Yahoo reported lower then expected earnings Tuesday evening, and announced a soft 2008, sending the stock down over 10% after-hours. CEO Jerry Yang is upbeat but not till 2009 - how weak is that? I prefer CEO’s that makes bold forward looking statements that might not necessarily be true (at least when I’m the shareholder and looking to unload). At a market cap of around 20 billion dollars, Yahoo is looking very very cheap and should seriously be considered a take over target by numerous corporations and private equity funds. I might consider buying it myself ;)  Online advertising continues to grow 20% a year and Yahoo is strongly positioned to profit from this expanding market place. In 2007 Yahoo acquired numerous display advertising networks in order to compete against Google’s acquisition of Double Click. The remaining display advertising networks left on the block are: 24/7 Real Media, SpecificMedia, ValueClick, and Yahoo. At 20 billion dollars I would even contend that Google should consider making an offer to purchase Yahoo. Purchasing Yahoo would position Google as the undisputed master of the Internet, the only sector Google wouldn’t own is online auctions (eBay) - and who would want to own it, as consumers online are demanding quicker and quicker purchase times (auctions are just too slow and still too risky).

So the real question for stock holders is when Yahoo or another entity will announce that they are in talks to purchase Yahoo. Microsoft’s online marketing unit lost a few hundred million last year, and I don’t see them turning that around anytime soon. Microsoft can continue to make money losing investments in display advertising, but will never stand a chance in paid search. Paid search (and all online advertising for that matter) is a numbers game and MSN just doesn’t get traffic - therefore Microsoft will never make money through it. If Microsoft ever wants to compete with Google they will have to pay to get there (and thats exactly what they are doing). I would contend that the most likely suitor for Yahoo is Microsoft (and Microsoft’s only chance of online survival is to purchase Yahoo), and at these levels Yahoo looks Yummy!

Independent thoughts:

Maybe Yahoo should take after its own online marketing platforms and stay away from the web hosting aspect of online business. The world of pay per click campaigns which increase in CRT values with good website design are making stagnant prices for domain names like manna from heaven.