Imran Khan at JP Morgan says that, post-Microsoft, Yahoo is left with 4 imperfect strategies to get its business back on track. None of them is particularly compelling.
1. Outsource search advertising to Google. The deal could add $1B and $0.50 in revenue and EPS, but involves its share of risks:
…we believe this option carries the associated risks of regulatory review and the potential loss of search partners who might prefer to work directly with Google. We also note that this will not address Yahoo!’s challenges surrounding market share.
2. Expand ad network by completing deals with TWX, NWS, and EBAY.
Such a scenario would significantly increase YHOO’s display ad inventory. We think that, because of audience fragmentation, ad networks will grow faster than the overall display market. By creating a leading ad network, YHOO could potentially accelerate its display ad growth rate above our F’09 17% Y/Y growth estimate.
3. Implement a more aggressive international acquisition strategy:
YHOO could use its FCF to expand its global footprint. By doing this, YHOO could take its knowledge and ad platform to a global audience. However, given the company’s track record, we are sceptical about the success of this strategy.
4. Swallow pride, return to the bargaining table with Microsoft:
We believe this scenario is very unlikely in the short-term as Yahoo! mgmt fought to maintain independence and has proffered a 3 year strategic plan. However, it could be a long-term possibility if YHOO is unable to stage a turnaround.
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