Laura Martin at Soleil cut Yahoo (YHOO) from Hold to Sell after this weekend’s collapse of negotiations with Microsoft. Target to $22:
- We do not think this is a tactic Microsoft (MSFT -not rated) is using to get a lower price.
- YHOO’s prioritization of employees>shareholders in handling MSFT should engender no loyalty from Wall ST.
- We expect YHOO’s employee turnover to accelerate as its share price falls and stock options are underwater.
- Shareholder litigation will likely distract the Board and senior management and cost YHOO shareholders more money.
- The economic environment continues to weaken and timing of an advertising turnaround remains uncertain. Therefore, though execution alone. YHOO cannoter (our view) re-attain the $33/share that MSFT offered for >2 years, and serious execution issues remain.
- YHOO’s plans to outsource to Google (GOOG, Hold) might generate incremental revenue of $500mn near-term. but simultaneously destroy a key differentiator of YHOO for any potential acquirer.