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To: Robert Leverton who wrote (36399)	1/24/1999 7:48:00 PM
From: Glenn D. Rudolph	Respond to of 164684

The Internet Capitalist SG Cowen Internet Research 13 At 40% of revenue, clearly S&M can come down, the assumption of which is already in the stock at these levels. For our part, we remain at 41% for 1999 and 39% for 2000, though, like we've said for AOL, those figures could prove to be aggressive. Can Yahoo! eventually get to these levels (especially in light of the increasing returns element inherent to this business) once they reach a level of steady state? Probably, which means that operating margins could get well above management's target of 30-36% over time. Revenue, Like Margins, Could Be Higher… Since AOL and Yahoo! are head-to-head competitors in time, we like to compare their respective abilities to “monetize” their customer base. If AOL is able to generate $10- $12 per subscriber per quarter in non-subscription revenue (advertising and commerce revenue), why should we expect Yahoo! to stagnate at their current $2 rate for their 35 million registered users? Let's see…35 million users today goes to 60 million in 2000, multiple that 60mm user base by a revenue generation rate of $5 and annualize it and, well, you can see where the math leads, which suggests a valuation that could be higher if these conditions prove themselves out. Voting With Their Dollars, Advertisers Are Spending Even More On Yahoo!… Yahoo! increased the number of advertising partners to 2,225, up from 1,950 last quarter, getting something like $34,000 per advertiser in revenue (up from $28,000 per advertiser in Q3). 87% of these advertisers are consumer-focused, with the top five advertising spending areas coming from business services, consumer goods, technology, entertainment, and telecom. Importantly, 94% of Yahoo!'s top 100 advertisers renewed their contracts in the quarter (up from 90% in Q3), giving Yahoo! one of the lowest churn rates for advertisers around. Eyeball Competition, From Old And New Media Alike Should Dominate 1999… Like 1998, the remainder of the year should prove to be quite active on the competitive front, which should keep the Street focused on Yahoo!'s prospects in an increasingly crowded world. Just this past week, Disney and Infoseek launched their Go.com network to much fanfare in NYC and NBC, with it's Snap! investment, still has a nice sized portal branding effort underway. Of course, AOL and MSN are out there too, and it seems that MSN has finally started to get their act together on the portal front. Investors would be wise to not under-estimate Microsoft in this their third effort on the portal front (for a longer discussion on MSN's turn-around, please see The Internet Capitalist dated 11/06/98). With the signal-to-noise ratio rising in the portal space, Yahoo! will need to continue to focus on building its brand, which is the reason we think that the S&M budget remains the biggest wildcard for 1999. YHOO Sets 2-for-1 Stock Split Shareholders on the record date of Jan. 22, 1999 will be entitled to one additional share for every share they own on that date. The date on which the split shares will be reflected on Nasdaq trading prices is Feb. 8, 1999. Yahoo! Invades DC Earlier this month, Yahoo! opened an office in Washington, DC to serve the government sector with a focus on public policy and legislative initiatives pertaining to the Internet (in other words, their lobbying). Because Yahoo! is one of the more forward-thinking companies in our universe, it looks like the battle for Internet hearts and minds (or rather the access to them) may increasingly play out in DC rather than on the PC. We certainly hope that Yahoo!'s corporate culture remains