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Jun 13, 2008

BRAND: Yahoo==Alice in Wonderland, a little lost

Yahoo: Google Deal Will Help Us Where We're Weak, Bring In $800 Million A Year (YHOO, GOOG)

jerry-yang-official-200x150.jpgHere goes nothing: After rebuffing Microsoft's $44.6 billion offer, Yahoo is accepting a helping hand from Google, via a 10-year, non-exclusive search advertising deal.

The plan: Yahoo will be able to run Google ads on its U.S. and Canadian search results -- where and when it wants to -- and will continue to sell its own ads via Panama. Yahoo estimates the deal could generate $800 million in annual revenue and $250-450 million in incremental operating cash flow -- but little to no cost savings.

What Yahoo's not doing: Entirely outsourcing search to Google or getting a huge, up-front check. What it is doing, according to president Sue Decker: Using Google ads where they perform better than Yahoo's, like "long-tail" search queries, and keeping its own ads on more mainstream queries, where it thinks it can do better. In addition, Yahoo could end up helping Google with display ads, president Sue Decker said on a conference call...

Yahoo-Google: Analysts: Yahoo Mortgaging Its Future ; No Regulatory Slam Dunk; MSFT-YHOO Still?

imageYou already know how the market reacted to yesterday's news: Shares of Yahoo got slammed, as an ad deal with Google (NSDQ: GOOG) was seen as a poor substitute to a full or partial sale to Microsoft (NSDQ: MSFT). Even after yesterday's swoon, the stock is off another 4 percent today to around $22.50—the lowest its been since Microsoft's initial offer back in February. So as dreams of a sale fade, what does the Google deal mean for an independent Yahoo (NSDQ: YHOO). Analysts are busily sounding off this morning:

-- Ben Schachter, UBS: In the short term, yes, this is a boost to cash flow, so that's good (Yahoo estimated yesterday it would contribute an incremental $250-$450 million to operating cash flow). But as Schachter asks: "At what long-term cost?" Despite insistence from Yang and Decker that Yahoo remains a "must buy" the agreement makes the company less relevant in terms of offering a full spate of advertising options. And if you thought that this was the end of the saga, Schachter disagrees: "We continue to believe that, at some point, MSFT will acquire all of YHOO. Unfortunately, for all of us that are beyond tired of the constant news flow and speculation around a possible MSFT/YHOO deal, this GOOG/YHOO agreement will not put us out of our misery as we still think MSFT needs YHOO." He also wonders about a comment that Decker breezily made during the Q&A about helping Google with display stuff on their own properties: "Sue Decker's somewhat coy comments about the potential for GOOG and YHOO to work together in some manner on display ads should raise a lot of eyebrows as it begs a whole new set of questions and spurs more speculation."

-- Jim Friedland, Cowen: Incremental revenue, yes. Strengthened position? Not so much. Even if monetization improves, the deal doesn't change the fundamental picture at Yahoo, as a company losing share, user engagement, facing a weak economy. He also notes that regulatory approval may not be a slam dunk: "We believe Microsoft will immediately begin to lobby in Washington against the deal." (No doubt on that.) And the possibility of Microsoft-Yahoo at some point? "A deal is less likely than it was a few weeks ago, but not impossible. Microsoft holds most of the cards and could hold out for a lower price. After all, its bid has dropped from $40 to $35 to $33 (via $31) over the past year."

-- Jeff Lindsay, Bernstein: This deal only represents $3 of incremental value per share. For one thing, Yahoo can not eliminate Panama to realize cost savings (note: the company said on yesterday's call that cost savings were not part of th equation) and the outsourcing agreement doesn't apply to all of its inventory. And it's not necessarily over for Microsoft: "Yahoo! management clearly believes that this development finally marks the end of Microsoft's interest in Yahoo! as detailed in a press release from Yahoo! after yesterday's close. We are not so sure." He also wonders if all this talk about how it's just about the long tail of search is just posturing for the upcoming regulatory review. Also, for Google he estimates the deal is worth about $15 per share.

-- Mark May, Needham: Key takeaway: Yahoo's estimated cash flow gains may be overly ambitious. They're not a sure thing (note: they're also pretty wide). Again, the deal diminished Yahoo's relevance in the space.

-- Ross Sandler, RBC: This is all good from the perspective of the Googleplex. The termination of Yahoo-Microsoft discussions is good, and there's potential for $700 million in incremental cash flow once the deal is up to speed. Shares of Google are up over 2 percent today.

-- Mark Mahaney, Citi: Yahoo's cash flow estimates are realistic based on Citi's own analysis. Google may be the big winner.

Massive Destruction Of Shareholder Value, Employee Morale and Internet Balance Of Power

I don’t believe that there is anything Yahoo could do at this point to further destroy their business that would surprise me.

At 1:35 pm EST yesterday we posted that we believed Yahoo would announce a search marketing deal with Google, essentially ending their negotiations with Microsoft and, pending government approval, sealing Google’s monopoly position in search marketing. Twenty-five minutes later a massive sell off of Yahoo stock began - the company lost billions in market valuation over the course of the next hour as the market made it’s bets on the news.

At 3 pm EST Yahoo announced that all talks with Microsoft were formally off, and the stock fell further. It eventually climbed back a little, but by the end of the trading day, $3.6 billion had been removed from the pockets of Yahoo stockholders. Well after trading ended, Yahoo confirmed our original report that they’d signed a deal with Google to hand over much of their search marketing business...

Yahoo Loses Two More: Fayyad and Zawodny

Yesterday we reported that Jeff Weiner, executive vice president of Yahoo’s network division, had submitted his resignation. Now we are hearing of two more prominent departures from the beleaguered company.

NYT Bits is reporting the departure of Usama Fayyad, chief data officer and EVP of research and strategic data solutions, which is expected to be officially announced later today. According to the report, Fayyad has been “in charge of mining the terabytes of data collected by the company to improve things like the targeting of ads and content to Yahoo users.”

Veteran developer Jeremy Zawodny also has announced on his blog that he will turn in his purple badge within the next few weeks. Zawodny has been with Yahoo since 1999, helping to spearhead important projects like the Yahoo Developer Network...

Yahoo Cost Freeze (YHOO) Means Business Likely Weak--Microsoft Just Waiting To Buy Carcass?

jerryyang7.jpgWe've received several reports of a cost freeze at Yahoo (YHOO). Some sources say it's a hiring freeze in early July; others say it's a hiring freeze until July. A reader has heard the clampdown includes travel and other expenses.

Enough to take to the bank? Not yet. But the reports dovetail with some Microsoft chatter about a deterioration in Yahoo's business and other reports about weakness in display advertising spending.

BRAND: Yahoo==Alice in Wonderland, a little lost

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