Any Google Deal Will Have a Minimal Impact on Yahoo Value

Implications: I cannot imagine an advertising deal between Google and Yahoo that will significantly impact the value of Yahoo.

Analysis: Microsoft appears to be in the negotiating mode.  It is obvious Microsoft’s announcement that it is proposing to Yahoo a deal related to advertisements is a move by Microsoft to stop Google from entering a search-related deal with Yahoo that is now under discussion and could be announced in coming days.  However, the action is directed at yahoo and not Google.

Microsoft’s action will highlight to the world the assumed Google-Yahoo advertising deal does not amount to much revenue.  I don’t think Microsoft’s recent actions are designed to hurt or impede Google.  Google is the clear dominant leader in online advertising.  Google does not need this deal with Yahoo.  However, Yahoo needs Google’s cash to fill its coffers.

Microsoft’s last Yahoo proposal is designed to cast uncertainty on Yahoo’s future.  Right now Yahoo is working to cast a light on the Google deal that would give you the impression the deal was worth several billion dollars.  In reality if the deal resulted in a $500 Million deal over the course of a few years, I would be pleasantly surprised and I would say the deal would have minimal impact on the company’s valuation.  Most of these deals are not exclusive and are over a 2 to 3 year period of time; so spread the value of the contract across the 3 year period.

Then there is the other factor.  Google is not going to sing ay lucrative deal that will line the pockets of a competitor like Yahoo or a Microsoft owned Yahoo.  If a deal were signed I would suggest to investors they read the details of the contract.  There are advertising contracts where the party pays as you go, pays per click through, pays on a scale with a cap, and simply pays based on types of traffic with a cap.  I don’t want to see investors suddenly running to the nearest broker ready to buy stock unless they do their homework.  Do not let broker hype guide you.  Then again Carl Icahn will probably read any Google contract in detail and then tell everyone what is really going on.

Why would Google want to get in the middle of this mess?  Google does not have bone in this dog fight.

I believe that Microsoft is making this advertising bid in order to poison the waters for Yahoo.  Microsoft is doing what a lot of companies would do make the target sweat; and Yahoo will sweat.

I have said in past analyses that I admire Microsoft’s goal of growing their Internet business initiative in an organic manner.  However, I have also expressed some concern as to how that will be done in a timely manner.  That being said, Microsoft still wants Yahoo but wants it on their terms.  Given the way the stock market works – 75% smoke and 25% substance, Yahoo shareholders will likely start panicking and Yahoo’s share price will drop even further.