An optimist might look at Yahoo! Inc.'s [YHOO] stock price this morning of around $22 and note that at that level it would be trading above its closing price of 19.18 on Jan. 31, the day before Microsoft Corp. [MSFT] made its $31 per share offer to acquire the company. Everyone else is just livid. 

Yahoo! shares tumbled 20% in early trading Monday after Microsoft on Saturday withdrew its $47.5 billion offer to acquire the company. The software maker's move to abandon the deal was a stunning development following chatter late in Friday's trading session that the two sides were in heated negotiations on a possible deal and that Microsoft had upped its offer to $33 a share, although that turned out to well short of the $37 a share Yahoo! reportedly was seeking.

Market analysts, who have been nearly unanimous in their beliefs during the past three months that Microsoft would acquire Yahoo!, also were blindsided by the latest developments. But they are divided over whether the two sides would eventually combine.

Cowen & Co. analyst Walter Pritchard says in a research note this morning that he doesn't believe that Microsoft's withdrawal of its bid is a negotiating tactic. "Microsoft is far enough behind in this area that it needs to commit to a strategy, and waiting on a Yahoo! acquisition simply puts the company further behind." He concludes that an "organic" growth strategy is a better option for Microsoft and that acquiring "smaller, but more innovative" Internet companies" is the better way to go.

 But not everyone is convinced a deal is dead. Friedman Billings Ramsey aanalyst David Hilal says in a note that despite the deal collapsing "We are not convinced that Microsoft is going away for good. The software maker's abandoning the deal is likely "a public negotiating tactic from Microsoft that is designed to incite Yahoo! shareholders to pressure its board to ratchet their expectations down." 

Feeling heat from shareholders, Yahoo! could move quickly on a plan to outsource its search advertising to rival Google Inc. [GOOG]. RBC Capital Markets analyst Ross Sandler says a deal with Google could incrementally boost Yahoo!'s cash flow in 2009 by $500 million and would help value the company at $32 a share. Even without a deal, he values Yahoo! at $24 a share.

UBS analyst Benjamin Schachter says a partnership between Yahoo! and Google would be a "deal-killer" from Microsoft's perspective. Still, he still thinks Microsoft needs Yahoo!"in order to compete with Google in online advertising and that a deal could still be closed at between $33 a share and $37 a share. -- David Shabelman

See May 5 post from Alley Insider
See May 5 post from search engine land
See May 4 post from Yahoo!'s Jerry Yang