Global marketing segment revenue was up 40% from a year ago, roughly consistent with both the strong gains the company saw in the first half of fiscal 2005 and also with the growth rates experienced in 2003 and 2004.

Recent Marketing Trends

Yahoo! is seeing an increasing overlap in the clients’ sponsored search in brand marketing. Historically, sponsored search has been driven more by direct marketers that experience transactions from their websites rather than from the OEM type of companies that typically define the brand business and sell offline and generally through distributors.

However, more and more research on the buying cycle is demonstrating that the consumer conducts their primary research on the web often conducting multiple searches to find what they're looking for. Once they make a decision based on that research, the majority of the actual purchases generally occur offline.

This has led an increasing number of OEM type companies, such as automobile manufacturers, brick and mortar retailers, and traditional financial services companies to begin to spend directly in search marketing and to value search beyond immediate online conversions due to search’s overall influence in the buying process and Yahoo! sees this in its quarterly numbers.

Growth in spending from these types of advertisers is outpacing the company’s overall marketing service growth rates as advertisers are using the different media to complement each other rather than one medium replacing the other. Considering the size of many of these companies’ direct marketing budgets, management believes there is a lot of potential if this trend becomes more pervasive.

Fees produced $170 million of revenue, up 55% from a year ago.

Excluding acquisitions, principally Musicmatch, fees grew 41% in the quarter. The primary driver of that business line is the company’s premium offerings in which consumers and businesses pay Yahoo! for its services.

The company ended the quarter with approximately 11.4 million paid relationships, up 50% from 7.6 million a year ago and up 1.3 million from Q2. This strong performance was driven by content bundled with access, fantasy sports, which is typically strongest in the third quarter for the football season, music, and small business.

Last quarter, Yahoo! raised its expected paid ending relationships forecast to indicate that the company could exceed 12 million by the end of 2005.

Fantasy Sports Outlook

Based on the company’s third quarter experience and taking into account that Q4 is typically seasonally challenged vs. Q3 in fantasy sports which saw meaningful incremental subscriber growth from the new season, the company now believes it is likely to approach 12.5 million as the Verizon deal gains momentum and other services continue to grow.

Yahoo! continues to expect these relationships to produce an average ARPU of $3 to $4 per month in 2005.

Turning to revenue by geographic segment, top line growth remained robust internationally, up 50% ex-TAC over the year ago quarter to $228 million.

On an organic basis and holding currencies constant, the company’s international revenue ex-TAC increased 48% in the quarter, even faster than the strong 37% increase domestically. As a result, international revenue ex-TAC represented 25% of total revenue ex-TAC in the quarter advancing from 23% a year ago and consistent with expectations.

Operating cash flow came in at $385 million, up 48% from a year ago and above the high-end of the company’s business outlook.

Consequently, global operating cash flow margins were 41%, above expectations despite the timing of spend related to the new Yahoo! Music Unlimited service and seasonal challenges for the brand business in Q3.

The major driver of margin leverage is conversation cost, the company’s largest expense, which continues to yield productivity improvements.

Headcount

Headcount ended the third quarter at around 9,660, up about 880 from the second-quarter levels and up 38% from a year ago.