Yahoo Disaster Scenario: Blowing Q1

Kara Swisher revives an issue we raised a few weeks back: What happens if Yahoo (YHOO) blows Q1? This question has no doubt been bandied about in Microsoft (MSFT) conference rooms as an exasperated Steve Ballmer watches Yahoo's molasses-like response to its bid.

The Valley Bigwig outlined this strategy to us two weeks ago

msft drags heals til april 22 when y announces q1 which shd suck bigtime. Pulls bid. Stock to teens. Then returns at 25 w teeth. Funds wd move fast to accept

Got that? Microsoft goes about its business until early April--nominating its slate of board members, preparing for a hostile shareholder meeting--and then, just after Yahoo reports a horrendous first quarter, pulls its offer for the company. Yahoo's stock collapses, costing shareholders 40% overnight. Jerry & Co. are pummeled with shareholder complaints and lawsuits, and Yahoo's employee and shareholder morale hit all-time low. Then, just when all hope seems lost, Microsoft comes charging back and saves the day with a $25 bid, and Yahoo owners flatten Jerry & Co. in a stampede to tender their shares.

Will Yahoo blow Q1? Certainly possible. The economy is tanking. AOL is sucking wind. Even Google appears to be having a rough go of it. And unlike Google, Yahoo has a lot on its mind other than the crappy economic environment.

As the weeks drag on, Yahoo is making it clear that its response to the Microsoft bid will be the same as its response to almost everything over the past 8 years: analysis paralysis. As Yahoo carefully explores the details of every possible non-Microsoft option, the macro environment--and, likely, Yahoo's performance--gets worse. If, after Q1, Microsoft decides to pull the bid, Yahoo's stock will plunge to the high teens. And if that happens, Jerry Yang will be alone in his celebration.