Wednesday, March 19, 2008
Yahoo Shows Some Leg
Finally.
But, I am sorry to say, probably much too late.
Still, it was nice to see a relatively bold statement from Yahoo (YHOO) leadership yesterday about its growth prospects and plans, a clearer statement of purpose it would have been much, much nicer to see a year ago.
And the assessment of Yahoo executives, who filed documents with regulators and will take its show on the road to visit shareholders this week?
No surprises for 2008 off guidance (whew!), strong gains in revenue and cash flow for 2009 and 2010 and a resulting share price closer to $40, $9 above the original $31 a share–the cash-and-stock offer is actually now worth about $29.50–offered by Microsoft (MSFT).
Yahoo had to do this, times being what they are–with the troubled Internet portal with the sterling brand name fighting off efforts by the software giant to buy it in an unsolicited bid. Thus, the prone Yahoo stood up for itself for reasons that look an awful lot like it was prettying itself up for the inevitable sale.
The goal? To justify its initial rejection of Microsoft, signal a decent quarter to deny the software giant a reason to drop its price or even exit and, most of all, to get an even better acquisition price, as prospects for alternatives dwindle.
So far, Microsoft has showed no indication that it would budge on price and some execs there even worry that the decline of Yahoo’s business is more significant than is apparent and Microsoft is paying too much.
Yahoo disagreed yesterday, outlining a blue-sky outlook for its future that is, of course, all about whether the current management could execute to reach very lofty goals. (See this Wall Street Journal chart.)
Looking over its estimates, I would say Yahoo’s glass is half-full in its happy display and video ad estimates and half-empty in its projections in the search arena, where Google (GOOG) dominates with increasing power. And it is all predicated on the fact that Yahoo must also streamline its costs.
An analyst, Mark Mahaney of Citi Investment Research, quoted in a Wall Street Journal article about the Yahoo numbers said it best: “Those are not easy numbers. We think it’s the most likely outcome that Microsoft buys Yahoo, and at a higher price than $31.”
(The Journal article also raises the uphappy prospect that the Alibaba Group, which Yahoo owns a 39% stake in, could use a sale to Microsoft to extricate itself from Yahoo’s arms, taking away one of the more attractive assets of Yahoo from the deal.)
