(January 24, 2000) -- On January 15, Fools David Gardner, Chris Hill, and Bill Barker had the pleasure of speaking with Yahoo! CEO Tim Koogle on a recent Motley Fool Radio Show. In this interview, Koogle discusses the AOL-Time Warner merger, Yahoo!'s recent earnings, and the company's plans for the future.

David: Tim, it's a pleasure to have you back on The Motley Fool Radio Show.

Koogle: Thanks for having me.

David: Let's go right into it here. Before we discuss your earnings, we'd actually like to embark on a first here on The Motley Fool Radio Show, and I know you're excited about this. In light of the AOL-Time Warner merger story, I'm betting there's probably been one question that you're getting hit with over and over this week and I'd love to give you a chance to ask that very question of yourself and then answer it.

Koogle: The main question that I should have been asked actually was when are you going to find time to sleep this week?

The main question that's been asked quite a bit is does their announced planned proposed merger actually create a need for us to change from our stated strategy fundamentally. And the answer to that is no.

We've created this comprehensive platform, and as you know comprehensiveness means open and as broad a set of partnerships as possible because that fills the needs of users worldwide.... You know, the users want choice and they want openness, and so what it has done is it has signaled probably to a wider array than ever of content and commerce partners out there that in fact the Web is very large and needs to be a part of their distribution strategy. So it has probably increased the fervor in which various suppliers of content, commerce and communication, etc., want to get in front of our audience, which is 120,000,000 now.

David: Yep, and we mentioned that. We had a call earlier this hour, Ed from Orlando, who was essentially asking this question saying are you concerned that some of Yahoo!'s advertising revenues are now going to get sucked up by the bigger AOL Time Warner?

Koogle: No, not really. You know, I think at the end of the day, dollars follow eyeballs and if you go out and talk to the marketers out there, the folks that actually buy advertising on whatever medium platform you're talking about, they typically go down a hierarchy of questions and one is how big of an audience can you bring me. Secondly, you know, of that -- and hopefully that's large, right, because they all look for large and if you can bring a large audience, can you target the delivery of my message. And then below that, how good a job do you do of delivering the message, you know, physical sort of delivery and everything else.

If you look back at any form of media, whether it's broadcast or cable or print or whatever, typically the predominant share of advertising dollars that gets spent do go to what you'd generically call the networks, and that's because they have the largest audiences they can bring the advertisers.

We are clearly in that list and we have been and I don't see that changing at all. The ability to cross-sell between media types is of some benefit, but the amount that actually happens in much larger media companies that have a number of different brands across media types is actually quite limited, usually.

David: Yeah, you're not really able to hawk Time magazine in Bugs Bunny cartoons.

Koogle: Correct.

Bill: While the kids are eager for that Time magazine subscription, what about "Time For Kids"?

David: There you go. Tim, is the Switzerland analogy a fair characterization of how you see Yahoo!'s independence, and if so, does there come a point when Switzerland starts attacking?

Koogle: Yeah, Switzerland does have an army, right?

Chris: Exactly. Is that how you see Yahoo!? As Switzerland?

Koogle: There's been a bunch of people who've used that word, yeah, called us Switzerland and stuff like that. You know, it's not a bad one. You know, we are quite open and comprehensive and partial. We try to serve our users best and they want choice and that turns out to have huge value so that's not a bad analogy.

Are we competitive? You bet. And so, do we attack? Sure. We're very intent and know where we compete with other companies for share of market. We're absolutely intent on competing effectively.

David: Okay, now let's move right into the fourth quarter. What numbers jump out at you off of your own statements?

Koogle: Well, I mean we're pleased and I think everyone who knows us and has tracked the progress of the company was really pleased in the top line. You know, we grew 30% over the 3 months from September to December to a little over $200,000,000, $201,000,000 top line. That's at a run rate, then, which if you just straight line annualize that, of $800,000,000 in sales, just in the fourth quarter, exiting the fourth quarter. So having gotten to that scale with no scalability issues, and still maintaining 86% gross margins, that's another number that falls off to the people and we did hit 40% operating profit on a pro forma basis this quarter, too, which I think probably exceeds most people's expectations and those are all interesting numbers.

I think the other thing that we are feeling incredibly fortunate about is also the growth in our audience base. We grew up to 120,000,000 unique users in the month of December up from 105,000,000 million users on a worldwide basis just in September. So it's kind of cool to know that we're doing great things to fill people's needs.

David: Yeah, earlier we calculated that was half the country until I pointed out to one of my co-hosts that it's an international audience.

Let me follow up with a question from my brother, Tom, who is invested in Yahoo! and is passionate about your business -- I think Tom probably would have wanted me to ask this as a follow up.... How much do you care about your gross margins? That 86% you mentioned that goes down the next line of the income statement out of sales, because your cost of goods sold are so low, if you had to favor one or the other, would you, [rather have] big numbers on the top line or would you forgo some top line stuff to boost your margins a little?

Koogle: Oh, we'd drive our top line. Gross margin at 86% -- I think that most normal mortals who try to run real-world businesses would kill for that kind of margin level -- which it doesn't in this business actually unless we fundamentally changed the structure of our business, which we're not anticipating doing.

David: You mean like AOL Time Warner?

Koogle: That's correct. That's your statement, not mine.

What we do intend to do, and a trade off we always make is down below the gross margin level and that is the amount of spending we put in the marketing and sales line. In particular, the marketing part of it, to make sure that our already strong brand gets built out even further especially as we build a deeper global presence and stuff like that.

So we signal this on our conference call; we have no intention of letting up on doing the right amount of spending in the marketing side of things to build brand.

David: OK.

Chris: Tim, David mentioned obviously you're aiming at a global audience. Is that the main focus now? Is the international expansion you mentioned, putting Yahoo! in as many countries as possible, is that the main focus for the next 12 to 24 months?

Koogle: Kind of. You can say that. I'll tell you the way -- you know we started very early in the company's life building a presence outside of the U.S. and we did it because I think that if you're going to build a really large franchise that's really excellent that it has to be global. And if you build it into the bones of the company early on it will serve you well. And it's been from that prospective that we've always executed everything and if you talk with folks inside here, we used the word global, it includes the United States properties and it also includes oh by the way, the French property and everything else. We build on a platform kind of a concept. We don't kind of even break it out in our thinking, so what we have always intended to do is build a core platform business that truly appealed to as big of an audience on a worldwide basis as possible. Then you execute a bunch of functions and features that are compelling to users off of that and do it on a global scale.

We are going to grow deep in all of the markets outside of the U.S. that we have a footprint and extend further in the markets that we don't have much of a presence right now.

David: Let me ask a final question, and building right off of that, speaking of deepening your business, whether it's nationally or globally, and it's the latter, when do you see Yahoo! further leveraging your users and your merchants by charging option fees and/or transaction fees?

Koogle: We have already built into our commerce platform, our shopping platform, if you will, both a fixed and variable component to our charges, to our pricing. The merchants that build a store on Yahoo!'s shopping platform -- for example there are 9,000 of those in December -- pay us, as you know, hosting fees there are typically bundled and promotional things that they buy.

David: The auction fees for people in auctions?

Koogle: Auction fees, we actually started during the quarter -- a premier auction format. Okay, so above the fold, so we've already started that process.

David: OK. Good. You know what? Sometimes we have to keep our eye on the ball a little bit better. Thank you very much, Tim, for shedding a lot of light for us about what you're thinking and how you think about Yahoo! and it's a real pleasure to have you back on the show.

Koogle: It's very cool you're having me. Thanks a lot, man.