Did you see the report from Sanford Bernstein analyst Jeffrey Lindsay this morning, making the case that Yahoo is more valuable broken up than it is as the sum of its pieces? If you're a Yahoo shareholder, you're salivating at the argument. If you're a casual observer, you're wondering whether a plan like this has legs and whether its enough to turn you into a Yahoo shareholder.
Hold on a sec. Desperate times call for desperate measures, but this desperate measure might be a little, well, too desperate.
Lindsay suggests that Yahoo could fetch as much as $39 a share, a 44% premium to its trading price today, if the company initiated a massive reorganization, including spinning off its display advertising business, which would be worth about $25.5 billion. The company's search business, Lindsay writes, would be worth about $15.6 billion; subscription services could be valued at $1.3 billion. Add to that Yahoo's nearly $2 billion in cash and you get a company with a market cap of about $55 billion, or $39 and change.
Lindsay wants Yahoo to outsource paid search, cut headcount by 25% and restructure graphics display advertising. Ambitious, to say the least, especially since co-founder Jerry Yang, who took over for embattled--yet well-compensated former CEO Terry Semel said that the company liked the strategic initiatives Semel had already put in place and would focus on how best to execute them. There was no indication that Yang had his own vision for a Yahoo turnaround.
The break-up scenario is a red herring at best. Yahoo will not take such drastic action, nor is it clear that the company needs to. What is clear is that Yahoo needs to do something to get this languishing stock price back on track. This past year? $25 and change, up to $32, then a slide down to $22, and climbing its way back to $28. This as Google shares continue to rally.
I've spoken to several friends and sources inside Yahoo who tell me that the atmosphere inside has changed. There's a sense of community once again. A sense of budding excitement about the possibilities and potential. A sense of purpose. None of that will get shares climbing again, but they don't hurt.
One thing Lindsay suggests might help though: Yahoo switching back to a partnership with Google, and outsourcing search to them. This has been widely discussed, way before Lindsay wrote about it today. In fact, Bear Stearns analyst Robert Peck suggested as much in his report last month. This is one aspect that seems to make a lot of sense, at least until Yahoo's new search algorithm Panama gains more of a footing, whether these two companies are at each others' throats or not.
Yahoo is turning around, albeit slowly. The jury's still out as to whether Yang is the right CEO at the right time for the company. But the bigger message from the Lindsay report is this: no matter how outlandish his ideas and projections might seem, they're getting a huge response from bloggers and investors all over the web today. And that just goes to show the level of frustration growing anew about what Yahoo will do next and where the company goes from here.
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