Yahoo Cost Freeze (YHOO) Means Business Likely Weak--Microsoft Just Waiting To Buy Carcass?

We’ve received several reports of a cost freeze at Yahoo (YHOO). Some sources say it’s a hiring freeze in early July; others say it’s a hiring freeze until July. A reader has heard the clampdown includes travel and other expenses.

Enough to take to the bank? Not yet. But the reports dovetail with some Microsoft chatter about a deterioration in Yahoo’s business and other reports about weakness in display advertising spending.

If Yahoo is clamping down on hiring until July 1, this suggests that Q2 revenue is light. If it is taking a pause in hiring in July, this suggests that Q2 is already in the bag, but that the current tone of business is weak and Yahoo wants to be cautious until it has a better sense of where the market is headed. Either way, the reports suggest that current business is weak.


So this likely means that, barring a big Icahn move, the outlook for Yahoo’s stock is likely to get worse before it gets better. This will increase the animosity and frustration about Yahoo’s having blown the Microsoft deal, and it will keep the pressure on Jerry as he fights to keep his job.

If Yahoo’s business really collapses, it will also likely create an interesting opportunity for Microsoft (MSFT). Continued deterioration in the economy and at Yahoo could drive the stock below $20 in the fall, especially if Microsoft can successfully delay the implementation of the Yahoo-Google search deal. If that happens, Microsoft could come back with an offer for the whole company at, say, $25, and shareholders would likely storm Sunnyvale with torches and pitchforks and force Jerry to accept it.

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