayer M&A, Cut Product Development Budget Dramatically ■ After 4 years of wasted investment and nothing to show for it, Mayer has recently promised to make a major investment in reinventing mobile search It's another maddeningly wasteful use of shareholders' cash ▪ There's a very low probability that Yahoo is going to recreate how people search on a mobile device Google and Bing have won that war; Yahoo lost It would be nice if history had gone differently for Yahoo, but it didn't; and we all must live in reality now ▪ The next CEO should focus on: ● ● ● ● ● Laying off all Yahoo staff trying to create a new type of search and simply relying on Yahoo outsourced search deals with Bing and to some extent Google Writing off Mayer's $3 billion in misguided M&A – According to Mayer and Goldman, it's beneficial to Yahoo to write off $42 million for content shows; therefore, it must be 72x more beneficial to Yahoo to write off $3 billion of worthless M&A Mayer has increased product development costs significantly during her tenure and she's now spent $4 billion total over her tenure - but for what? Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 82#83Step Seven: $10 Billion For Additional Buybacks Buybacks for the sake of buybacks don't create value Yet, in the past 4 years, Yahoo has spent $3 billion on M&A, $4 billion on product development, and lost $2.5 billion on stock buybacks since 2013 on prices higher than the current stock price ▪ That's a grand total of $10 billion spent for which Yahoo has little to show ▪ Had they spent that money on buybacks in the first two years' of Mayer's tenure at an average cost basis of $20/ share, Yahoo could have retired 450 million shares or approximately half its total shares outstanding ■ ■ ▪ That would mean that, even at today's currently depressed market cap levels, Yahoo shares would trade above $65/ share instead of $35/share. ▪ At present, Yahoo has net cash of $5.5 billion; we favor seeing them taking this cash level down to their historically normalized cash on hand levels of $1.5 billion and using the additional $4 billion, plus another $4 billion in debt, and $1.8 billion realized from real estate sales on additional buybacks under $45/share ▪ This would reduce Yahoo's share count by 24% to 716 million shares outstanding and potentially increase the value of Yahoo's stock by $23/share Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 83#84Step Eight: Sale and Partial Leaseback of Sunnyvale Sunnyvale is a campus with 1 million square feet of office space ▪ Yahoo owns the property outright Comparable office space in the area leases for $80 - 100 per square foot ▪ The underlying value of the land and office space is between $1.5 -1.8 billion ▪ Yahoo could sell the space and lease back only the office space needed for a sharply reduced workforce ▪ This step is by no means the most important for Yahoo's future; to be clear, Yahoo must fix the problem of having a bloated company and scattered and poorly articulated strategy However, $1.5-1.8 billion is real money and shareholders deserve to have their management team fighting on their behalf at all times M ■ This additional capital can be used to retire additional shares Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 84#85Step Nine: Look for Other Value Creation Opportunities ▪ No more free food to the tune of $450 million over 4 years Yahoo is like a start-up and start-ups can't afford luxurious caterers like Bon Appetit No more lavish parties for employees like the Great Gatsby themed one in December 2015 costing $7M ● ● ▪ No more wealth transfers of cash from Yahoo shareholders to boost the coffers of failed zombie companies on whose boards the CEO sits ■ ▪ No more Met Ball or Davos sponsorships Stomp out the practice of referring traffic off of the Yahoo homepage to external sites with no chance for them to return; it's great for the other sites sucking up Yahoo traffic and not so great for Yahoo shareholders ▪ Build out a syndication display ad business Syndicate Yahoo unique content Properly finish Ad Tech offerings or outsource to Facebook or Google ▪ Go back to the old logo and raise the old Yahoo billboard on the 101 into San Francisco to send a message that the era of Marissa Mayer is now over Source: Confidential Interviews SpringOwl! Asset Management LLC MACANCY YAHOO! Where the world checks in daily. MISS NE? VISIT MET FUCKR.COM/YBELLBOARD Confidential | For Discussion Purposes Only | 85#86The Needed Traits of the Next Yahoo CEO ▪ Relevant Industry Experience in Tech/Digital/Media ▪ A Willingness to go in and mercilessly cut costs to take it down to the studs and build it back up again ▪ Sales Experience and an understanding of who to hire to build a performance-based sales culture ▪ A willingness to fly to New York and Cannes and meet with advertising executives ▪ An understanding of where the world is moving in OTT ▪ Ad tech experience ▪ An understanding of what Wall Street investors expect from management teams (i.e., the antiquated notion of earning more than you spend) ▪ No snobbery when understanding and embracing Yahoo's core audience who lives in "fly over" country and not in the bubbles of high society San Francisco and New York Spring Owl! Asset Management LLC Confidential | For Discussion Purposes Only | 86#87Key Questions For Yahoo's Next CEO ▪ How do we culturally build in "Audience Growth" as part of the fabric of this organization? Buzzfeed has this engrained Yahoo doesn't today ● Do we have the right content-analytics feedback loop in place? How do we get massive distribution for all our content? ▪ Are we really going to build up Ad Tech or are we going to outsource it? If we're going to build it, then let's have a plan that can succeed and make us the 3rd largest player: o We have a large audience o We have some analytics from Flurry but we need much better monetization o Let's fill out the ad tech assets with a credible plan (so we don't miss out buying future Drawbridge's before they're too big) o Let's cross-integrate Gemini so we have one Ad Tech platform If we're going to outsource it, fire people and pick someone to outsource it to (Google or Facebook) ▪ Are we going to shut down, spin off or reinvest in Tumblr? The dreams of increased traffic being monetized didn't pan out because of too much NSFW content Yet Yahoo could do much more with the asset than it has ● ● ● ● ● ● It can't keep on in its current state of limbo Source: Spring Owl Asset Management LLC ● SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 87#88What The Next Yahoo CEO Shouldn't Do ▪ A Hail-Mary Expensive Acquisition That Won't Be Successful ● ● ● ● Mayer's big one was Tumblr; she bought it at the top and didn't properly invest in the asset to make the most of it It would be a huge mistake if any CEO made a "bet the company" decision on buying an expensive property like Pinterest and thinking that this one move will "save" Yahoo → This would be an expensive recipe for failure Big brands and flashy acquisitions won't save Yahoo; Yahoo must save Yahoo Instead, Yahoo simply needs to focus on: o Small, incremental changes that compound over time O Grow the audience/stack organically o Supplement this with very small acquisitions which make sense Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 88#89Potential Buyers Of Yahoo Core? ▪ We strongly believe in the future of Yahoo Core as a stand-alone business ■ If private equity is interested in buying it, you know that there is going to be an immediate wealth transfer from public market investors to private equity LPs or strategics ▪ That said, if necessary, we believe there would be a long list of strategic buyers for Yahoo Core, as the recent buy of AOL by Verizon shows ▪ We believe the list of potential buyers eager to buy the last remaining beachfront property available among digital ■ assets would include: AT&T Comcast Verizon Disney Fox ● Any of these discussions will have to be held in concert with SoftBank and Alibaba, which is partly why we believe someone like a Liberty would be a particularly helpful advisor here Source: Spring Owl Asset Management LLC SpringOwl! Asset Management LLC Confidential | For Discussion Purposes Only | 89#90Softbank Has $5.5B Reasons To Help Retire Yahoo's 35% Stake In Yahoo Japan Current Yahoo Japan EPS Net Income Preferred Stock Dividends Basic Weighted Average Shares Outstanding EPS (Basic) Source: Bloomberg 133,933 Spring Owl! Asset Management LLC 8.86 5,693 Values in Millions (Except for per share items) 23.5 Yahoo Japan EPS if Retired 35% Shares Yahoo Owns Net Income Preferred Stock Dividends Basic Weighted Average Shares Outstanding EPS (Basic) 133,933 8.86 3,700 36.2 Values in Millions (Except for per share items) By retiring Yahoo's stake, YJ Shares would go from Yen 500 to Yen 770 overnight Softbank's 43% stake would immediately jump in value from $9.5B to $15B Confidential | For Discussion Purposes Only | 90#91Summary of Yahoo Action Plan Re-Invest In: 1. Sports 2. Finance 3. A New Audience Growth-Focused Culture 4. A New CEO 5. A New Product-Focused Board 6. Smart small acquisitions Milk: 1. PC biz (Home Page & Mail) 2. Search (Maximize MSFT relationship) Spring Owl! Asset Management LLC Decide On: 1. Ad Tech / Gemini 2. Tumblr 1 2 3 Kill: In House Mobile Search 1. 2. Flickr 3. Long tail of Yahoo properties no one uses anymore 4. Davos & Met Ball Sponsorships 5. Unprofitable Digital Magazines 6. The New Logo 7. Free Food & Perks 8. Bloated Headcount 9. Dumb Expensive M&A 1. Further Study: Spin off of Asian stakes with help of a Liberty like partner Bring Back: 1. The Old Logo 4 5 6 Confidential | For Discussion Purposes Only | 91#92Key Drivers to Unlocking Value In Yahoo's Share Price ($B Unless Noted) How Yahoo Is Valued By The Market Today (Asian Stakes Taxed at 38%) EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 20.4 5.3 SpringOwl! Asset Management LLC 5.5 0 2.8 Mkt Cap 33.9 PER SHARE $35.91 Extra Value Created By Starboard's Plan EL. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE 20.4 5.3 5.5 0 CORE 6 Mkt Cap 37.2 PER SHARE $39.41 Our Plan E2. Alibaba Group YAHOO! JAPAN CASH REAL ESTATE CORE 46.1¹ 9.61 1.5 1.8² 24 Mkt Cap 81.2 PER SHARE $113.41 Difference Between Starboard and Our Plan = 25.7 4.3 1.8² 18 44 $61.45 $4B Cash $1.8B Real Estate $4B Debt Can Retire 228M Shares At $43/Share New Share Count: 716M Shares If our plan is implemented by the company and just the core busin ess is fixed (with no additional improvement in the value of the Alibaba and stakes), we believe that Yahoo's stock would trade about $60/share or more than $30/share higher than the plan advocated by Starboard. Source: Spring Owl Asset Management LLC Confidential | For Discussion Purposes Only | 92 Note: 1. Although Real Estate value is being realized, it is being used to retire shares. 2. Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12%#93Starboard's Plan Sells Yahoo At The Lows; Our Plan Unlocks Meaningful Upside for Shareholders $35.00 $4.411 SpringOwl! Asset Management LLC $22.46² $31.783 $23.474 Current Price Starboard's Plan Core Business Asian Stakes Tax Savings Note: 1 Selling Yahoo Core now at the lows for $6B 2 - 8x EV/EBITDA Multiple for Core Doing $3B EBITDA ($750M Normalized EBITDA plus $2.25B in Headcount Reductions 3- Through working with a Liberty-like partner to realize tax efficiencies with BABA returning to $120/share and YJ increasing in value by 12% 4 - Retiring 228 million shares at $43/share from $4B cash, $1.8B in real estate sales, and $4B in debt Source: Spring Owl Asset Management LLC Share Count Reduction $113.41 Potential Total Value Confidential | For Discussion Purposes Only | 93#94Appendix Section VI#95Corporate Governance Board & Committee Summary Full Board Audit Compensation Nominating Independence 78% 100% 100% 100% Chairman classification Separate chair/CEO Independent lead director Voting standard Plurality carveout for contested elections Resignation policy Total director ownership (000 shares) Total director ownership (%) Percentage of directors owning stock Number of directors attending < 75% of meetings Number of directors on excessive number of outside boards Average director age Average director tenure Percentage of women on board Members 9 3 2 2 Note: As of: 01 Apr 2015 Source: ISS Proxy Advisory Services SpringOwl! Asset Management LLC Meetings 22 0 Independent Outsider Yes N/A Majority Yes Yes 74,515 7.5 100% 1 13 13 10 58 years 2 years 33% Shareholder Rights Summary Controlled company Classified board Dual-class stock Vote standard for mergers/acquisitions Vote standard for charter/bylaw amendment Shareholder right to call special meetings Material restrictions on right to call special meetings Shareholder right to act by written consent Cumulative voting B authorized to issue blank-check preferred stock Poison pill No No No Majority Majority Yes, 25% Yes No No Yes No Confidential | For Discussion Purposes Only | 95#96Board Profile Director Independence & Affiliations Executive Directors On Name Ballot On Ballot Marissa A. Mayer David Filo ✓ Non-Executive Directors Name Maynard G. Webb Jr. Susan M. James Max R. Levchin Thomas J. McInerney Charles R. Schwab H. Lee Scott Jr. Jane E. Shaw Affiliation Note: As of: 01 Apr 2015 Source: ISS Proxy Advisory Services CEO SpringOwl! Asset Management LLC Affiliation Chair Independence Classification Company Non- Independent Non- Independent Company Independent Independent Independence Classification Independent Independent Independent Independent Independent ISS *Indicates director not previously submitted to shareholders for election. Insider Insider ISS Independent Outsider Independent Outsider Independent Outsider Independent Outsider Independent Outsider Independent Outsider Independent Outsider Attend Gen- Age Tenure Term <75% der Ends F 39 2 ✓ M 48 1 Attend Gen- Age Tenure Term <75% der Ends M 59 F 69 M 39 M M 50 3 M 66 F TI 77 3 76 5 2 1 1 2016 1 2016 2016 2016 2016 2016 2016 Outside 2016 Boards CEO 1 0 Outside Boards CEO 2 2016 2 2 1 1 O 0 Key Committees Key Committees Audit Comp Nom Gov M CF Comp Nom Gov F F M M C C с M = Member | C = Chair | F = Financial Expert Confidential | For Discussion Purposes Only | 96#97Board Compensation Profile Note: As of: 01 Apr 2015 Source: ISS Proxy Advisory Services SpringOwl! Asset Management LLC Director Employment, Compensation & Ownership Name Primary Employment Outside Boards Maynard G. Webb Jr. Marissa A. Mayer David Filo Susan M. James Max R. Levchin Thomas J. McInerney Charles R. Schwab Financial Services CEO, President - Yahoo! Inc. M. Mayer K. Goldman R. Bell D. Filo H. de Castro Median CEO Pay Chief Yahoo - Yahoo! Inc. Other Other Financial Services Chairman - The Charles Schwab Corporation Visa Inc., salesforce.com, inc. Wal-Mart Stores, Inc. Retired Retired Applied Materials, Inc., Coherent, Inc. YELP INC. H. Lee Scott Jr. Jane E. Shaw *Local market currency **For executive director data, please refer to Executive Pay Overview. Compensation Profile Executive Pay Overview Executive Title HSN, Inc., Interval Leisure Group, Inc. The Charles Schwab Corporation, The Charles Schwab Family of Funds Base Salary 1,000 600 600 0 27 Total 996 908 Compensation" 476,776 ** 334,982 288,661 309,982 257,951 260,057 262,442 Change in Pension, Deferred Comp, All Other Comp 28 5 5 0 1,177 44 28 Shares Held 39,533 1,039,003 70,761,39 0 47,756 20,691 31,957 320,355 30,383 4,962 Bonus & Non-equity Incentives 1,109 300 300 0 0 60-day Options 1,662 1,056 61,679 2,135,531 3,174,534 15,848 0 0 70,761,39 0 47,756 3,118 0 3,291 0 0 Total 2,849 1,167 101,212 0 36,539 31,957 323,473 Restricted Option Stock Grant 33,674 4,962 11,752 28,507 2,813 9,431 3,282 0 0 0 Voting Power (%) <1 Chief Executive Officer Chief Financial Officer 42,396 13,148 4,187 0 General Counsel 1,204 13,666 Co-Founder and Chief Yahoo Former Chief Operating Officer ISS Selected Peer Group Company Defined Peers Source: ISS. Pay in $thousands. Total pay is sum of all reported pay elements, using ISS Black-Scholes estimate for option grant-date values. Note: Median total pay will not equal sum of pay elements medians. Company Defined Peers are as disclosed. More information on ISS' peer group methodology at www.issgovernance.com/policy-gateway/us-compensation-policy-guidance/. 3,059 920 11,910 <1 7.50 <1 <1 <1 <1 <1 <1 Total Confidential | For Discussion Purposes Only | 97#98Equity Ownership Profile Type Common Stock Ownership - Common Stock FILO DAVID The Vanguard Group, Inc. Fidelity Management & Research Co. SSgA Funds Management, Inc. BlackRock Fund Advisors Capital Research & Management Co. (Global Investors) OZ Management LP D. E. Shaw & Co. LP TIAA-CREF Investment Management LLC Luxor Capital Group LP Northern Trust Investments, Inc. Owl Creek Asset Management LP Invesco PowerShares Capital Management LLC Goldman Sachs & Co. (Private Banking) Norges Bank Investment Management Janus Capital Management LLC Geode Capital Management LLC Starboard Value LP Susquehanna Financial Group LLLP JAT Capital Management LP © 2015 Factset Research Systems, Inc. All Rights Reserved. As of: 01 Apr 2015 Note: As of: 01 Apr 2015 Source: ISS Proxy Advisory Services Spring Owl! Asset Management LLC Votes per share 1.00 Number of Shares 70,761,390 48,125,493 41,556,028 35,791,945 33,601,168 28,750,998 14,647,989 12,434,375 12,172,975 10,635,575 10,631,174 10,393,426 8,837,779 8,484,901 7,164,024 7,143,019 7,041,987 6,824,420 6,807,665 6,706,079 Issued 938,193,314 % of Class 7.56 5.14 4.44 3.82 3.59 3.07 1.57 1.33 1.30 1.14 1.14 1.11 0.94 0.91 0.77 0.76 0.75 0.73 0.73 0.72 Confidential | For Discussion Purposes Only | 98#99ISS Peer Groups Peer Groups ISS And Company Disclosed Peer Groups ISS- Activision Blizzard, Inc. IAC/InterActiveCorp Selected Peers (7) Shared Peers (7) Company- Disclosed Peers (9) Note: As of: 01 Apr 2015 Source: ISS Proxy Advisory Services Symantec Corporation VMware, Inc. Adobe Systems Incorporated Electronic Arts Inc. SpringOwl! Asset Management LLC Intuit Inc. salesforce.com, inc. Amazon.com, Inc. eBay Inc. Google Inc. Oracle Corporation Zynga Inc. Fidelity National Information Services, Inc. MasterCard Incorporated The Priceline Group Inc. AOL Inc. Groupon, Inc. LinkedIn Corporation The shaded area represents the overlap group of companies that are in both ISS' comparison group and the company's disclosed CEO compensation benchmarking peer group. Excludes company peers for which financial data is not available. For more information on the ISS peer group methodology, visit www.issgovernance.com/policy/USCompensation Apple Inc. Facebook, Inc. Microsoft Corporation Twitter, Inc. Peer Group Size Analysis Size (by revenue) of the ISS, company and overlap peer groups. Gray indicates 0.4-2.5 times the company's revenue. 50 Size as multiple of target 40 30 20 10 0 Yahoo! Inc. ▲ Shared ISS Only ● Company Only Confidential | For Discussion Purposes Only | 99