There is some good news about having a huge, profitable business trading at less than 2X revenue (close to 1X if you factor out the Asian assets): You have almost nothing left to lose.
Yahoo now has the freedom (and excuse) to do what it needs to do to get the business in great shape. As we’ve said, we think Yahoo needs to lay off about 3,000 people, sell or shutter non-core businesses, hire top-tier managers and load them up with low-price stock options, and then rebuild the company from the ground up.
And with the stock at $10, it can now do this the same way a private company would: Patiently, deliberately, without much bitching from shareholders (who are already flat on the backs reaching for the smelling salts). Most importantly, Yahoo is now not the only company suffering. So it can do what it needs to do while knowing that most other companies in the economy are, to a greater or lesser extent, doing the same thing.
But Yahoo has to act. Sleepwalking is not an option. Without much larger cost cuts than the company has announced, Yahoo’s margins will soon be pitiful again (and if the economy really goes into the tank, they might be negative).
There is no need for Yahoo to reinvent the wheel in search, and Microsoft needs to do a search partnership. So there should be some opportunity there. Yahoo’s vast reach and leadership in display ads should allow it to virtually control that market, and it has an opportunity to lead the next wave of innovation. But, first, it has to get the resizing out of the way.
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