Yahoo gets hard look from investors following deal

SAN FRANCISCO (Reuters) - Yahoo Inc shares fell for a second straight day after the company announced a Web search partnership with Microsoft Corp that failed to live up to Wall Street expectations.

Even as the broader market rallied, Yahoo shares dropped as much as 6 percent on Thursday. The stock recovered a little in late trading, but is still down 14 percent since the agreement was announced on Wednesday morning.

The deal, in which Yahoo essentially outsources search to Microsoft, is being viewed by analysts as more positive for the software company than for Yahoo. Microsoft's stock rose about 1 percent on Thursday.

"Everybody was anticipating something much more than this," said Bob Bacarella, portfolio manager at the Monetta Fund, which does not own Yahoo shares. "To me it's like Yahoo sold their soul, but they still don't have a body."

Some investors had hoped the deal would help pave the way for an acquisition of Yahoo by Microsoft, which offered as much as $33 a share to buy the company last year. Yahoo shares were down 3 percent at $14.65 in Thursday afternoon trading.

Others were disappointed that Microsoft did not agree to pay Yahoo an upfront payment, which some had expected to be several billion dollars.

With the prospect of a Microsoft acquisition no longer on the table, investors are taking a harder look at Yahoo's fundamentals, said Mark Coffelt, a portfolio manager at the Empiric Core Equity Fund.

"People are reassessing why they own Yahoo and where it's going to trade and how fast it's going to grow," said Coffelt.

Yahoo currently trades at around 34 times historic earnings, compared with Google Inc's 21 times multiple.

"It's priced to see the company grow really rapidly and there's certainly no evidence of that in the last few years," Coffelt said.

Cowen & Co analyst Jim Friedland said the PE ratio does not tell the entire story on account of Yahoo's significant holdings in Asian assets, including the Alibaba Group, which owns Alibaba.com Ltd.

Looking at Yahoo from an enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization) ratio basis, he said the stock has valuation support. But that does not mean it has any upside in the near term.

"Just because something trades at a low multiple doesn't meant there's not a good reason for it," said Friedland.

Microsoft Chief Executive Steve Ballmer said on Thursday the deal was not understood in the market.

"It's a win-win deal from my perspective," he said, adding he was surprised by the steep fall in Yahoo's shares.

source: http://www.reuters.com/article/technologyNews/idUSTRE56T6H220090731

Microsoft and Yahoo Finally Announce Deal

Well, they’ve finally gone and done it. Microsoft and Yahoo have partnered to “change the search landscape.” The two companies today announced a long-awaited deal, in which Microsoft will power Yahoo search while Yahoo will become the exclusive search advertising provider for Microsoft’s search engine, Bing.
You know this history by now. Here’s what the companies have to say:

”This agreement comes with boatloads of value for Yahoo!, our users, and the industry, and I believe it establishes the foundation for a new era of Internet innovation and development,” said Yahoo! CEO Carol Bartz. “Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides. Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences.”

Microsoft CEO Steve Ballmer said, “Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,” said Ballmer. “Success in search requires both innovation and scale. With our new Bing search platform, we’ve created breakthrough innovation and features. This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo! know there’s so much more that search could be. This agreement gives us the scale and resources to create the future of search.”

Key Terms as highlighted in the announcement:

- The term of the agreement is 10 years;

- Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing Web search platforms;

- Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology;

- Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process;

- Each company will maintain its own separate display advertising business and sales force;

- Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology;

- Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites;

- Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!’s O&O sites during the first five years of the agreement; and

– Yahoo! will continue to syndicate its existing search affiliate partnerships.

- Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country;

- At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million; and

- The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

About the author:
Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003.

Microsoft releases Windows 7 code to PC makers

SEATTLE (Reuters) – Microsoft Corp said on Wednesday it is releasing the code for Windows 7 to PC manufacturers, keeping the software company on track to have machines running its new operating system in the stores by late October.

The move means Hewlett-Packard Co, Dell Inc, Acer Inc and other computer makers can start to load up new PCs, laptops and netbooks with the operating system, the successor to the unpopular Vista.

Both Microsoft and the manufacturers are hoping the full launch of Windows 7, scheduled for Oct. 22, will help lift PC sales out of the slump caused by the global economic downturn, and give the holiday shopping season an extra lift.

Manufacturers have been testing early versions of Windows 7 for several months, but this week marks the release of the “gold code,” according to a Lenovo Group Ltd executive, referring to the software industry jargon for the finished product.

PC makers no longer have to fly discs in helicopters to their manufacturing plants, as the transfer is now done electronically. But it still marks a dramatic day as manufacturers hustle to get new products into stores in time for the release date.

Machines that have Windows 7 installed, or devices that are compatible with it, will simply have the Windows 7 logo on them, a Microsoft executive said. The company will not be splashing the word “capable” around in marketing efforts, after it received complaints at its last launch that some machines branded “Windows Vista Capable” could only run the lower-end versions of the software.

Few industry watchers expect such problems to hit Microsoft this time around as the company has spent more time making sure PCs will be able to run the new software.

Strange Ad Copy for Google Adwords

Today I came across an absolutely strange Adwords ad in my Gmail interface. I am absolutely clueless why would any advertiser put up an ad like that and even if they do how can the Adwords editorial team approve such an ad copy. On top of my Gmail inbox the Adwords ad displayed as

Text ad - www.url.com - Desc1 Desc2

Just to satisfy my curiosity I clicked on the ad to find that it leads to a page that apparently doesn't exist, however, I was even more surprised by the fact that the landing page URL is completely tagged to keep a tab on the performance of the campaign, which indicates that the person who has set up the campaign definitely knows a bit or two about Adwords and PPC

Landing Page:
http://www.test.0000000184.com/path?keywords=keyword&creative=3849139695&adGroup=7711

While the ad copy mostly complies to the Google Editorial policy except for the fact that the landing page URL isn't working ( and that should get the ad disabled ) it is rather strange for any company to put up an ad like that.

There are just two possibilities that clicks my mind on this..

a) The ad is run by Google themselves to test any internal feature or gather any specific user behavior data ( by passing the editorial policy is not an issue for them)

b)Any major agency is running these ads for the purpose of finding out any user behavior data or calculating some other competitive matrix like minimum cpc, ctr or minimum impressions on specific keywords etc. However, in this case I am not sure how they have been able to bypass the Adwords editorial policy.

If you have any other ideas about the possible reasons for such an ad copy please do mention in the comments.

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