Yahoo Sees Rosy Future without Microsoft - Analysts’ Views
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I was tempted to call this section “You have to be kidding,” but the truth is, I like Yahoo enough to give it the benefit of the doubt. And I’m not convinced that a Microsoft buyout would be the answer to the search engine’s woes – or necessarily a good thing for consumers. But I’m not exactly a market analyst, so let me quote those who are.
Ross Sandler, an analyst with RBC Capital Markets, isn’t buying Yahoo’s optimism. “Judging by recent history, we remain skeptical of Yahoo’s ability to execute smoothly against this plan,” he wrote in a research note. “If the overall economy and the online advertising space were in a healthier place right now, we would have more confidence.” Still, he did raise his price target for Yahoo’s stock from $24 to $32.
Clay Moran, of Stanford Group Company, meanwhile, thinks the presentation’s real audience wasn’t Yahoo’s shareholders, but Microsoft. “This is another step in the public negotiation between these two companies,” he noted. “We believe this deal is turning friendly. But, Yahoo’s alternatives are dwindling.” He’s right about that; News Corp. recently bowed out of a possible deal with Yahoo.
On the other hand, Microsoft doesn’t have a lot of options either. Mark Mahaney of Citi Investment Research thinks the software giant might be persuaded to come up in price after this. “Buying Yahoo may be Microsoft’s ONLY game-changing option in (the) Internet sector,” he wrote.
And then there’s Henry Blodget, writing for the Silicon Alley Insider. He thinks Yahoo’s plan “is more of a ‘best case’ scenario than a ‘most likely’ scenario,” but he didn’t dismiss it outright. Doing some math and making some projections, Blodget calculates that Yahoo is saying it will be worth $50 to $60 per share in 2010. “Discount that back to today and you’re looking at about $40-$50 a share. Thus Yahoo’s assertion that it’s worth at least $40 a share.” In short, this is why Yahoo rejected Microsoft’s offer of $31 per share.
The problem with Yahoo’s math, according to Blodget, is that it’s too optimistic. Take the area of display and video ads, where Yahoo projects its strongest growth. Blodget thinks that assumption is “reasonable,” but makes one very significant caveat: “This absolute growth would almost certainly not be possible in a recession.”
Michael Liedtke, writing for the Associated Press about Yahoo’s projections, pointed out what most analysts have been saying: Yahoo is being overly optimistic. “After subtracting ad commissions, Yahoo’s revenue predictions of $7.1 billion in 2009 and $8.8 billion in 2010 are well ahead of analyst estimates. Analysts, on average, had been anticipating $6.4 billion in 2009 and $7.6 billion in 2010.”
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