Is A Yahoo! Takeover Imminent?
Last year when I met Terry Semel, Yahoo’s CEO, and asked him if a Yahoo takeover by Microsoft was inevitable, he looked at me as if he had swallowed a frog. This week at CES, Joe Hunkins asked David Filo, Yahoo’s co-Founder, the same question and if he had met with Bill Gates, Microsoft’s Chairman & Founder, to which Filo responded he had not. However, the evidence seems to be mounting to the contrary and rumor mills are gathering speed. Is this all baseless? Let's examine.
Microsoft, which is a distant third in the search market has outwardly stated that it has ambitions to be the leader in the domain. According to the latest Hitwise report of U.S. Searches (Dec 2007), Google continues to dominant with a 65.98% share, Yahoo follows with 20.88%, and Microsoft lags behind with 7.04%.
Microsoft’s Reality
There is simply no way Microsoft can close this gap organically. Hence, Microsoft has been coming at it from all angles such as the Facebook investment, which I thought a mistake (this week Bruce Jaffe, Chief Acquisition Officer, Microsoft left the company), the acquisition of Fast Search & Transfer this week and aQuantive earlier this year. The company was so eager to respond to Google’s foray into text to speech service 1-800-GOOG-411 that they spent a US$1 Billion to purchase Tellme. Tellme is a really a call center automation service not a text to speech service based on a web crawl as 1-800-GOOG-411.
Yahoo!’s Reality
Yahoo shares are trading near 52-week lows, giving it a market capitalization of approximately $31 Billion. However, this does not include the value of Yahoo’s investments such as Yahoo
Based on the above calculation the combined value of Yahoo’s investments add up to over US$15 Billion. The current valuation of Yahoo based on the Nasdaq listing does not fully reflect Yahoo’s investments, which if realized would give Yahoo a valuation upwards of US$45 Billion.
Right Timing
Microsoft would be wise to take a run at Yahoo at the current valuation, acquire the traffic to fuel Microsoft’s search and advertising properties, become a formidable competitor to Google and possibly make realize a 50% return on its investment just by unearthing the full value of Yahoo’s investments.
Labels: Google, Microsoft, Online Advertising, Search, Yahoo
posted by Daya Baran at 10:50 PM
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6 Comments:
Actually, the Microsoft investment in Facebook was a master stroke, as now Facebook's stock option valuations are so high, that it's having a hard time recruiting the talent it needs to grow to a $15B valuation company. In essence, Microsoft wiped them off the map with a relatively small (for Microsoft) investment.
Schmarz, you are right. That is indeed one of the effects. The thinking behind the investment/ payment was to acquire traffic for Microsoft's search and advertising properties. Facebook was always in tricky situation with Microsoft.
See: Facebook is Trapped
http://www.webguild.org/2007/10/facebook-is-trapped.html
Good assessment of Microsoft's interest in, and potential stranglehold of, Facebook. It seems that the Microsoft deal might not have been the best long-term decision for Facebook. I certainly hope that they didn't make the Microsoft deal just for the money, as they had plenty of other folks willing to throw money their way.
They were stuck. Microsoft, had first rights of refusal. So no matter who came along Microsoft was prepared to counter the bid. Microsoft was willing to spend to acquire traffic. If they ended up get a stake - even a small one at a valuation that locks others out - all the better. There may have been many folks willing to throw money at them but there are aren't too many players that are willing to fork out such a large sum of cash for a small interest.
Daya this is a very interesting take on the situation. I didn't realize there was so much "extra" value within the Yahoo empire.
"The current valuation of Yahoo based on the Nasdaq listing does not fully reflect Yahoo’s investments"
Very strange. Why shouldn't it? All investments by Yahoo must certainly already be reflected in the share price. If the combined value of Yahoo’s investments add up to over US$15 Billion that just mean that the rest of the Yahoo is worth US$16 Billion -- since the valuation of the stock is US$31 Billion. And not upwards of US$45 Billion.
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