By Jason Simpkins
Microsoft has offered $31 per share in either cash or Microsoft stock, a premium of 62% over Yahoo’s closing price Thursday. Yahoo stock rose 53% in pre-market trading Friday, after plummeting 18% in January.
Yahoo has suffered eight straight quarters of declining profits, and has struggled to compete with Internet-search rival Google Inc (GOOG). Just a few weeks ago, Yahoo posted a 23% decline in fourth-quarter profits. Meanwhile, Google late Thursday reported a 52% increase in fourth quarter sales, its 14th straight quarter with revenue growth of greater than 50%.
[However, Google shares dropped 9.6% after the opening bell Friday morning because the company’s profits fell short of analyst expectations. Worries about how the slumping U.S. economy might affect Google’s earnings power have contributed to a January decline in the company’s stock price that approached 20%,].
Google drew 56% of U.S. web search traffic in December, nearly double the combined share of Yahoo and Microsoft, which attracted 18% and 13% of the market, respectively.
Microsoft and Yahoo considered various avenues of cooperation a year ago, but Yahoo rejected the notion of a takeover. Now, desperate to not let Google run away with the market, Microsoft has made its move.
“A year has gone by, and the competitive situation has not improved,” Microsoft Chief Executivesaid in a letter to Yahoo’s board.
“While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo that we are proposing,” Ballmer wrote.
By offering a fat premium to disgruntled Yahoo investors at a time when there’s little hope of a 2008 turnaround, Ballmer and Microsoft may be forcing the hand of Yahoo’s top executives – possibly putting them in a position where they can’t turn the offer down.
“Microsoft if under massive pressure to expand its Internet business to fend off competition from rivals such as Google and this deal shows how desperate they are,” Thomas Radinger, a fund manager at Pioneer Investments, told Bloomberg News. “It’s a huge gamble as the price is very steep and it will take years to successfully integrate such a massive acquisition,” he said.
Microsoft expects that, in taking over Yahoo, it will benefit from economies of scale in the online advertising market, will gain greater operational efficiency, and will benefit from the pooling of engineering and creative talent.
“The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs,” said, Microsoft’s president of platforms and services.
While analysts are scrutinizing the potential Microsoft/Yahoo tie-up, they are also debating just what caused Google’s fourth-quarter results to come up short.
“There is a lot to scratch my head over about in this [report]," Jackson Securities analyst Brian Bolan told The AP late Thursday. "I might be up all night trying to figure it out."
Google CEOrebuffed the notion that the economy undercut Google's growth.
"I am happy to say we have not seen a negative impact from the rumors of a future recession," Schmidt told analysts during a conference call.
Google co-founder and Presidenttold journalists that the company hasn’t seen any evidence that the recent turbulence in the U.S. economy or the volatility in the global securities markets is affecting Google’s business.
“I think things are going really well," Brin said.
Google said it earned $1.21 billion, or $3.79 per share, during the final three months of 2007. That's a 17% percent improvement over the net income of $1.03 billion, or $3.29 per share, reported during the fourth quarter of 2006.
This is the first time that Google's quarterly profit has climbed by less than 25% since the Mountain View-based company went public nearly 3 1/2 years ago.
Fourth-quarter revenue totaled $4.83 billion, a 51% percent improvement over the $3.21 billion reported during the same quarter the year before.
In terms of a statistical measure that’s more crucial to investors, Google retained $3.39 billion in revenue after paying fees to the thousands of Web sites in the online advertising network that fuels its profits. That net revenue figure missed analyst estimates by about $60 million.
Total paid clicks in the fourth quarter rose 30% from the same period in 2006. In the first three quarters of 2007, Google's paid clicks were rising at a clip of 45% to 52%.
For all of 2007, Google earned $4.2 billion, or $13.29 per share, a 37% improvement over the net income of $3.08 billion, or $9.94 per share, earned in 2006. Revenue in 2007 totaled $16.59 billion, a 56% increase from the $10.6 billion reported for all of 2006.
Google shares closed Friday at 515.90. Over the last 52 weeks, Google’s stock has traded as high as $747.24, and as low as $437. The shares were down 31% from that high-water mark.
Microsoft shares closed Friday at $30.45 down $2.15 per share. Yahoo’s shares closed Friday at $28.38, up $9.20 per share.
News and Related Story Links:
- Financial Times:
Microsoft offers $44.6bn for Yahoo.
Microsoft Offers to Buy Yahoo for $44.6 Billion.
- The Associated Press: