Official text taken from here on May 16th 2012.
Yahoo! began as a student hobby and evolved into a global brand that has changed the way people communicate with each other, find and access information and purchase things. The two founders of Yahoo!, David Filo and Jerry Yang, Ph.D. candidates in Electrical Engineering at Stanford University, started their guide in a campus trailer in February 1994 as a way to keep track of their personal interests on the Internet. Before long they were spending more time on their home-brewed lists of favorite links than on their doctoral dissertations. Eventually, Jerry and David's lists became too long and unwieldy, and they broke them out into categories. When the categories became too full, they developed subcategories ... and the core concept behind Yahoo! was born.
The Web site started out as "Jerry and David's Guide to the World Wide Web" but eventually received a new moniker with the help of a dictionary. The name Yahoo! is an acronym for "Yet Another Hierarchical Officious Oracle," but Filo and Yang insist they selected the name because they liked the general definition of a yahoo: "rude, unsophisticated, uncouth." Yahoo! itself first resided on Yang's student workstation, "Akebono," while the software was lodged on Filo's computer, "Konishiki" - both named after legendary sumo wrestlers.
Jerry and David soon found they were not alone in wanting a single place to find useful Web sites. Before long, hundreds of people were accessing their guide from well beyond the Stanford trailer. Word spread from friends to what quickly became a significant, loyal audience throughout the closely-knit Internet community. Yahoo! celebrated its first million-hit day in the fall of 1994, translating to almost 100 thousand unique visitors.
Due to the torrent of traffic and enthusiastic reception Yahoo! was receiving, the founders knew they had a potential business on their hands. In March 1995, the pair incorporated the business and met with dozens of Silicon Valley venture capitalists. They eventually came across Sequoia Capital, the well-regarded firm whose most successful investments included Apple Computer, Atari, Oracle and Cisco Systems. They agreed to fund Yahoo! in April 1995 with an initial investment of nearly $2 million.
Realizing their new company had the potential to grow quickly, Jerry and David began to shop for a management team. They hired Tim Koogle, a veteran of Motorola and an alumnus of the Stanford engineering department, as chief executive officer and Jeffrey Mallett, founder of Novell's WordPerfect consumer division, as chief operating officer. They secured a second round of funding in Fall 1995 from investors Reuters Ltd. and Softbank. Yahoo! launched a highly-successful IPO in April 1996 with a total of 49 employees.
Today, Yahoo! Inc. is a leading global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 345 million individuals each month worldwide. As the first online navigational guide to the Web, www.yahoo.com is the leading guide in terms of traffic, advertising, household and business user reach. Yahoo! is the No. 1 Internet brand globally and reaches the largest audience worldwide. The company also provides online business and enterprise services designed to enhance the productivity and Web presence of Yahoo!'s clients. These services include Corporate Yahoo!, a popular customized enterprise portal solution; audio and video streaming; store hosting and management; and Web site tools and services. The company's global Web network includes 25 World properties. Headquartered in Sunnyvale, Calif., Yahoo! has offices in Europe, Asia, Latin America, Australia, Canada and the United States.