by David Shabelman
[Posted on January 22, 2008 - 5:27 PM]
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DiggA move by Yahoo! Inc. [YHOO] to announce layoffs when it discloses quarterly earnings next week is unlikely to appease investors eager for the Internet company to take more aggressive, if potentially riskier, steps to jump-start its business.
According to published reports, Yahoo! will dismiss several hundred employees soon after issuing its Jan. 29 earnings report. With a work force of roughly 14,000, however, the job cuts would do little to boost the company's financial performance and could even be offset by hiring in other parts of its business.
"Here you are in one of the most profitable and rapidly growing technology services areas and they find themselves doing cost reduction through layoffs," said David Garrity, an analyst with Dinosaur Securities LLC. "Shrinking ones way to a prosperous future tends to be a problematic proposition."
Garrity wants Yahoo! to continue expanding its online advertising business following the company's 2007 acquisitions of behavioral advertising firm BlueLithium Inc. and online ad exchange Right Media Inc. for a total of $1 billion. Possible targets, the analyst said, include publicly traded ad companies ValueClick Inc. [VCLK] of Westlake Village, Calif., and Customer Acquisition Network Holdings Inc. of New York.
Sramana Mitra, an independent corporate strategy consultant, agreed that Yahoo! must use acquisitions aggressively to drive growth and expand its product portfolio. She said the company lacks the online offerings to make its My Yahoo! service, which lets people customize their Yahoo! home page, the starting point for Internet users, a goal CEO Jerry Yang recently articulated. "Yahoo! has to figure out what people do during the day and make sure My Yahoo! has good tie-ins with those pieces, which it doesn't have right now," she said.
Although acquisitions are inherently risky for corporations, Yahoo! has a range of targets from which to choose should it pursue a major purchase. To bolster its career services, which Yahoo! established through a 2002 acquisition of HotJobs, the company could acquire New York's Monster Worldwide Holdings Inc. [MNST], which is rumored to be in play. Yahoo! could enhance its travel services by purchasing Priceline.com Inc. of Norwalk, Conn., Expedia Inc. of Bellevue, Wash., or Orbitz Worldwide Inc. of Chicago. Yahoo! also could seek to bolster its popular online photo-sharing service, Flikr, by adding publicly held Shutterfly Inc. of Redwood City, Calif., a company whose valuation has dropped sharply over the past few months.
Another affordable Web services company that could benefit Yahoo! is online real estate firm zipRealty Inc. of Emeryville, Calif., which would enhance the Internet portal's established real estate business, Mitra said.
Although Yahoo! lacks the financial strength to outbid rivals Google Inc. [GOOG] of Mountain View, Calif., and Microsoft Corp. [MSFT] of Redmond, Wash., for acquisitions, it can restructure itself in ways that boost its value. Ashkan Karbasfrooshan, president of WatchMojo.com, a blog that covers Internet advertising, finance and technology, said Yahoo! could combine BlueLithium and Right Media with the online advertising business it does for a consortium of newspaper publishers and spin it off as an initial public offering.
The company also could merge some of its online assets in Asia, which include its stakes in Yahoo! Japan and China's Alibaba Group, and sell a partial stake in the combined entity.
"It's hard for shareholders to view Yahoo! as it should because they have a myriad of assets," said Karbasfrooshan, a Yahoo! shareholder. "It's become a bit too complex, so it's difficult to present its value, because it has a convoluted structure."
In 2005, Yahoo! traded its Chinese operations and an investment of $1 billion in exchange for a 39% stake in Alibaba Group, the parent company of Chinese e-commerce leader Alibaba.com. Yahoo! also got a 1.2% stake in the Internet property.
Karbasfrooshan said ongoing weakness in Yahoo!'s shares and an uncertain economic outlook will make the company more vulnerable to a takeout.
Trading at $19.92 on Tuesday, Yahoo! has lost roughly 40% of its market value since its stock traded as high as $33.99 in October.
"When the stock was trading in the $25 or $30 range, if Microsoft came in and offered $30 or $35, I think the answer would have been, 'Thanks, but no thanks,' " he said.
"But with the stock at $20 I think there would be a lot more takers now than a few months ago."
