Yahoo Cost Freeze (YHOO) Means Business Likely Weak--Microsoft Just Waiting To Buy Carcass?
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.
If Yahoo is clamping down on hiring until July 1, this suggests that Q2 revenue is light. If it is taking a pause in hiring in July, this suggests that Q2 is already in the bag, but that the current tone of business is weak and Yahoo wants to be cautious until it has a better sense of where the market is headed. Either way, the reports suggest that current business is weak.
So?
So this likely means that, barring a big Icahn move, the outlook for Yahoo's stock is likely to get worse before it gets better. This will increase the animosity and frustration about Yahoo's having blown the Microsoft deal, and it will keep the pressure on Jerry as he fights to keep his job.
If Yahoo's business really collapses, it will also likely create an interesting opportunity for Microsoft (MSFT). Continued deterioration in the economy and at Yahoo could drive the stock below $20 in the fall, especially if Microsoft can successfully delay the implementation of the Yahoo-Google search deal. If that happens, Microsoft could come back with an offer for the whole company at, say, $25, and shareholders would likely storm Sunnyvale with torches and pitchforks and force Jerry to accept it.
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If Yahoo business collapses, why exactly would MSFT want to buy them? It's a dying stock, it would be foolish to step in and try to buy it now.
Travel restriction? New Yorkers are encouraged to travel to Sunnyvale for increased interaction. Conference attendance hasn't changed. A bunch are going abroad to present papers in 1st week of December. Another bunch is going to an exotic ski-location for another meeting. May be unreasonable travel limited (like taking vacation at company's expense).
http://www.alleyinsider.com/2008/4/microsoft_may_pull_or_cut_yahoo_offer_yhoo_tanks
"hmmm said:
Apr. 04, 6:50 PM
@madmilker
Crazy huh, that with no winning Internet strategy, MSFT is worth double google and makes more in one quarter than google does in a year (that was based on google peak performance, not in adv slowdown)
If MSFT doesnt want to pay $40, and they might, I am sure the market will pay $20 or so, maybe.
No one will even step in to put a low-ball offer since there is no point in wasting the legal resources on a battle you cant win, so unfortunately MSFT is the only batter, catcher, pitcher and fielder in the game. Yahoo is totally at their mercy.
If MSFT pulls their bid, Yahoos layoffs and internal consolidation strategy only worsened their position to innovate (less brains), and will only hasten their stock price decline. To this end Yahoo will have to overspend to acquire growth...
In the end, this could be a strategy of MSFT to let Yahoos ego put MSFT in a position to buy the co for $25 instead of $40 - bid what you know they will reject and let them flounder and cut their own leg off to keep you from buying them, in the end, you can can buy them for even less after they lost too much blood"
AND THIS WAS BEFORE YAHOO MADE WHAT COULD BE ARGUED AS THE DUMBEST MOVE OF ALL TIME
1. a rolling 4 month guarantee of $83MM in inventory or goog can walk
2. a $250MM kill fee that yhoo pays in the event of any change in yhoo control other than an acquisition of yhoo by msft.
what's mind-blowing here is that:
1. sue wouldn't originally comment on guarantees even when it would come out in the filings - did she not know the answer or was it another of her series of interview flubs?
2. that yhoo is still in the poison pill business - instead of a severance plan targeting msft, they're now doing kill fees targeting icahn (prolly too scared of the feds to include msft this time). if only they were as innovative in their products as they are in their attempts to punish suitors.
she had no idea. nobody signing off has a finger on the pulse. they hear a pitch w/a couple slides from the VPs and make a decision.
They're not intelligent/independent enough to drill down and make their own assessment.
Isn't YHOO obligated to disclose the details of the proposed transaction from MSFT since they were in full fledged negotiations. If they are, when can we expect some disclosures?
I think M still wants Y. Time is M's friend and Y's enemy. M needs Y's stock to settle back down where they think it belongs --- probably around $20/share. Without a clear and convincing business/product strategy, Y will continue to look like a company without a strategy.
With Gates out and a stock that's been floundering for a decade, MSFT is like a headless chicken running around scared, without clear strategy or goal. All they can hope now is that their buddies in the govt can slow down the GOOG juggernaut. But GOOG has already played this game and played it well. Look at their success in getting DCLK approved and also the wireless spectrum opened up. Look out for more FUD and spin from MSFT. For example:
http://paul.kedrosky.com/archives/2008/06/12/microsoft_is_do_1.html
I think its time for MSFT longs to wake up and smell the coffee. Use this short term pop to get out from the past (MSFT) and get into the future (GooHoo). This isn't really about Y. Its more about the war between G and M, and there is still time to be on the winning team.
To say it'll get worse before it gets better though, may be too late. Unless Google bumbles so badly on something in the meantime (highly unlikely), Y will continue to be marginalized.
Say what you will about Ballmer though, and the way it's playing thus far, it's coming to their favor.
You gain about 4:1 dollars when you control OPEX... so, to show rigor in your culture you do exactly what Yahoo is doing. It is actually an indication that they've formulated a plan and are beginning to execute.
Get some access to some ops folks and they'll tell you that and it will be factual. The street likes lean.
1. Sometimes leasing is more profitable than selling, and that is what Yahoo has done. Instead of selling search business to MSFT, they leased it out (temporarily) to Google. Also it is not known how much msft was offering for yahoo's search business anyway may be it wasn't that profitable in the long run.
2. Yahoo/Google deal is only for north-american market. Agreed that it is the biggest market right now but not for the future, as everyone has predicted, future belongs to BRIC (brazil, russia, china, india). Asian and BRIC is the biggest search market one can ever think of, so it is wise that Jerry will take time and resources from north-american team away (as they may not be required any more due to google deal) for now and try to come up with technology/platform that caters to these markets. May be he has a plan to test its Panama platform for these markets and get it mature by the time it is reaped to start making money.
3. It is true that desktop search market is the biggest right now but in the future the search on other platform such as smart-phones is bigger than desktop - and Yahoo can start looking in to it with the help of freed resources.
4. Google is king in text search ads market and not in display ads, according to google executives, yahoo still is the market leader in display ads and it is a huge revenue generator (remember micrsoft was interested in buying yahoo's search business was due to its strong position in display ads). Yahoo can work on the same technology platform to keep bringing more money thru this kind of ads. Also display ads are going to play a bigger role in mobile phone market so it is wise to concentrate on your strength.
5. Yahoo has a strong presence in China, Google is still lacking in getting major revenue from this market. Jerry being from the same ethnic background can understand this market much better than anyone else ... also Yahoo is already deep rooted in china, it has to just find out how to monetize it efficiently.
6. In couple of years yahoo will know how much it can make from this deal(with Google) and if it is mature enough to sell the north-american search business than it would do so by making much more money than what MSFT is offering right now.
7. Last but not least - It is better that Jerry is more loyal to the people who are loyal to him (employees and endusers) than to be loyal who are least loyal (shareholders) to yahoo ...
Conclusion: it is not a worst decision and only time will tell what a smart move it was (or it wasn't). Jerry needs some time to prove it and now he has got what he wanted to prove his caliber and witty decision making capabilities.
The reality is that Jerry has until Aug 1 to prove himself. Like S&P analyst Scott Kessler said - 'these decisions by the Yahoo board have a lot of shareholders scratching their heads'
His mistakes have cost the shareholders plenty, and it may cost him the CEO title on Aug 1.
Time (although little of it) will determine his fate.
How about your advice to Jerry when he started with alternatives - that were destructive - The best words here are "Yahoo just turned itself into AOL" Yahoo is starting to smell like dead fish - The consumers will smell it, the business people who use Yahoo Finance will start to learn What is offered elsewhere - the more who leave the deader the meat. Jerry Yang has destroyed shareholder value with out cause, other than his personal distaste for MSFT, saving face, and his ego - He'll still be in court long after Yahoo is dead. Henry - now to you - you, beginning in this current note, have started to change your tune - obviously the smell of death is overwhelming!
My advice to Microsoft would be:
1. Walk away from Yahoo and never look back.
2. Change their name from MSN to anythig else.
3. Stop gouging people who buy their software.
4. Pay me a large amount of money for my advice.
The Masked Millionaire
Isn't that what corporate raiders do?
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