“Yahoo earnings beat analysts’ forecasts, though the software giant’s ultimatum looms, which may not be sufficient to tempt Microsoft into raising its takeover bid for the Internet Company.”
New York — Internet search giant Yahoo Inc. presented a better-than-expected first-quarter sales and profits results Tuesday that surpassed analysts’ modest expectations, but it remains unclear if that will be enough to force the software maker Microsoft Corp. to raise its takeover bid above $45 billion.
Yahoo, attempting to ward off a buyout bid from software giant Microsoft, said its earnings increased threefold in the first three months of 2008.
The Sunnyvale-based internet company on Tuesday announced income of $542.2 million, in excess of three times its profit of $142.4 million, at the same time last year.
“The company posted $1.35 billion in net revenue (excluding traffic acquisition costs), a 14 percent increase from the same period last year, and toward the high end of its own guidance.”
CEO Jerry Yang acknowledged that Yahoo’s results were a testament to the success of the company’s recent strategy, which has focused on Yahoo reinventing itself as the starting point for Web surfers and the partner of choice for advertisers.
“We are extremely pleased with our Q1 results,” Yang stated during the company’s earnings call with analysts. “Our ability to execute on multiple fronts is clearly improving.”
Yahoo is trying to establish that it is more valuable than Microsoft’s unsolicited $44.6bn offer.
But regardless of whipping out the forecasts, Yahoo’s performance did not convince analysts that the firm merited a better bid.
“This is better than Wall Street was expecting. This might pose some issues for Microsoft,” said Jeffrey Lindsay, analyst at Sanford C Bernstein & Co.
“Although it is less likely that Microsoft would succeed with a lower bid. They would not be able to reduce their price.”
Microsoft has intimidated to overthrow Yahoo’s board if the 10 directors do not accept the current offer Saturday. That dangerous strategy, known as a proxy contest, probably would not be settled until Yahoo’s shareholder meeting, which does not have to be held until July.
“The cash-and-stock bid — valued at $44.6 billion, or $31 per share, when it was first made — is now worth about $43 billion, or $29.88 per share.”
Microsoft Chief Executive Steve Ballmer had pointed out before the report’s release that nothing Yahoo said about the quarter would change its resolve. Later, sources familiar with Microsoft’s idea said the results gave it no reason to revalue its offer, now worth $43 billion.
“I wish Yahoo all the success with its results, but it does not affect the value of Yahoo to Microsoft,” Ballmer said on Tuesday during a visit to Morocco, in comments first reported by Reuters.
Microsoft gave a time limit for Yahoo to strike a deal or face a hostile takeover battle and a lower offer.
“Microsoft is breathing a sigh of relief,” said Jim Friedland, an analyst at Cowen & Co. “Even though these are solid results, given long- and short-term challenges, there has been no overall shift in Yahoo’s business.”
“Microsoft’s offer is still the best offer on the table,” he said, adding the software maker could “modestly increase” its bid just to close the deal.
As part of its plan to fend off Microsoft, the company furthermore postponed the March 14 deadline for nominating candidates to its board.
“The likelihood that Yahoo will be able to fend off Microsoft seems very low, mainly because in essence Yahoo is a company that is in a multi-year slide,” said Cantor Fitzgerald analyst Derek Brown. “Even though the quarter was better than expected, there is uncertainty if it will be a trend.”
“The board’s decision to reject Microsoft’s bid was based on the strength of our business,” said Yang in a conference call with analysts, saying Microsoft’s offer undervalued the company.
But he added that Yahoo’s board is “open to any and all alternatives, including a deal with Microsoft” if the price was right.
“Perhaps these figures do not change the game much. Yahoo is still being backed into a corner by its giant unwelcome suitor, and nobody is rushing to its rescue,” said Rory Cellan-Jones, BBC technology correspondent.
Without mentioning an exact price, Yahoo has insisted that it is worth more to Microsoft even though its shares had fallen below $20 before the bid.
Yahoo’s rejection of Microsoft’s offer prompted rumors that Yahoo is trying to work a counter deal with Time Warner’s AOL. Sources familiar with the matter informed Reuters on Tuesday that Yahoo was still in separate talks with News Corp and Time Warner Inc. about other types of deals.
“We are totally committed to maximizing the value of this asset,” Yang told investors on a quarterly conference call. “Our board and management team continue to be open to any and all alternatives, including a Microsoft deal.”
Adding to the jumble, Google, which surprised investors with its earnings last Thursday, recently struck a trial deal with Yahoo that will place its AdSense search results on Yahoo’s Web site. Some analysts perceive the partnership as an attempt to disrupt Microsoft’s takeover bid.
Additionally, Yahoo is making a concerted effort to right its ship by trimming its workforce by 7% and refocusing on its core display-ad business, “the most fundamental aspect of advertising,” according to Yahoo’s President Sue Decker.
Yahoo anticipates its income to increase more dramatically in 2009 and 2010 as the benefits from its expanded Internet advertising network start to kick in. “We feel we are on the verge of fundamentally changing the game,” Decker, said in Tuesday’s conference call.
Yang and Decker declined to discuss the Google tests, which began two weeks ago. Analysts believe a long-term partnership between Yahoo and Google would be difficult to pull off because of the antitrust concerns that would raised, given the two companies control more than 80 percent of the U.S. search market.