Jerry Yang, CEO and Chief Yahoo!

Thank you Marta. Welcome and thanks for joining us on the call.

In October, we outlined our strategy to achieve a significant multi-year transformation of Yahoo!'s business, in order to capture the large and growing market opportunity that we see ahead for the Internet. We're making good progress executing on this strategy and I'm confident that we're headed in the right direction. You'll recall that we identified three strategic objectives to accelerate our growth and create long-term value for Yahoo! Shareholders: to become the starting point for the most consumers on the Internet, to establish Yahoo! as the must buy for the most advertisers and to deliver industry-leading platforms to attract the most developers. We are seeing early signs of success as a result of this clear new focus with core business areas growing faster in the second half of 2007 than the first half. To build on this momentum, I will discuss our investment priorities for 2008 aimed at priming the pump for key initiatives and the technologies that will fuel them. Sue will provide an update on how we are executing against these objectives and Blake will take us through our financial performance and 2008 outlook. I will conclude with a few key takeaways before opening up the call to Q&A.

In the fourth quarter, we delivered financial results slightly above our expectations. However, what may not be as evident in our numbers are the underlying trends that reveal what we believe is building momentum in our core business. We saw another quarter of healthy growth in our own and operated or O&O sites in both search and display higher than the first six months of 2007. Our total O&O marketing services revenues grew 20% year over year driven by promising trends in both display and search which Sue will discuss in more detail with you in a moment. Our efforts to build a large-scale premium display advertising network and improved search monetization are beginning to pay off. Let me underscore that we are making profound fundamental changes to virtually all aspects of our business, from building a definitive open advertising network to creating world-class platforms that power our products and empower the world's developers to pursuing broad partnerships on and off Yahoo!'s O&O sites. We believe these are all significant forward thinking and game-changing investments cemented in a long-term strategy that we believe is starting to bear fruit. This sort of transformation takes time, but we have the talent and a strong cash flow to succeed.

Looking to 2008, we are taking an aggressive investment posture, prioritizing and allocating resources towards our key growth drivers. We are confident that this approach would generate the best possible long-term return. We are investing in some of the most important pieces of our advertising platform as well as our starting points to allow us not only to compete but to differentiate in the marketplace. First on advertising. This is a pivotal time for our industry and for Yahoo!, as the online advertising market undergoes a major shift in audiences, advertisers and publishers engaged in new and exciting ways. This market is still young and expectations for growth are significant. Many projections have the online ad market doubling in the next 4 years. As an Internet leader, we have the unique opportunity right now to get ahead of the curve and capture significant share of the market's growth, provided we make the necessary investments. With consolidation favoring only a few players, we believe Yahoo! is in a strong position to become one of the leading advertising network and platform companies.

Our formula for achieving that goal is based on the strategic decision we made last year, to internally build the leading advertising network platform supplemented by strategic acquisitions like Right Media and BlueLithium. We were deliberate in choosing the build strategy as it provides the best opportunity to leverage our market strengths, our leadership in display advertising, our growing network of high-quality partners, a uniquely integrated approach to display and search, and our ability to leverage insights across consumers and advertisers. Continuing to build and differentiate this platform is one of our key investment priorities in 2008. With portions slated to be launched in the back half the year, it's our goal to accelerate our overall advertising revenue growth by the time we exit 2008. Our second investment priority is aimed at improving the experience of our key consumer starting points. We believe the more relevant Yahoo! experience will simplify our users' lives on the Internet. Our goals are to leverage our strength in the front page, My Yahoo!, Mail, Search, And Mobile and anchor properties like News, Sports, And Finance to create the most compelling, innovative products and services and to leverage our new One Yahoo! approach to become more nimble and unified in that effort.

Underlying our starting point investments, we are creating a platform that allows Yahoo! services to become more scalable and flexible while opening them up to third parties. You can expect to see continued launches and progress against this starting point and platform initiatives throughout the year. As Blake will discuss in more detail, our outlook assumes substantial investment in our biggest growth opportunities. At the same time, we are conducting a strategic work force realignment by mid February that will help us more appropriately allocate resources against key initiatives. This is a necessary next step in our transformation. Rather than across the board cuts, we will make targeted reductions alongside targeted investments and plan to eliminate redundancies and bureaucracy and redeploy talent. I am committed to installing a culture of continuous improvement in our operating efficiencies, constantly challenging all Yahoo!s to seek new streamlined ways of approaching our business.

I strongly believe that increased investment is the only appropriate measure at this time. Investment is the only way we can capitalize on our unique position, build market share and achieve sustainable revenue growth. As we make the necessary investments to fund our long-term growth, we are also making some deliberate moves with respect to our broadband partnerships that will impact our 2008 outlook. These relationships were the genesis of our partner of choice model more than six years ago. At their core, they paired the strength of Yahoo! and our broadband partners to create a more vibrant Internet service and help transition millions of consumers to broadband. We are enhancing and expanding these relationships to provide innovative connections both on and off the PC, while ensuring that the agreements reflect market dynamics and economics. Today, we are pleased to announce that we have extended our partner relationship with AT&T to be their ad platform partner in search and display for their portal and mobile platforms. This also represents a great milestone in our starting point strategy. Sue and Blake will provide more color on these revised agreements, but broadly speaking the new terms aligns our mutual incentives to benefit both partners more favorably over time.

We see 2008 as key year in our transformation, an opportunity endowed [ph] the basis of our future growth. We expect that we will exit 2008 with many of the priorities I've outlined deployed in the marketplace. It's important to know that underlying the transformation we are making, we expect our core business, which excludes the effect of the broadband partnership and our sale of Overture to Japan to grow in the mid to high teens. We strongly believe that the steps we are taking and the investments we are making as well as unrelenting focus on execution can translate into double-digit cash flow growth beginning in 2009. Sue will get into the operating measures that can put us in that position.

To conclude, we have a real sense of urgency about addressing the opportunities we face. We continue to make brisk progress against organizational, strategic, market, and talent initiatives. On that note, we announced today the appointment of Ari Balogh as our Chief Technology Officer. He will join us in February to lead Yahoo!'s global engineering organization and manage all technical operations. Ari joins us from VeriSign where he was recently named one of the Top 25 CTOs by InfoWorld Magazine. I'm personally very excited to fill this important role with such a strong talent as Ari. As we continue the most important transformation in Yahoo!'s history, I'll also like to thank the thousands of Yahoo!'s around the world who remain so dedicated to our core purpose. I continue to be inspired by their passion and the fighting spirit. There is much work ahead, but we are encouraged by our progress and we'll continue to lay a strong foundation for long-term growth and the creation of shareholder value.

With that, I'd like to turn the call over to Sue.

Susan Decker, President

Thanks, Jerry.

We are excited by our plan to transform Yahoo! and we are pleased with the actions already underway and the progress we are making. We are putting substantial talent and the resources behind two of the major strategic objectives that we believe will drive our next leg of growth becoming the starting point for the most users and becoming a must-buy for the most advertisers. I'm going to focus my comments today on how we are executing on those two strategic objectives and also how we are thinking about resource allocation.

Let's begin with the user and starting points. Consumers' web experiences have become deeper and richer. They are most social, more mobile, and more open. People seek out and find content from multiple sources, sites and social networks. Consequently they are gravitating toward those starting points that will help them simplify, yet also tap the broad richness of what the web has to offer. These starting points may send people to the far reaches of the web, but they come back to them because they satisfied our needs to communicate and find things on a daily basis. Not surprisingly given the criticality and frequency of these starting points to users, they tend to attract the vast majority of the ad revenue on the web. Therefore we are placing an increased emphasis on bringing all of the webs capabilities together in a way that is personally relevant and simple. For Yahoo!, the five properties that are most critical in this regard are our home page, Search, Mail, My And Mobile. There are also a few anchor property verticals like sports, finance, and news that drive traffic to those starting points and therefore play an essential role in our strategy. We believe that by leveraging Yahoo!'s enormous scale, insights and deep relationships with users and employing an open approach, we are uniquely positioned to become the most frequent online starting point for users. To bolster this focus and our ability to execute on these most important services, we are de-emphasizing opening up to third parties, or outsourcing many of our other properties and initiatives. For example we discontinued or de-emphasized almost a dozen properties, including photos, 360, brand universe, premier music, podcast, directory, voice and others. We've also decentralized marketing, consolidated our video development, aggregated lifestyle resources and moved Answers development to Europe to better optimize resources. You'll see more of this in the future.

As a result of this effort to de-prioritize or shed our non-core operations, we are looking at third party services such as comScore to assess unique users or time spent. The aggregated figures may not tell the story of what's happening and the key value creating starting points for consumers and advertisers. Our internal log show that the metrics we've discussed with you in the past such as uniques and page views continue to grow in the double-digits in Q4 with unique users now topping 500 million and page views above 4 billion per day. With consumers assessing the web in so many ways, we've looked for a more unifying global metric that is most flexible across Yahoo!'s and our partners' properties and useful across multiple devices and geographies. We expect to use visits to Yahoo!'s global starting points and anchor sites to be the most relevant metric going forward. Visits are defined by comScore as the number of times a unique person accesses content within an entity, and they capture the fact that consumers may visit a property from multiple times a day from different locations or devices, not just whether they touched a side once per month. For individual properties or geographies, we may still reference unique users or page views or queries as appropriate. Our goal is to grow visits to key Yahoo! starting points and properties by approximately 15% per year over the next several years.

Now, let me briefly discuss examples of the progress we are making toward this call. Let's start with our front door the Yahoo.com home page. In the fourth quarter, our internal estimate of US users were strongly in the double digits year over year on our front pages. This was driven by deliberate efforts to program relevant information from across the web, regardless of whether the landing page is a Yahoo! owned side or a third party side, which we increasingly intergraded into a more open home page since October. This focus has resulted not only in growing usage but growing engagement as measured by page views per user and click-through rates. The front page continues to be the most visited page on the Internet with almost 2 billion visits per month in the US alone. In Search, since making significant improvements to our algorithmic technology in Q3, we are making search more visible to our users. We start with the front end, the combination of more prominent search box on Yahoo!'s front pages, our new search assist technology, and the integration of content and search results are driving strong growth and searches on our front pages. Our ambition in search is to change the game and in so doing to gain query share, supporting our broad objective to be the primary starting point on the web.

Innovation in search has a long way to go. Most user still don't get what they want on their first search with current state at art search algorithms. We think Yahoo! is in a wonderful position to provide an inaugurated experience that goes beyond search to actually completing tasks. Although we haven't elaborated on this much publicly, on the back end, we have made a major investment in open source development of grid computing which provides us such substantially greater scalability and faster iteration on technologies. This is already dramatically impacting our competitiveness in algorithmic search and advertising. For example, in some cases, we have an order of magnitude 10x improvement in indexing speed. This has been a multi year project and we are on track to have our future search and advertising systems built on the new infrastructure, positioning us well for acceleration in Iteration and experiments that are likely to lead to significant future product enhancements.

In Mail, Yahoo!'s been a worldwide leader for ten years with hundreds of millions of users visiting our site, well over a billion times every month. There are a number of very existing developments in the pipeline for this critical product. And Jerry showed some of those concepts at CES. As he illustrated, the team is focus on creating a smarter inbox by helping users more easily manage communication from the people who matter most and by opening mail to third party applications. We have remained at the forefront of innovation in mail, and we continue to see strong momentum particularly for our new mail service with integrated SMS and instant messaging services. We see a lot of opportunity for Zimbra as well. It's enjoyed continued success in penetrating the ISP and university markets and we're pursing opportunities to leverage this technology framework to the benefit of all Yahoo! Mail users. In Mobile, we proudly announced Yahoo! Go 3.0 at CES a few weeks ago with a cleaner and simpler user interface and also begin providing access to third party widgets from leading publishers through Yahoo! Go and the new Yahoo! Mobile front page, a scaleable and open way to improve the user experience. At the same time, we introduced a new widget developer platform which we expect to accelerate the availability of rich mobile services and applications to our millions of mobile users.

Lets now shift our attention form our starting point strategic objective to our must buy objective. Fragmentation of media usage amount consumer presents a key challenge for advertisers as they seek the right way to engage in a dialogue with their most valuable audiences without their message getting lost in the noise. We are doing more than ever to offer our marketing partners the ability to reach not only the hundreds of million of users on Yahoo!'s marquee properties, but also the millions more users that start their web experiences elsewhere, which takes friction out of the buying process for our marketers. Our long range objective is to grow market share of total online advertising becoming a must buy platform for the most marketers, both on and off our sites, implying that we must see and touch much more demand inflows directly to Yahoo!. While we've historically gauged the success of our ad business by focusing on metrics related to our owned and operated sites, in order to better drive execution against this objective, we are now introducing a goal to increase the percentage of our total online advertising demand that we touched to 20% of our addressable market over the next several years from an estimated 15% in 2007. We define demand touch to include GAAP revenue that we earn on and off Yahoo! and the ad spend that flows through Right Media.

Now, let me briefly discuss some examples of progress for toward achieving this goal. Starting with Panama, the financial gains that we have seen in the last two quarters continued in Q4 with another quarter of roughly 20% improvement in US O&O RPS, consistent with what we saw in Q2 and Q3 and US O&O search revenue growth of over 30%. In international O&O search, we also saw RPS gains accelerate into the high teens. We continue to rapidly launch new enhancements and tools such as domain controls and ad quality filtering, both of which should lead to improved lead quality and advertiser ROI over time, but which may actually hit limited revenue growth in Q4. As we seek other ways to drive meaningful improvements in relevance for consumers, we have been focused on page optimization on the front end as well, so users see fewer, but more relevant ads.

Turning to display which characterizes about 90% of our ad inventory on the web and for Yahoo!, we're continuing to build out our network of premium partners, including eBay, Comcast, AT&T and more than 550 newspapers. In Q4, we went live selling inventory on Comcast sooner we expected, and with many of our newspaper partners as well. We've seen some of Yahoo!'s biggest advertisers funnel an increasing share of their marketing spending across Yahoo!'s extended network of partners as we rapidly established a position as one of the leading online ad networks. We successfully migrated the majority of Yahoo!'s non-premium inventory into the Right Media Exchange in Q4 and as anticipated that inventory continues to sell well in the new environment. We also closed our acquisition of BlueLithium and integrated its sales teams and ad products into our go to market offerings. We're pleased that these actions translated into strong results. Display revenue had another good quarter, up roughly 20% in Q4. Our fourth quarter organic growth was partly consistent with what we realized in Q3 and well above the first half.

The supply side metrics in Q4 were a continuation of what we've seen in the past year. Ad impression growth was strong and we've seen a continuation of shifting from guaranteed placement to non-guaranteed buys. US CPMs on a like unit basis increased year over year across the board. The pricing is up sharply for our class two or non-guaranteed inventory. Importantly, the price of non-guaranteed graphical ad pricing has more than - has closed to tripled since early 2006, while guaranteed has risen modestly, narrowing the gap between these two price points from nearly 10x to less than 3x and making guaranteed pricing more comparative with broader market conditions. By category, the trends were more variable in Q4 than in Q3. We experienced solid and in many accelerating growth in a number of our largest categories in Q4, including auto, pharma, telecom and consumer packaged goods. At the same time, we experienced declaration in growth or year over year decline in financial, travel and retail, the areas you would have expected to be affected by the broader economic issues. On balance, the diverse nature of our ad base has produced strong overall growth and has tended to offset pockets of weakness that have cropped up from time to time. The majority of the key categories we serve are projecting on line growth in budgets in 2008, and we've seen a solid start to the year. At the same time, we are obviously watching economic developments very closely.

Looking forward we are investing in next generation tools, technology and support infrastructure in display to support our growing off network partner business. It is fair to say that building a scalable monitorization platform across display advertising to supplement and ultimately integrate with our search platform is our highest priority area of investment. These initiatives leverage Panama's application platform in data systems, response prediction technologies, computing infrastructure and development talent. In order to accomplish the transformation of Yahoo! into a key starting point for consumers and a must buy platform for advertisers, we need to catch up in some areas where we had fallen behind. We needed to wean ourselves of various non-competitive or low quality business development deals in our P&L, and we need to begin investing to truly differentiate. First to catch up and get the parity over the last 12 to 24 months, we've taken a number of steps including a huge undertaking at Panama in the grid computing core infrastructure required to accelerate development of our search and marketing platforms. Second, to evolve to a higher quality, faster growing revenue base in the future, we've restructured many business development deals in two major categories. First in search, we've established a higher quality search affiliate network by deliberately eliminating revenue from partners that we didn't feel enhanced the network as a whole, and we've also become much more market competitive in our pricing to our partners. To that end, we've re-negotiated TAC rates for our affiliate partners from approximately 72% in '06 to a more market competitive level of close to 80% in '08, excluding Yahoo! Japan. Second, we renewed and expanded our relationships with our broadband and cable access partners. We structured these new partnerships to reflect current market dynamics and putting BT Rogers and AT&T among our key ad network partners with revenue sharing agreements, that are NPV [ph] positive to Yahoo! relative to the past deals over the full term of the agreements notwithstanding a drop in year one revenue. Third, to differentiate and innovate, which is what is now occupying a much greater share of our development in investment dollars, we are intensely focused on improving product excellence and relevance across our key starting points, building an off network integrated display product and a scaled open exchange that reduces friction for all and increases pricing and liquidity for inventory owners, and going to market with an integrated simple customer solutions oriented approach to leveraging our insights.

While our competitors have chosen to pursue a buy strategy to advance their advertising business objectives and pay for it primarily through their balance sheets rather than their P&L, we are executing primarily a billed strategy which should enable us to take advantage of the convergence of search and display in a way that'll be truly differentiating versus existing legacy systems. Our advertisers have recognized the strategic advantage of being able to target their audience with the right ad in the right place at the right time and in the most compelling format. We believe this requires platforms specifically designed to deliver on this promise at scale with new levels of insight transparency and openness. We believe the ROI on these investments will be very favorable just as the ROI in Panama and behavioral targeting initiatives have been in the past. Although our expected non-TAC cost structure in '08 is less than that of our major competitors, we feel we can be more efficient by better aliening our priorities against tightly defined objectives and by embarking upon a strategic work force re-alignment that re-enforces this focus. At the same time, we'll continue to aggressively attract higher talent and deploy resources in support of our major strategic initiatives, because the market and the returns are very large if we accomplish our objectives.

In conclusion, we are working intelligently to transform Yahoo! on multiple fronts. We are streamlining our organization, empowering leaders and improving processes to ensure focus, speed of execution and accountability. We are prioritizing our resources around key starting points and creating differentiation in those products. And we are pursuing meaningful incremental monetization opportunities for our inventory and that of our partners. Although there is much more to do, we are excited that we are increasingly moving from a catch up mode to one of true differentiation. And as we move beyond the renegotiated business development deals, that helped our growth in '07 and will again in '08, the favorable growth in our underlying core businesses is likely to become much more visible.

With that, let me turn it to Blake to provide more detail on our financial results and outlook.

Blake Jorgensen, Chief Financial Officer

Thanks Sue.

First I'll walk you through the fourth quarter and full-year 2007 results and then we'll spend some time on the 2008 outlook. I'll begin with free cash flow, which was $330 million in the fourth quarter and $1.337 billion for the full year. These figures reflect receipt of a $52 million payment from Rogers Communications related to the successful renewal of our broadband partnership. Excluding this one-time up time item, our free cash flow for the full year was $1.285 billion. For the year, free cash flow excluding the one-time Rogers payment represented 67% of our operating cash flow. Our cash and marketable securities balance was $2.4 billion at year-end. We invested over $600 million in acquisitions that closed during Q4 including BlueLithium and Zimbra and we repurchased over $200 million of stock in open market transactions. For the full year, we invested nearly $1 billion in acquisitions and repurchased over $1.8 billion of our stock. In addition to our cash and marketable securities balances, our equity interest in several entities provided incremental balance sheet value. The value of our direct and indirect interests in the publicly traded securities of Yahoo! Japan, Alibaba.com and Gmarket were valued at approximately $14 billion in the public markets, or over $10 per share at year-end. These figures include the value of the shares of Alibaba.com held by Alibaba group of which we own 40%. These figures do not include estimates of the value of Alibaba group's other privately held businesses such as Taobao, AliPay and China Yahoo, which we believe provide additional value. Let's now move to the P&L.

While we are focused on revenue ex-TAC in recent years, we increasingly view GAAP revenue as an important measure of our overall advertising reach as our display advertising partnerships become a more strategic part of our overall business. GAAP revenue as $1.832 billion in the fourth quarter. Revenue ex-TAC came in at $1.403 billion advancing 14% year over year. Of the 14% growth, acquisitions and exchange rates each contributed approximately 2 points. Beginning with our marketing services business, fourth quarter revenue ex-TAC was $1.161 billion, up 14% versus the prior year. Owned and operated marketing services revenue was up 20% over last year with O&O search up nearly 30%, reflecting continued strong performance from Panama. O&O display grew in the high-teens about the same pace as last quarter and above the levels we saw in the first half of the year. We believe that these core components of the business are growing at very healthy rates. As Jerry and Sue noted, some of our 2008 investment plans are designed to help us scale for the greater great opportunities we anticipate in the next few years as marketers continue to move their budgets online.

Revenue ex-TAC from the affiliate search business continues to decline during Q4 as we expected. As we previewed on the October earnings call, this business represented approximately 10% of total revenue ex-TAC in Q4. We expect a moderate decline in this business in 2008 as we continue to work through rising TAC rates and network quality initiatives. Offsetting this trend in the affiliate search business, we expect to see a favorable impact from our off network display initiatives during 2008. While this business is still relatively small, we expect good growth as our major partnerships gain momentum. Ultimately, we believe that our display partnerships and the Right Media Exchange will help pricing for both our partners and our O&O inventory.

Now, let's look at fees revenue. We produced $242 million of fees revenue in the fourth quarter, up 14% from the same period last year. Growth was relatively consistent across the various components of our fees business, which included our broadband partnerships, our small business products, royalties we received from joint venture partners and other premium consumer services. We ended the year with $19 million paid relationships, up 17% year-over-year, and up 300,000 from Q3 levels. Looking at our international results, revenue ex-TAC grew 13% during the fourth quarter or 5% excluding the impact of exchange rates. Our international O&O marketing services revenue grew in the high-teens during the quarter driven by strong display growth and O&O search gains helped by the Panama roll out. International growth was negatively impacted by the affiliate trends I mentioned a moment ago. Turning to profitability, operating cash flow or OCF came in at $527 million producing global OCF margins of approximately 38% for the fourth quarter. Our fourth quarter results were impacted by certain legal settlements totaling approximately $15 million, which were above our normal run rates. For the year, we generated $1,927,000,000 of OCF. Our effective tax rate for the quarter was 33.4%. Our effective tax rate for the full-year was 39.7%. This reflects a normalized annual rates of approximately 46% offset by some one-time items. Our cash tax rate for the year was approximately 17%.

Now, that brings me to our business outlook. Before moving into the details, I would like to outline a few trends and one-time factors that are affecting our expectations for 2008. First, as a reminder, we sold Overture Japan to Yahoo! Japan in Q3 2007. We continue to provide search advertising and support services to Yahoo! Japan in exchange for a service fee based on revenues from Yahoo! Japan's enhanced offerings. We expect GAAP revenue as a result of this transaction to decrease approximately $110 million to $130 million per quarter compared to our run rate prior to the Overture Japan sale. Our revenue ex-TAC, however, is expected to decline only modestly and we expect this to be more than offset by the lower cost from having sold the Overture Japan business and related workforce to Yahoo! Japan. Overall, we anticipate that the deal will be modestly accretive to OCF in 2008 and grow in profitability over the life of the deal. Second, our outlook reflects the evolution of our broadband partnerships from a premium service model to an ad revenue sharing model. We renewed our BT and Rogers partnerships during 2007, and as Jerry noted, we announced the renewal of our AT&T partnership today. The market has clearly moved to an environment in which ad spending or ad revenue sharing is the prevailing model and we are evolving our partnerships accordingly. As a result of the renewal terms of these deals, we expect our GAAP revenue to decline modestly and our aggregate revenue ex-TAC from the broadband deals to decline by approximately $150 million to $200 million compared with our 2007 run rate. We anticipate an upfront payment of between $300 million and $400 million from AT&T, and we expect to recognize that revenue from this payment and the Rogers $52 million upfront payment over the terms of the respective contracts. While the near-term economics of the renewal will impact our 2008 revenue, our OC and OCF, we expect the overall economics of these renewals to be positive. The partnerships will provide an excellent platform for sustainable growth in high-quality traffic and advertising revenue and will create greater value for Yahoo! over the life of the partnerships.

Third, we expect our tax rate for 2008 to be in the range of 44% to 46%. We expect our 2008 cash tax rate to be between 17% and 20%. And fourth, our outlook contemplates a workforce realignment of approximately 1,000 people that we will be implementing in mid-February. We expect to record a cash charge of approximately $20 million to $25 million during Q1, which is outside of the outlook we are presenting today. During Q1, we also expect to recognize our proportionate share of Alibaba Group's one-time gain related to the Alibaba.com IPO. As a result, we anticipate that our equity earnings will reflect a gain of approximately $450 million to $550 million. This item is also not reflected in our outlook, as it will not affect revenues or OCF. For the remainder of 2008, we will provide quarterly updates to our GAAP revenue and OCF outlook. Beyond Q1, we will no longer provide revenue ex-TAC outlook, as we are increasingly managing our business around GAAP revenue. With those factors as a background, in our outlook we expect GAAP revenues to be in the range of $1.680 billion to $1.840 billion for Q1. We expect revenue ex-TAC to be in the range of $1.280 billion to $1.380 billion for the first quarter, up 12% at the midpoint. For the full year, we expect GAAP revenue to be in the range of $7.2 billion to $8 billion and revenue ex-TAC to be in the range of $5.35 billion to $5.95 billion, up 10.5% at the midpoint. We expect operating cash flow of $400 million to $450 million for Q1 and $1.725 billion to $1.975 billion for the full year.

Turning now briefly to free cash flow, we anticipate a full-year 2008 range of $850 million to $1 billion, reflecting capital spending for 2008 of approximately $675 million to $775 million. This outlook does not include the expected payment from AT&T that we spoke of before. We view this as an evolutionary and transformative year for Yahoo!. Despite some of the structural changes in the business we are implementing in 2008, our outlook reflects strong underlying growth in our core O&O marketing services business and some very positive though early trends in our emerging off-network display advertising business. Excluding the effects of the broadband partnerships and our transaction with Yahoo! Japan, we expect revenue growth in the mid to high teens. We are continuing to invest in the important initiatives that Jerry and Sue mentioned, which we expect to help us achieve our goal to returning to double-digit operating cash flow growth in 2009 and beyond. Our top priority is to maximize the long-term value of our assets and we are confident that our significant investments this year will pay off in the form of long-term value creation.

Now I will turn the call back to Jerry.

Jerry Yang, CEO and Chief Yahoo!

Thanks, Blake.

Let me conclude by emphasizing a few key points we covered on the call. First, this is a pivotal time for our industry and Yahoo!. We plan to take advantage of a unique window of time in the growth of online advertising market to get ahead of the curve and capture a significant piece of the market and create value for our shareholders. Second, steps we have taken represent, profound fundamental changes to virtually every aspect of our business. We are not tinkering around the edges. We are marking significant and what we believe are game-changing investments in Yahoo!'s future. Third, as we increase investments in the key areas of our business, we are making necessary decisions to streamline our organization. Fourth, we are executing aggressively against our strategic priorities and our clear focus is starting to bare fruit. While we continue to face headwinds, we expect our positive momentum to build this year. Fifth we are laying out the benchmarks that will helps all of your gauge our progress. Our goals is to grow monthly visits to our core starting points by 15% annually and touch 20% of total online advertising demand over the next several years. Lastly, we are confident that the steps we are taking will help us exit 2008 stronger and more cooperative and put us in a position to return to strong double-digit cash flow growth in 2009.

Thanks. I'd like to open the call for questions.

Q&A

Operator

Thank you. We will now begin the question and answer session. If you have question please press star, then one on your touch-tone phone. If you wished to be removed from the queue, please press star then two. To ensure all participants are able to ask a question, please limit yourself to one question. Once you have your question you will be immediately placed back into the conference. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if there are any questions, press star then one on your touchtone phone. Your first question comes from the line of Youssef Squali from Jefferies. Please proceed.

Youssef H. Squali, Jefferies & Co.

Thank you very much. Good afternoon. What was your organic growth in display when you exclude the recent acquisitions Right Media and BlueLithium?
And related, what kind of organic growth is in plan in your guidance from marketing and services for '08? Thanks.

Blake Jorgensen, Chief Financial Officer

So, on the acquisition piece, we don't disclose the economics of our acquisition, but they collectively added about 2 percentage points to the Q4 revenue growth. The display question is high teens.

Jerry Yang, CEO and Chief Yahoo!

Next question please.

Operator

Our next question comes from the line of Imran Khan representing JP Morgan. Please proceed.

Imran Khan, JP Morgan

Yes. Hi, thank you for taking my questions. Two question, Jerry and Sue, if I look at your revenue per headcount even after 1,000 employee reduction, your revenue per head count is significantly higher than your competitors. So, trying to understand if there is any difference in the business model that you can increase your productivity revenue per head count. So, could you give us some color how can you potentially exceed that? And secondly, considering more than 50% of your market cap is tied to the publicly traded other assets, would be consider selling those assets and buy back some shares? Thank you.

Jerry Yang, CEO and Chief Yahoo!

Thanks, Imran. I will take the second question first. Obviously, as you know, we believe in our investments in particularly in China, Japan are very long-term strategic investments. They represent our play in those footprints and we think that they have somewhat a longer term value in them , especially as in the case in China. So, we are definitely long-term believers in those markets and we think they are strategic to the company. Sue, you want to take on the revenue per employee question?

Susan Decker, President

Sure. When we look at the overall cost structure, we compare it to the competitors that we think have the most similar strategies in businesses in terms of the areas in which they used to be principals and we actually think our overall cost structure is lower than our two major competitors if you look at the cash cost ex-TAC. In terms of what the overall revenue is, it is affected by the monetization rates that we can achieve given a cost structure, and the strategy that we've outlined is ultimately around building a broad based integrated display and search network in which we think we will be able to achieve very significant monetization advantages over time. So, we are very focused on allocating resources in the most effective way to achieve that kind of economic model in future years and that's why I think Jerry indicated we could return to double digit cash flow growth as we get toward 2009 and get some of these legacy deals behind us.

Jerry Yang, CEO and Chief Yahoo!

Next question please.

Operator

Our next question comes from Mark Mahaney from Citigroup. Please go ahead.

Mark S. Mahaney, Citigroup Smith Barney

Great, thank you. You made some comments about maybe some macro economic uncertainty. I was wondering if you could comment on what kind of impact in a hard recessionary environment you think you could see in your display and search advertising, whether one would be more insulated than the other? And then specifically in search, to the extent that you were to see a major negative macro economic impact, do you think you would see that more in terms of advertiser demand or a change in user or searcher behavior? Thank you.

Blake Jorgensen, Chief Financial Officer

This is Blake, why don't I start on the economy question and then Sue may want to add to the search component of it. We haven't changed our guidance process as we are looking out into the economy. We feel like we cannot predict the economy. We made our forecast based on what we know now, our current business trends, our advertisers, and feedback we are getting from the marketplace. I think the outlook reflects solid growth in our display business, growth in our O&O RPS and the rising TAC rates as well as the change in the broadband relationships that we've had.

Susan Decker, President

This is Sue, Mark. I will pick up the second question. I think just going back to some of the comments I made in my script, we have from time to time seen pockets of weakness and certainly a couple of pockets in the fourth quarter as I outlined. We've also had areas of strength that have been offsetting. The challenge in answering your question is clearly the secular trends in online advertising have historically and even today are very much overwhelming the cyclical environment. It's early to tell though if the weakness in the housing and financial and travel sectors, little bit in retail will start to affect the consumer more broadly and the advertiser more broadly and therefore searches in terms of our what kinds of commercial searches happens. So, I don't think we have a crystal ball on that, but we are encouraged actually by how much offsetting strength we have seen in some of the other categories which has kept our overall marketing services growth rate in line in display and search with what we saw earlier in the third quarter or actually even a little bit better.

Jerry Yang, CEO and Chief Yahoo!

Next question please.

Operator

As a reminder, please limit yourself to one question. Our next question comes from Mary Meeker from Morgan Stanley. Please go ahead.

David Joseph, Morgan Stanley

Yes, hi. It's actually Dave Joseph, and Mary and I have one question. It seems like 2007 was a transitional year for search. We should be expecting now 2008 to be a transitional year for display advertising which is about 40% of your revenue. At the same time, you're talking about increased investments, which makes us think that we shouldn't be really expecting incremental operating margin to improve any time soon, so you are expecting investors to have some patience or increased patience. So, I guess this question is for Jerry, one is why -- what makes you or what gives you the high conviction that we should be expecting even the investment or display advertisement show improving growth towards the later half of this year when there are lot of uncertainties or variables around that, especially around the non-guaranteed inventory, for example. But also, and I'll ask the economic or the recessionary question a little bit differently. It seems that online ad -- online display advertising is a little bit more exposed especially to sectors like financial services or retail or travel. Can you give us a little bit of a sense of your exposure. Thank you.

Jerry Yang, CEO and Chief Yahoo!

Thanks David. I think you've inherited Mary's way of asking one question quite well. Let me just say that, we, as Sue has basically said and we all feel this way, is we're not in the business of prognosticating the economy. What we are seeing so far is, like she said, that the online ad market continues to grow, and whether that grows in spite of a weak economy or what, we really don't know. We are giving you our best visible ability to see right now. Why are we convinced that investment will yield improvement in second half? Well, I think the way we look at is the following. We already show, and as I said in my remarks, and Sue supplemented that, we saw a pretty good display growth in the second half of 2007, about 20% growth year over year in that area. And as we've sort of tried to give you guys some more visibility, we've seen our core business, what we define as O&O marketing services, both search and display and emerging our display and network business, that business is growing in the rates that we think are relatively healthy in the fourth quarter and obviously we think that that's going to continue. So, we are already seeing some trends that we think is defined that growth. The challenge we've outlined is, we have some broadband revenues that we need to cycle through and we actually are deliberate and proactive in that. We wanted to make sure that '08 is a year where we can exit it allowing most of our broadband effect to hit this year rather than out years. So, that's why, I said I think we will, based on our current momentum alone have some pretty good indication the broad economy side. Then the question really is, are we making the right investments. We do believe that the investments we're making right now in the display network and the platform will enable some key things that differentiate ourselves in the market. Sue really emphasized the differentiation point as we get into sort of these bigger network partners whether it's the newspapers or the telcos or broadband partners. So, I think those will be adding hopefully in the back half of the year will add to the momentum that we are seeing. So, I wouldn't have characterized it as the same as '07 where it's a transformation year, we're meaning that we are not going to see stuff. I do think you're going to see progress along all these fronts in the first half of the year. It's just that the platform pieces will kick in the back half.

Susan Decker, President

Can I clarify?

Jerry Yang, CEO and Chief Yahoo!

Yeah, and Sue -- sorry.

Susan Decker, President

Just want to clarify. I think Jerry clarified that the reason for our growth rates in '08 comparable to '07 has to do with the broadband deals not the display environment in terms what we're projecting. The second thing, I wanted to make sure we clarify though was in my comments, conference call comments I said that the ratio between guaranteed and non guaranteed pricing had over the last 8 to 10 quarters gone from 10X to less than 3X. So, we're actually seeing much more favorable trends here and that's not because guaranteeds come down. It's been relatively flat to up whereas the class two has dramatically increased close to tripling. So, we feel like the competitiveness of guaranteed versus non-guaranteed is as strong as it has ever been, and we are feeling less worried about that risk going forward than we were in the past.

Jerry Yang, CEO and Chief Yahoo!

Next question, please.

Operator

Our next question comes from Brian Pitz representing Banc Of America. Please go ahead.

Brian Pitz, Bank of America

Thanks. Would you comment on whether you continue to see click-through rate improvements from Panama accelerating since Q3? And also separately for Sue, regarding budget increase, you mentioned for some key categories, could you provide some additional color, are overall ad budgets up or is it just the online portion? And then also would you provide a range or the magnitude of increase in the budgets that you may be seeing? Thanks.

Susan Decker, President

Sure. Brian, the click-through rate improvements have been the primary driver of the RPS gains as we've said in the past. We don't get too specific on all the components, but I did mention that in Q4, couple of initiatives that will help advertiser ROI actually may have limited our gains and with deliberate moves against coverage. So, we have seen continued improvement in click-through rate, and as I mentioned the RPS gains in Q4 were pretty consistent with what we saw in the prior two quarters of close to 20%. In terms of the ad budgets, I don't know that we have any more visibility on total ad budgets than you guys do other than conversations with various marketers. But we are seeing growth in display budgets on Yahoo! of close to 20%, and when we look back at Q3 numbers, we think we actually gain market share in display in Q3. So, we are feeling good about our position. As you know, we went through a year of transition in display that ended about -- in the third quarter as we saw the inventory coming on very broadly and we made a number of quick acquisitions and internal operating investments to address that, and we are feeling good about how we are growing now.

Jerry Yang, CEO and Chief Yahoo!

Next question please.

Operator

Our next question comes from Heath Terry from Credit Suisse. Please proceed.

Heath Terry, Credit Suisse

Great. If I understand what you were saying on the call particularly in your investment areas, it sounds like a lot of the investments are really aimed at your advertisers and improving the methods for buying inventory on the site and getting more of the inventory that you have got. I'm curious how you are planning to attack more the supply side of the equation in building inventory, particularly in the premium areas like finance and entertainment where generally we've been seeing stronger share losses than your overall page view number. And then to the extent that you can from a numbers perspective help us with the math a little bit on the investments that you're making, obviously with the reduction in revenue from AT&T as well as Rogers, and then we try and net out the layoffs, can you give us an idea of exactly what percentage of the change in EBITDA on an year over year basis you would attribute to the investments that are being made?

Jerry Yang, CEO and Chief Yahoo!

Sue, do you want to take the first part and Blake can take the -

Susan Decker, President

Sure. Thanks, Heath. Yeah, we are focused on investments in three primary areas, which are must buy and you mentioned that in your question, very, very important area for us, and monetization the second area that I talked about in my comments was starting points for consumers. And then third, Jerry has talked a lot about the platform investments we're making. Going back to starting points, there are five primary areas, the Front Page, Mail, Search, My and Mobile that we define as the key starting point. And I also mentioned in my comments key anchor properties like Finance, Sports And News in which our starting points serve primarily as a navigation tool to get to those properties because they are so strong. At the moment, we are actually leading in all three of those for the first time and maybe ever and certainly in recent years and feel very strong about our competitive position. So, I may not know what you will be looking at in your comments about our finance site, maybe we could follow up with you after that. But I think it is fair to say that we are looking at ways of opening up all of our sites and making them more social and we are really taking advantage of the social graph across the Yahoo! network in ways that light up the engagement on all these properties. So, we have very detailed consumer roadmaps behind each of these properties, and I am glad that you asked the question, because while you've seen a lot of acquisitive activity and internal operating investment in some of the must buy objectives in the last year, this area is absolutely as important a priority for us in building inventory in addition to monetizing it.

Blake Jorgensen, Chief Financial Officer

On the second piece of the question, Heath, we are continuing, as Jerry and Sue both said, to invest aggressively in areas where we see the most growth potential, the starting points, the must buy, the open platforms, what we refer to as our big bets. We will continue to reduce our emphasis in other areas and take costs out of those areas over time. We are not able to give anyone an idea of what the exact investments are but I think you can assume that it is hundreds of millions of dollars and I think if you look at the OCF forecast we provided knowing that we are taking roughly $150 million to $200 million in revenue out of the business from the broadband re-negotiations, you can assume that you are seeing the bulk of the investment going forward.

Jerry Yang, CEO and Chief Yahoo!

Next question please.

Operator

As a reminder, please limit yourself to one question. Our next question comes from Jason Helfstein representing CIBC World Markets. Please go ahead.

Jason Helfstein, CIBC World Markets

Hi. thanks. Can you give us some color to some of the affiliate weakness? How much of that was pricing versus volume? And then this is an easy one, what was headcount at the end of the quarter? Thanks.

Blake Jorgensen, Chief Financial Officer

On the headcount front, we didn't disclose headcount in this press release, but it is roughly -- or in this conversation. It is roughly 14,300. And as a reminder, we close both two acquisitions during the fourth quarter that added approximately 200 heads to that group. Sue, I don't know if you want to talk at all about affiliate weakness or -

Susan Decker, President

Sure. On the affiliate, this is search affiliate, just to be clear on that, the overwhelming majority of it is price. I said in my comments that the TAC rate for the last two years really looking at 2006 to what is implied in our projections for '08 has gone from 72% to about 80% on TAC attributable revenue and that excludes the Yahoo! Japan deal which has been restructured. But most of that increase happened in 2007. There is still some upward pressure that we expect on pricing in 2008. But most of that is behind us and the '08 issues are really more the broadband deal re-negotiations. So, in terms of volume, the only real volume changes have been some traffic quality partners and really not much else.

Jerry Yang, CEO and Chief Yahoo!

One more question, last question please.

Operator

Our final question comes from Justin Post from Merrill Lynch. Please go ahead.

Justin Post, Merrill Lynch

Thanks for taking my question. A couple of real quick things on query volume. I know the market share has been an issue for the Street. Can you talk about how your query volume growth has trended both US and internationally over the last three or four quarters? And then I think your free cash flow guidance was 850 to 1000, and if I am correct that is kind of down year over year more than your EBITDA guidance. What's changed with the conversion rate on that? Thank you.

Susan Decker, President

Sure. On the search side, we talked about our overall revenue being up about 30% plus in Q4 and our RPS being up about 20%. So, you guys can do the math, but the implied query growth is up about 10% double-digits.

Blake Jorgensen, Chief Financial Officer

And on the free cash flow, just to repeat, our range was $850 million to $1 billion. That has $675 million to $775 million in capital spending. And as you can see, the mid-point is indeed down. Some of that comes from obviously capital investment, CapEx spending increases, some of it comes from EBITDA margin decline, some of it comes from slightly higher cash tax rate. And last but not least, some of it comes from working capital utilization as we continue to blend the sales force to service both display and search, we are seeing a slight up tick in DSOs I think you could observe in the fourth quarter, and that flows through into '08 as well.

Jerry Yang, CEO and Chief Yahoo!

Thank you. I want to thank all of you for joining us and we'll talk to all of you soon. Thank you.

Analysts

Youssef H. Squali, Jefferies & Co.
Imran Khan, JP Morgan
Mark S. Mahaney, Citigroup Smith Barney
Mary Meeker, Morgan Stanley
Brian Pitz, Bank of America
Heath Terry, Credit Suisse
Jason Helfstein, CIBC World Markets
Justin Post, Merrill Lynch