Monday, July 14, 2008

Prospects of YHOO after Aug1


Yang of Terry Semel days is different from the Yang with his baby and legacy on the line. I believe he now has fire in his belly. He has already taken some steps under duress like negotiating an outsourcing deal with GOOG, which was often talked about by analysts but was never considered by him. Also this time he knows that his time is limited and engineers work well under time constraints. So he won't be averse to making bold decisions like firing non-performing folks and improving the financials, focusing on core strengths of YHOO and benefiting from the revenue flow from GOOG.

The trump card is going to be desperation of MSFT. The earnings report from MSFT is critical. If the prospects for Vista and Office look bleak, then MSFT won't have any choice but to bet on a YHOO acquisition. Mobile is already lost to Apple and MAC is growing fast as well. GOOG earnings would be important because they would be an indicator of the growth prospects of the online economy in a recessionary environment. If GOOG comes out with blowout earnings, MSFT would be even more desperate to buy YHOO.

My personal strategy is to hope for YHOO win on Aug1, and then start a position in YHOO in the aftermath.

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