Yahoo! CFO Likes Ad Trends

It's very hard to look at any individual transaction and the price paid and glean what return we might get. What's hard to see especially with small technology deals is what role we see them playing on the rest of Yahoo!, along with the financial returns.

TSC: You discussed Yahoo!'s free cash flow in the quarter and pointed to its 61% growth year on year to $318 million. Recently, other growing tech companies like Amazon.com(AMZN Quote) have called investor attention to that figure. Why is it such a valuable metric?

Decker: Free cash flow is the really definition of value. Look at bonds, equities, real estate: anything you look at, the cash it throws off is how it's valued. And if you were to look at the market over any period of time in any industry or any geography, you see almost no correlation between values and P/E ratios and almost always a very strong correlation between values and investment on capital, which is another way of looking at free cash flow.

It's a time-tested concept. I've focused it on since the mid-'80s when I entered Wall Street. On every call for the past four years, I've emphasized it because we want people to understand how strong our free-cash generation is compared with other models. We don't have to invest in our balance sheet to grow to a great extent.

I emphasize it every quarter. It's something we give guidance along with earnings. It's something you see more and more companies talking about it primarily because return on invested capital is increasingly empirically a better measure than earnings.