The normally astute firm Sanford Bernstein appears to have developed brain rot this morning, at least with regard to a purported Yahoo break-up plan. According to Reuters and 24/7 Wall St, Bernstein analyst Jeffrey Lindsay posits that Yahoo would be worth $39 a share if broken into three businesses:
- search ($15 billion)
- display ($26 billion)
- subscriptions ($1 billion)
If Lindsay is merely performing an academic exercise to show that the stock is undervalued relative to some recent comparable-company trades, fine. If he is actually recommending that Yahoo be broken into three parts, however, he must have spent a bit too much time at the bar.
How, exactly, is Yahoo supposed to break up it’s “search” and “display” businesses? By creating a separate site, management team, and salesforce for the search window, and another one for everything else? What is the stand-alone search business going to be called? The stand-alone “subscriptions” business? This is a far worse idea than the one we wrote about last week that called for breaking Yahoo into two businesses: US and international.
Thankfully, Lindsay appears to have been stone cold sober when he ran the numbers on what would happen if Yahoo switched its search-ad serving to Google, which we think is an idea the company should reconsider. According to 24/7 Wall St’s summary of Lindsay’s report:
search revenue would rise 28% in 2008, and total revenue by 16% over current projections. Yahoo! could cut 25% of its head count dropping operating expenses by 17%. The combined benefit of these actions would improve operating income by 205% over current Wall St. estimates.
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