If Yahoo doesn't beat, Microsoft should lower offer

Posted Apr 22nd 2008 5:09PM by Aaron Katsman
Filed under: Earnings Reports, Deals, Microsoft (MSFT), Yahoo! (YHOO)

With Yahoo! Inc. (NASDAQ: YHOO) reporting earnings after the close tonight, the pressure is definitely on for the company to produce a strong report. As Pia Sarkar wrote at The Street.com: "Sunnyvale, Calif.-based Yahoo! has already reiterated its revenue guidance of $1.28 billion to $1.38 billion for the quarter and $5.35 billion to $5.95 billion for the year, leaving many analysts believing that the company will -- at the very least -- meet those estimates."

With the way the company has been fighting the Microsoft Corp. (NASDAQ: MSFT) bid, it seems clear that the company is going to produce a strong report. Then management will have a leg to stand on when they say there is more value to the company than what Microsoft is offering.

My gut tells me that they will beat estimates by a penny or two and confirm guidance for the rest of the year. Since they had previously brought down guidance and their overall outlook, this isn't so great. It's no secret that the company has not performed to potential and that's why many are calling on Yahoo! chief Jerry Yang to accept the Microsoft deal.

Update: Yahoo's net income showed a rise to $542.2 million, some 37 cents a share, and a profit of $150 million and 11 cents a share. Wall Street was expecting about 9 cents, thus beating the estimates, as noted above, by a couple pennies nicely, giving Yahoo! management a bargaining chip.

If they can't provide a strong report, then the company really is in dire straits. I have heard that because the stock is trading only 10-15% under the takeover price, a solid report could result in a better deal. I just find that hard to believe. The Microsoft deal, when announced, was about 60% above market value. I don't think that Microsoft is going to increase the offer based on one quarter's results. In fact, if they don't produce a bang up quarter, I think Microsoft should play hardball, and drop the offer.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/22/08.

Tags: Earnings, inthenews, Jerry Yang, JerryYang, MSFT, YHOO

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Reader Comments (Page 1 of 1)

4-22-2008 @ 6:37PM

NewsVisual said...

Based on various news reports that say Microsoft Corp has hired a lobbying firm to help it win over regulatory approval, the long awaited buyout deal of Yahoo Inc could be imminent. "The software company, bracing for a regulatory squabble in its takeover bid, recently hired Bryan Cave Strategies to lobby the federal government on the proposed multibillion-dollar deal," The Mercury News reported in an online article last Friday. Despite the two technology companies’ combative public statements, it’s highly probable that behind-the-scenes talks among the two companies’ Directors were ongoing.