Yahoo: Bernstein Analyst Comes to Senses, Demands Firings

Back in October, Bernstein analyst Jeff Lindsay went insane one morning and made the preposterous suggestion that Yahoo (YHOO) break itself into three separate companies: media, search, and subscriptions. We called him on that nutty idea, and Jeff's colleague Michael Nathanson soon retaliated by trying to Swift-Boat us in a piece about News Corp.

Well, we're glad to say that that little SAI-Bernstein fracas is deep in the past, and we're also glad to say that the normally sharp Lindsay has returned to his senses. His recent analysis of Yahoo--relayed by Eric Savitz at Barron's--is right on the money.

Among Jeff's recent Yahoo observations and suggestions:

• Yahoo should fire 2,000 people (We put the number at about 1,200, but same general idea)
• Yahoo should outsource search monetization to Google
  
• Yahoo's business is now valued at about $11 a share, after you factor out all the off balance sheet assets, cash, tax-loss carryforwards, etc. We take a very skeptical view of such analyses, as "off-balance sheet assets" can quickly plummet in value, too, but the point is well taken. (The specific breakdown is below).
• Among Jeff's litany of fundamental Yahoo concerns are:
• deteriorating performance in core search (share of the U.S. search market dropped to 17.2% in November, from 22.1% in January--horrific)
  
• faster-than-expected loss of DSL subscriptions
  
• vulnerability of the display ad business to an economic downturn
• long-standing lead in global unique visitors is under threat from faster growing rivals Google and News Corp.’s Myspace.
  
• leadership position in email under threat: unique visitors to mail negative in Europe, and growing only 12% in Asia-Pacific, well below the 25% market growth rate.

We hear you, Jeff, we hear you. And we suspect this is why Yahoo execs are fleeing in droves.

On the positive side, we do hear that Yahoo's revenue per search continues to increase (suggesting that new search server Panama may be providing some benefits), and we've heard that Yahoo had a good Q4 in display advertising. But this hardly qualifies as a major turnaround.

We also agree with Jeff on one final point: That Yahoo's management is too nice to make the hard-ass decisions that may be necessary to get the company firing on all cylinders again. As Jeff puts it: “We think...that the current management team is reluctant to consider such radical steps and prefers instead to evolve the company using an incremental revenue growth strategy based upon internal development efforts.” Specifically, we hear--and Jeff apparently hears, too--that founder and now CEO Jerry Yang is just too nice a guy.

See Also:
Fat Yahoo Finally Cutting Bloat...Slowly
Yahoo Layoffs: Drumbeat Grows Louder
Yahoo Turnaround Step 2: Layoffs

Yahoo's Off-Balance Sheet Assets:

Jeff Lindsay's Yahoo valuation, as relayed by Eric Savitz at Barrons:

He calculates the total value of the company’s non-operating assets at $13.24 a share: $6.48 a share for the Yahoo! Japan stake, $3.13 for its share of Alibaba.com, $1.07 for its Alibaba Group stake, 8 cents for its share of GMarket (GMKT), $1.99 a share in cash, and 49 cents a share in net operating loss carryforwards. That leaves the value of core Yahoo as of last night’s close at just $10.85.