With the Microsoft-Yahoo-Google (NSDQ: GOOG) dance so fluid, analyst reports are going stale pretty fast. Whereas just a couple days ago, most analysts were debating "what price" a deal would occur at, now they're back to debating "if".
Jeff Lindsay, Bernstein: "Yahoo!'s (NSDQ: YHOO) proposed trial of search with Google is a shrewd move that could significantly complicate Microsoft's (NSDQ: MSFT) unsolicited bid for Yahoo!" Lindsay argues that if the trial is successful, the path is paved for Yahoo to justify a $40 per share valuation. He also makes an important note about why Google is now willing to make this move, when previously it expressed concern over anti-trust issues. The difference is that at that time, Google's DoubleClick acquisition hadn't yet closed, and the company didn't want to do anything to stoke the fears of regulators. Now that that's out of the way, it can show a little more verve. Ultimately, the deal makes sense for Microsoft up to $35 per Yahoo share, but if the company is forced to go beyond that, then an offer makes less sense.
Ben Schachter, UBS: The Google deal doesn't represent an alternative path, in Schachter's view, but instead is a "pure negotiating tactic." He also doesn't expect any long-term agreement between Yahoo and Google to pass regulatory muster. However, Yahoo could still use the results of the test to argue that a combined Microsoft-Yahoo would offer more value, meaning Microsoft should raise its bid. "We continue to believe reaching a mutual agreement with Microsoft would be the best way for Yahoo! to potentially extract a higher bid; the alternative would be for Yahoo! shareholders to tender, although this process would not be as expeditious as if the two sides were to come to terms, and could involve a lower offer price, making the battle potentially even more protracted." More after the jump
Doug Anmuth, Lehman: In a report titled "This is Only A Test...", Anmuth argues than an outsourcing deal with Google would lead to 34 percent growth in revenue per search (RPS), but that such a move would be a strategic error, as it "sacrifices L-T benefits of being a principal in both search & display for N-T financial gains." As for the impact to Google, also an important question, given concerns over the company's growth rate, not so much: "Incremental $190M in revs & $172M in EBITDA are increases of less than 2% for each on full yr '08 basis." However, even if Yahoo and Google were to go full-on with this agreement, it doesn't necessariy mean the decimation of Yahoo's own ad team: "If Yahoo! were to ultimately outsource its search business to Google, we believe it could seek to maintain some degree of control around search sales on its site, potentially in a similar way to the AOL (NYSE: TWX) Marketplace which enables AOL to sell and customize Google's search ads for marketers." Overall, Anmuth thinks that search ad outsourcing would lead to a 5 percent total revenue jump, though with reduce costs, an EBITDA increase of 33 percent.
Note that none of these even get into the AOL and News Corp (NYSE: NWS). twists, though that will start to trickle in:
Rich Greenfield, Pali Capital:"MyHooSoft Sounds Far More Attractive than AolHoo" Even with the latest developments, Greenfield thinks Microsoft will win: "At the end of the day, MSFT has the balance sheet to bid virtually any price for YHOO and we simply cannot imagine them losing out to AOL, with potential stakes in Myspace (and Facebook) giving them significant insight into the world of social media and advertising." Looking outside of Yahoo for a second, he adds: "Unclear where a MSFT/YHOO/Myspace combination would leave Facebook - but MSFT would certainly become a real "player" in today's digital media landscape with a shot (however, long) of rivaling Google."
By Joseph Weisenthal