The investors who are flocking to Yahoo! Inc. (NASDAQ: YHOO) today because Bear Stearns argued that the internet portal would make an attractive acquisition target need to take a deep breath and count to ten because any deal isn't going to happen any time soon.
For one thing, internet advertising is going to take a hit over the next few months because financial services firms are going to cut spending due to the subprime mortgage meltdown. Plus, why would any company buy Yahoo! while questions remain about Project Panama.
Shares of Yahoo!, up about 6% this year, have gotten beaten up badly over the past year, tumbling about 19%. Pundits are predicting gloom and doom for the Sunnyvalle, Calif.-based company, which continues to struggle against Google Inc. (NASDAQ: GOOG) and other web sites such as News Corp.'s (NYSE: NWS) MySpace for advertising dollars.
The news, though, hasn't been all bad. President Susan Decker and other top Yahoo! executives have been buying shares over the past few months. Yahoo's traffic also will benefit as fantasy football season ramps up. Bloomberg News notes the initial public offering of Alibaba.com may boost the company's earnings by 78 cents per share.
Those are more compelling reasons to buy Yahoo. Remember, a potential buyout is like a potential weight loss. The gap between theory and reality can be huge.
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