Yahoo: 'Ok, So Now What?'; Analysts, Market React To Dead Deal; YHOO Trades Down Over 18 Percent

That's the headline of Jerry Yang's post at Yodel Anecdotal discussing Yahoo's (NSDQ: YHOO) future now that Microsoft has withdrawn its offer. If you're looking for anything meaty, like indication of a fresh deal with another party, then don't bother looking there. Instead, there's some talk about Buzz, OneSearch and the company's new social efforts. In the short term, the market knows that none of this equals cash on the table from Microsoft (NSDQ: MSFT). Yahoo shares are opening down about 18.5 percent to $23.30?at least that's over 10 percent higher than what it was before Microsoft made its bid. As for Microsoft, it's not seeing huge reaction, trading up about 2.3 percent. Google (NSDQ: GOOG) is trading up by a similar measure. Meanwhile, Alibaba.com, in which Yahoo is a large stakeholder, fell 5.9 percent, according to Bloomberg. An analyst quoted in the piece suggests it's because the company will now miss out on potential synergies working with Microsoft, but this sounds like an over-reading of the market. A simpler answer could be fears that Yahoo will be pressured to unwind some of its China holdings.

-- Mark May, Needham & Co: "In order to placate YHOO shareholders, management will need to respond with a transformational partnership or transaction, such as a far-reaching Google ad deal. However, it remains unclear if this deal alone will enable YHOO to hit the aggressive CY09 and CY10 projections it recently set forth, and we believe some large YHOO shareholders are unhappy with the prospect of outsourcing a meaningful portion of the company's strategic business. MSFT's withdrawal could also result in other transformational deals, such as a MSFT/AOL (NYSE: TWX) merger, which could create a more challenging competitive landscape for YHOO."

-- Jeff Lindsay, Bernstein: Deals with AOL and Google are still possible, and one or both are necessary to move the stock upward from here. There's a range of permutations here, but in the best scenario: a merger of AOL and Yahooanda comprehensive search monetization deal with Google, Yahoo shareholders could see a value of $37 per share. Another scenario, whereby AOL and Yahoo both monetized search via Panama, the value to Yahoo shareholders would be just $28.45.

-- Ben Schachter, UBS: "While we believe there are 3 potential near-term catalysts for the stock (partial outsourcing of search to Google, unlocking the value of its Asia assets, potentially deeper cost-cutting in non-core businesses), Yahoo!'s execution remains the problem, as the company has not been able to execute better targeting and measurement on its own site effectively enough over the past 15 years. We are not willing to give them the benefit of the doubt that they can make meaningful improvement over the next three years, particularly given a heightened competitive dynamic where Yahoo! will now be competing against Google, Microsoft, AOL, and possibly others."

-- Ross Sandler, RBC: Three scenarios out there: Yahoo business as usual (70 percent), Google ad deal (15 percent), Microsoft (15 percent). A Google deal, Sandler estimates, could add $600 million to Yahoo cash flow in 2009, potentially bringing the stock to $32. As for Microsoft revisiting the deal at some point in the future, it would probably only happen if Yahoo really missed its estimates for the year and was weakened.

Related

For a Dollar More: Yahoo's Institutional Investors Were This Close Microsoft-Yahoo: Links To All Of Our Coverage