Yahoo: We are so totally screwed

It’s not exactly a huge surprise, given the anti-trust brouhaha that the proposal caused in Washington, but Google formally announced that its search deal with Yahoo is over, kaput, deceased, pushing up the daisies — it is an ex-agreement. It wasn’t just the anti-trust concerns either; some advertisers were apparently worried about a lack of choice as a result of the tie-up, and not without reason. So how badly is Yahoo screwed right now? On a scale of one to 10, I would say Yahoo is now at 11.

As John Paczkowski notes at All Things D, this deal was supposed to generate as much as half a billion dollars worth of additional cash flow in its first year, money Yahoo could definitely use. But more than that, this deal was a way of trying to stand on its own two feet (albeit while leaning on Google for support), and that is now gone. Microsoft, which had its takeover bid for Yahoo derailed by the Google arrangement — among other things — is no doubt doing the math on another bid.

The only problem for Yahoo is that instead of a $45-billion deal at $31 a share, Microsoft is more likely to bid about half that, and that’s if it even makes another bid for Yahoo at all. Nice job, Jerry. How many failed Hail Mary passes can one CEO throw?

Update:

VentureBeat’s Matt Marshall is reporting that an internal Yahoo memo says to expect “a major historical announcement” later today, and the rumour is that Jerry Yang will step down as CEO. Kara Swisher at All Things D says that is dead wrong, and so does the New York Times DealBook blog. VentureBeat has now updated its post and quotes a Yahoo source as saying there is no truth to the rumours.

5 thoughts on “Yahoo: We are so totally screwed

  1. Forgive me if this sounds a bit dense…

    1. Yahoo is still making a profit, though obviously shareholders would like more
    2. Yahoo is in a bit of a decline compared to Google, but is still growing
    3. They have made some good purchases, they just haven't really meshed them together yet
    4. Sure they have lost some good staff, but they still have 1000s more
    5. Hiring new good staff at current valuation probably isn't going to be too difficult
    6. A lot of their revenue is display advertising, which will see a decline, but they are likely to still see profits

    It is quite possible that they won't see a similar valuation to the Microsoft offering earlier in the year, but if shareholders had benefitted from that deal, who is to say they wouldn't have lost a similar amount after reinvesting the proceeds of a sale in say Google?

    I would have loved to see what a combined MSFT/YHOO would have done to change the landscape online, especially in search, but I still don't see why they are “totally screwed”

    • Andy, you are quite right that Yahoo isn't exactly bankrupt — it has lots of cash flow, it has plenty of assets, and so on. And my headline was obviously a little bit hyperbolic, in an effort to be colorful.

      At the same time, however, you can't deny that Yahoo's search efforts have been a dismal failure, and that's what the Google deal was supposed to solve. The only option now is Microsoft — the same deal that Jerry Yang and the board already blew once. That's not a great position to be in, no matter how you slice it.

    • Andy, you are quite right that Yahoo isn't exactly bankrupt — it has lots
      of cash flow, it has plenty of assets, and so on. And my headline was
      obviously a little bit hyperbolic, in an effort to be colorful.

      At the same time, however, you can't deny that Yahoo's search efforts have
      been a dismal failure, and that's what the Google deal was supposed to
      solve. The only option now is Microsoft — the same deal that Jerry Yang
      and the board already blew once. That's not a great position to be in, no
      matter how you slice it.

  2. So is this announcement just Jerry Yang begging for Microsoft to make a new offer? Yahoo may still have traffic and profitability, but that sense of decline is inescapable. They haven't had any kind of indication of growth or innovation for a while, their biggest news has been related to potential acquisitions and partnerships. If the FTC and MSFT are going to block any joint ventures, I don't see how they are going to get their stock value back up to what the investors used to have.

  3. Andy, you are quite right that Yahoo isn't exactly bankrupt — it has lots
    of cash flow, it has plenty of assets, and so on. And my headline was
    obviously a little bit hyperbolic, in an effort to be colorful.

    At the same time, however, you can't deny that Yahoo's search efforts have
    been a dismal failure, and that's what the Google deal was supposed to
    solve. The only option now is Microsoft — the same deal that Jerry Yang
    and the board already blew once. That's not a great position to be in, no
    matter how you slice it.

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