Yahoo's Continuing Troubles

A Wall Street Journal article released just prior to the announcement of Microsoft's proposed takeover of Yahoo catalogued the company's dilemma.

In part, it read,

"Yahoo Inc. issued a sober revenue outlook, saying it faces "headwinds" in 2008 amid weak online spending by some advertisers, prompting an 8.5% drop in its shares to 2003 levels.

The Sunnyvale, Calif., Internet company also announced it is laying off about 1,000 of its 14,300 employees in mid-February as it reported a 23% drop in fourth-quarter profit and an 8% rise in revenue. Some of the employees targeted by the layoffs will have the opportunity to find other posts at Yahoo in its priority business areas.


Yahoo also announced that it renegotiated a contract set to expire this spring with AT&T Inc. that shifts from focusing on selling Internet access together to sharing ad revenue and offering content on AT&T's TV service, Web portal and mobile services.

The new financial terms weren't disclosed but Yahoo said it expects to receive $300 million to $400 million upfront from AT&T as part of the contract. In exchange, AT&T will "retain full ownership of the customer relationship," an AT&T spokesman said, and will no longer share revenue from broadband subscriptions with Yahoo.


But one person familiar with the matter said that Yahoo expects to exceed its annual revenue from the current deal -- which has been estimated around $250 million -- on average over the four-year life of the new agreement, when the upfront payment is factored in."

One has to ask, irrespective of Microsoft's bid, is:

"Does Yahoo have much value as a going concern, rather than, say, a marketing partner or just some assets to strip?"

It's retro-CEO, Jerry Yang, hasn't really moved the needle at the firm in six months. Now they acknowledge facing 'headwinds' in 2008.

They renegotiated the ATT deal, but at what ultimate price? Yes, they get greater upfront cash flow, but they lost any direct connection with the customers. How long before ATT replaces Yahoo's content, or offers less for it? Is there really that much content on Yahoo that is proprietary?

The Microsoft bid offers some consolation to Yahoo shareholders that they might soon have a way out of their current mess. From the looks of the latter's management's recent statements, it's about the only hope their shareholders have anymore.