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TABLE OF CONTENTS Yahoo About Yahoo! 1 Q Model Portfolio 7

Yahoo About Yahoo! By James Altucher

I’m adding five picks to the portfolio today, including growth stocks Yahoo! (YHOO:Nasdaq) and Marchex (MCHX:Nasdaq), value stock Liberty Media (L:NYSE), and China stocks Netease (NTES:Nasdaq) and Tom Online (TOMO:Nasdaq). The picks should be bought as a basket, because I’m not saying Yahoo! is going to double from here. Rather, I believe that selectively picking a group of growth stocks and riding them as they continue their high double-digit -- and in some cases triple-digit -- growth, will serve an investor well.

First in the Basket: Yahoo!

I have to say I’m extremely jealous of Jerry Yang and David Filo. I just can’t help it.

All they did was collect bookmarks in 1994 and now they have billions of dollars personally. That said, they earned every penny of it. I’m a heavy user of several of Yahoo!’s services, most particularly Yahoo! Finance and their newest acquisition, Flickr.

Today I’m recommending a Speculative Buy of their company’s stock. Yahoo! has matured as a company.

In 1999 its ad sales team was so cocky they wouldn’t even return calls on a million dollar sales deal. The company changed management, bringing in seasoned media executive Terry Semel, and has been gradually repositioning the company by buying and introducing profitable services such as hotjobs.com.

More recently, the company has made a concerted push in three areas: international, VOIP and the so-called Web 2.0, which introduces collaborative services such as the flickr network.

Yahoo! is almost as much a balance sheet story as it is a growth story.

The acquisitions of pieces of Alibaba and the growth story of Yahoo! Japan add significantly to Yahoo!’s potential balance sheet. Yahoo! is carrying Yahoo! Japan on its books at about $250 million, when in reality the holding is worth (since Yahoo! Japan is public and Yahoo! owns 34% of it) about $10.3 billion. Similarly, it’s unclear what Alibaba will end up being worth.

Furthermore, Yahoo! has a number of initiatives intended to dominate the VOIP space. This area could supercede all of its other areas in terms of earnings growth. On the next page, I present a list, followed by a breakdown of all of Yahoo!’s recent deals and acquisitions.

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Breakdown of Recent Yahoo! Deals and Acquisitions

· Video: Tivo · Local: International local portals and Upcoming.org · BroadBand: SBC and Verizon · Instant Messaging: MSN/Yahoo! collaboration · China: 3721 and Alibaba · Pictures: Flickr · VOIP: Dialpad · Music: MusicMatch · Travel: Farechase · Email: Oddpost and Stata · Other: Konfabulator and Verdisoft

Tivo On Nov. 7, TiVo and Yahoo! announced a service that allows TiVo users to program their digital video recorders remotely using Yahoo!'s television information Web sites. The two plan to offer services, such as photos, traffic and weather, that will be added later on. The deal may lead to more online video collaboration.

International Local Portals On Nov. 7, Yahoo! said plans to buy large stakes in its local portals in three European countries (U.K., Germany and France) and South Korea. The upcoming.org deal is valued at $500 million and will be between Yahoo! and Softbank Holdings Ltd. The deal "demonstrates the confidence we have in our international businesses and our commitment to deliver long-term shareholder value," said Yahoo! Chairman and Chief Executive Terry Semel.

Upcoming.org! Upcoming.org is a social event calendar, completely driven by people like you. Manage your events, share events with friends and family, and syndicate your calendar to your own site. This Oct. 5 deal will help boost Yahoo!’s local content market and adds more users to Yahoo!’s base. SBC SBC and Yahoo! have had a partnership since 2001. Yahoo! will soon introduce a cell phone that aims to merge music, photos and email into one account. The phone will be manufactured by Nokia and will be available as soon as early 2006. They also offer SBC Yahoo! DSL. This deal opens up many new synergistic opportunities for Yahoo!.

Verizon The two companies announced Jan. 17 that they would offer Verizon’s FIOS as a cobranded Broadband service. The multiyear alliance offers subscribers DSL and the new FIOS services, which is capable of the super fast speed of 30Mbps. This is a great opportunity for Yahoo!, as Verizon is a good company -- it 40 million subscribers -- and FIOS will surely be a hit. Finally, Yahoo! will receive monthly per-sub fees as well as revenues form premium subs, searches and ads.

Yahoo! and MSN Yahoo! + MSN = 275 combined users.

The Oct. 12 deal will allow interoperability between the two messaging programs. This adds value via the VOIP opportunity to unfragment the market. The companies will be using the SIMPLE protocol, which is not used by AOL. According to The Radicati Group, AOL has 56

2 TheStreet.com Internet Review November 14, 2005 percent of the IM market as opposed to the combined 40 percent that MSN and Yahoo! command. The key chip in the IM equation is AIM. The deal is somewhat of a defensive tactic against Google’s IM. In August, Google said, “We plan to partner with other willing service providers to enable federation of our services."

3721.com This deal was struck in November 2003 with 3721.com, a leading Chinese software development company that represents another step by Yahoo! to capitalize on the Chinese market. One product is Beijing 3721, a search and email provider in China

Alibaba On Aug. 11, Yahoo! and Alibaba formed a strategic alliance in China. “Under the terms of the agreement, Yahoo! will contribute its Yahoo! China business to Alibaba.com and the two companies will work together in an exclusive partnership to grow the Yahoo! brand in China. Additionally, Yahoo! is investing $1 billion in cash to purchase Alibaba.com shares from the company and other shareholders. The agreement gives Yahoo! an approximately 40 percent economic interest with 35 percent voting rights, making it the largest strategic investor in Alibaba.com. Yahoo!'s investment underscores our long-term commitment to the Chinese market. We believe the combination of Yahoo! and Alibaba is the best approach for Yahoo! to win in this region," said Terry Semel, chairman and chief executive officer of Yahoo! With the Internet in China growing, this is a great opportunity, and it’s best to team up with a local, offering cross-selling opportunities and halo effects.

Flickr In March, Yahoo! said it had a deal with Flickr, an online photo management and sharing application. This certainly plays into the media empire Yahoo! is trying to create, and I believe they are attacking Google here with alternative media, pictures, blogcasts, etc.

Dialpad On June 14, the company struck a deal with Dialpad, a VOIP provider dating back to 1999 that has more than 14 million users registered for its services. This deal solidified Yahoo!’s presence in the VOIP sphere, and its software will be used with Yahoo!’s messenger program.

MusicMatch In September 2004, Yahoo! signed with this music player and service, which adds a music platform to Yahoo!. The best comparison product is iTunes.

FareChase On July 2, 2004, Farechase, a small online travel company that sells B2B software that lets travel agents and corporate booking offices search for flight times, car reservation and hotel vacancies in real time, signed a deal with Yahoo!/ From the FareChase Help page: “Yahoo! FareChase is a web-based travel search engine designed to help you locate the best airfares, hotel rates, and car rental rates on the Internet. Yahoo! FareChase is not a travel agency, it is a search engine designed to save you both time and money by providing you with comparison shopping options from travel providers and other popular travel websites. When you're ready to book, Yahoo! FareChase displays the provider's website so you can make your purchase directly.” This is another effort to compete in its arms race with Google.

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Oddpost Oddpost is a Web-based email application with a news aggregator built in. The news aggregator delivers news like a blogline would, except it comes via mail. The two companies struck the deal in July 2004.

Stata Stata sells an e-mail application called Bloomba that lets people search message text and attachments. Under the October 2004 deal, Yahoo! does not intend to sell the software, they just bought the technology, and this deal came after Google unveiled a search tool for email, word docs and web pages.

VerdiSoft In February 2005, Yahoo! signed a deal with the maker of server software that allows a person's settings and preferences to follow them from office to cell phone, from device-to-device. As Yahoo! begins to push its many services out to a myriad devices, it will want users to have a seamless experience. This helps with the whole media experience, all-in-one idea.

Konfabulator Tony Schneider, vice president of the Yahoo! Developer Network, told MacCentral: “Konfabulator is a JavaScript runtime engine for Windows and Mac OS X that lets you run little files called Widgets that can do pretty much whatever you want them to. Widgets can be alarm clocks, calculators, can tell you your WiFi signal strength, will fetch the latest stock quotes for your preferred symbols, and even give your current local weather. What sets Konfabulator apart from other scripting applications is that it takes full advantage of today's advanced graphics. This allows Widgets to blend fluidly into your desktop without the constraints of traditional window borders. Toss in some sliding and fading, and these little guys are right at home in Windows XP and Mac OS X. Yahoo! said the reason they purchased Konfabulator was that they wanted an easy way to open up its APIs to the developer community and allow them easy access to the information on the Yahoo! Web site. In doing this, Widgets could be built without having to scrape sites in order to get information. What we can do with Konfabulator is wrap these services that we are opening up into an environment that is really easy for people to now become developers.” This deal was made in late July.

Second in the Basket: Liberty Media

I’m bullish on Time Warner, News Corp., IAC/Interactive, Expedia and Motorola. I’ve detailed extensively why I’m bullish on Time Warner at today’s prices and I plan on updating my thoughts in a later article on Interactive Corp and News Corp. That said, the best way to play all of these right now is by buying shares of Liberty Media.

I like the choice of Greg Maffei as CEO. I never could figure out why Maffei moved from to Oracle, just to report to Larry Ellison. That said, his insight helped to define the new Oracle, a company that is not built upon just one product, and has become the aggregator in the software industry.

Meanwhile, Maffei was a star at Microsoft. I was always impressed with the way he would appear to guide down every quarter and then easily exceed expectations when the actual results were announced… before guiding down again. This modus operandi of managing expectations has become the technique of choice now among growth companies, including Google. Maffei is finally going to get his chance to shine and he has no better hands-off guide

4 TheStreet.com Internet Review November 14, 2005 than John Malone to assist him. Let’s not forget that TCI was falling apart when Malone took it over 30 years ago and Malone turned it into the powerhouse it was until he topticked the cable industry by selling to AT&T and still keeping control of his tracking stock at Liberty.

Suffice it to say, Liberty is run by superior investors in Malone and Maffei. The company owns $18 billion in assets and has $10 billion in debts, and the assets it owns are all, in my opinion, undervalued.

Third in the Basket: Marchex

I’m extremely bullish on search engine advertising, which I believe is the one growth area in media advertising. Why? Because with search engine ads, as opposed to Super Bowl ads or even newspaper ads, you can actually model how much it’s costing you, and what campaign is doing the most work to obtain each individual customer. Right now, search engine ads are the cheapest way to acquire customers. As I’ve mentioned before, if I were starting a company right now, and had little or no startup funding, I would start a search engine marketing company.

Marchex CEO/Founder Russell Horowitz has total knowledge of the search space. He was the CEO/founder of bubble 1.0 darling, Go2Networks, which was an aggregator of various popular Web sites that got combined into one portal. When Go2Networks merged with Infospace, the company essentially fell apart in the dot-com bust. However, even Infospace is finding new emergence as a mobile portal. (More on that one later.)

For more on Horowitz’s background and his adventures at Go2Net and Infospace I highly recommend this article: http://seattletimes.nwsource.com/html/businesstechnology/2002199042_dotcon2main07.html

Marchex aggregates a network of local search engines, vertical search engines, and affiliates to connect merchants with customers by helping the merchants place ads across the search network.

The stock is expensive, at almost 10x trailing twelve month sales, but the growth prospects are real and I expect triple digit earnings growth for the next several years. More on this later but I’m recommending it now as a speculative buy.

The China in the Basket: Tom Online and Netease

Again, I will provide more details on this investment in a future article, but I’m adding these two stocks as Buys. This will be our first investment in the hot area of Chinese Internet stocks. I’m nervous about China for several reasons:

-- The government can step in and regulate gaming and other online activities in a heartbeat. -- Foreign shareholders really have no legal or regulatory recourse if investments go sour. There are no real assets to seize, no court system to work their way through in the way an activist would in the U.S. So it’s harder for shareholders to stand up for their rights. -- The market is very fractured, and it’s unclear still at this point who the eventual winners are.

That said, there is the phenomenon known in the VC world as “Chinese Math,” which I think can be applied here. When I was a VC everyone would come in and say something like, “Well, if only 1/10 of 1% of the people in China buy this nanotech powered mp3-refrigerator then we would go from $0 in revenues to $100 billion in revenues within three years.”

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This was almost always organic fertilizer, but in the case of companies like Tom Online, which provides wireless games into the Chinese market, and Netease, which is in online and wireless gaming, the math actually applies and can be seen by the high double-digit revenue growth both companies are experiencing.

Netease operates the gaming site 163.com, which is the ninth most popular site in the world according to Alexa.com. With 50% margins, high double-digit growth anticipated for the foreseeable future and almost $400 million in cash, the company sports an enterprise value over cash flow of less than 15 and I feel it is very cheap here. Netease could potentially be the next net company to hit the $100 mark, and since it’s at $62 now, that wouldn’t be such a bad return.

It and competitor Shanda Interactive (the #2 and #1 gaming sites in China by customers, respectively) both saw their stocks tumble when they released lackluster third-quarter results. Competition has stepped up, and delays in the development cycle of the company’s newest games have slowed them down. But I think this is a short-term blip in the way of the bigger opportunity.

Perhaps the bigger opportunity is with Tom Online, which is a pure play in the intersection between gaming and wireless services. The company just reported a 77% increase in net income, and cash flow in the past 12 months was $55 million on a $1 billion market cap, and it has $126 million cash in the bank. Meanwhile, Tom has been expanding its partnerships, such as its recent deal with Skype.

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INTERNET REVIEW MODEL PORTFOLIO

OPEN POSITIONS Date Rating Initiation Current Simple NASDAQ at NASDAQ Company Name/Ticker Initiated Code Price Price Return Initiation Date Return CallWave 11/07/2005 SP 4.20 $ 4.35 3.57% $ 2,174.84 1.27% CALL E*Trade 10/14/2005 SB 16.28 $ 19.33 18.73% $ 2,055.78 7.14% ET InPhonic 10/10/2005 SP 13.44 $ 11.76 -12.50% $ 2,092.03 5.28% INPC Ipass 10/17/2005 B 5.48 $ 6.21 13.32% $ 2,064.90 6.66% IPAS Keynote Systems 10/10/2005 SB 13.05 $ 12.68 -2.84% $ 2,092.03 5.28% KEYN Microsoft 10/13/2005 B 24.31 $ 27.28 12.22% $ 2,033.28 8.32% MSFT Provide Commerce 10/13/2005 B 22.10 $ 24.57 11.18% $ 2,033.28 8.32% PRVD RealNetworks 10/18/2005 B 7.52 $ 8.04 6.91% $ 2,068.61 6.47% RNWK E.W. Scripps 10/20/2005 B 46.34 $ 47.10 1.64% $ 2,087.80 5.49% SSP Technology Investment 10/19/2005 B 14.73 $ 15.73 6.79% $ 2,048.46 7.52% TICC Time Warner 10/10/2005 SB 18.01 $ 17.82 -1.05% $ 2,092.03 5.28% TWX VeriSign 10/11/2005 SP 20.62 $ 23.90 15.91% $ 2,084.90 5.64% VRSN Coding System: SB, for strong buy; B, for buy; SP, for speculative buy; N, for neutral and S, for sell.

INTERNET REVIEW PERFORMANCE Performance results listed here reflect values of stocks as of the close of the most recently completed trading day. They do not factor in dividends paid, interest earned and actual Total Return 5.55% commissions paid. Results are updated overnight and posted prior to the market open the following business day. The 2005 YTD 2005 Return 5.55% YTD Return figures reflect changes since the beginning of 2005. The Total Average Return figures reflect changes since inception on 10/10/2005.

NASDAQ COMPOSITE

Portfolio Current % Gain/Loss Since 2005 YTD Open Price Inception Price Portfolio Inception Return Nasdaq Composite 10/10/2005 $2,092.03 $ 2,202.47 5.28 % 1.08 % (COMP)

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