Sunday, May 4, 2008

Microhoo Is Dead!

That's for now. Couple of missteps from Yahoo! and MS will be back with vengeance.

I have mixed feelings about all this. As Yahoo! customer, I didn't want it happening, because I don't trust Microsoft, I don't like its services and I hate most of its products. As investor, I think that it was the best possible deal for Yahoo! shareholders now, although I believe that in the end that deal would end up as total destruction of Yahoo! and huge financial burden for Microsoft (partially outlined here). On other hand, smart investors were better off if they sold Yahoo right when the offer was announced, so they only have themselves to blame. After all, significant part of Yahoo! shares belongs to people who would rather see them going down to zero (highly unlikely) than selling to Microsoft.

Unlike many commentators, I didn't believe for a second that Jerry Yang had any intention of selling Yahoo! He and David Filo created this company, it's like a child for them. You don't sell your children to enemy, and, make no mistake, they always saw Microsoft as an enemy. He didn't say that directly because many shareholders would be outraged. I know, emotions are bad for business. Looks like Ballmer desided not to act on emotions (and here Cramer was wrong, Ballmer can be stopped when business logic requires).

I think I need to act more on my hunches. On Friday I was thinking of either buying Yahoo! puts or 25/30 straddle. Could've made a lot of low-risk money. Well, coulda, woulda, shoulda doesn't work in investment.

What's now? Short term, MSFT is going up a little bit, probably a dollar, YHOO is going down to a little bit higher than it was before the offer. Probably to 18-19. Long term: MSFT is still a sell. To make it investable, Ballmer has to go and company should switch gears and become a value investment. Yahoo! might go up. Depends pretty much if current improvement continues. Outsourcing search to Google is a great idea, but probably can't work because of untitrust concerns. But if they can outsource at least part of it and increase monetizing of display advertising, it might be great internet business. It's a great internet media place already, all it needs is good business management and better technology (technology is very important for internet companies, Microsoft and Google are good opposite examples).

I'm really considering buying YHOO under 17. It still in my "Tech Have Been" portfolion on, but I consider it on parole right now.

Great weather in Midwest. I hope everyone had a great weekend!

Full disclosure: at the time of publication author had long position in Google (GOOG) and did not have any positions, long or short, in Microsoft(MSFT) and Yahoo!(YHOO). Positions can change at any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

1 comment:

Rafael Grillo said...

Interesting take! I agree with your approach. In all the intensity of this Yahoo-Microsoft almost-deal, everyone forgot to ask the most relevant question in the first place: why does Microsoft needs Yahoo? Which is to say, how come Microsoft, with all its might, has been unable to build a relevant, coherent Web presence by itself? In part, this link to an incredible video in YouTube entitled "Microsoft Re-Designs the Ipod Packaging" explains it:

Microsoft has grown to be a soul-less corporation that has lost touch with what consumers value today. Yahoo is not far behind -hence its woes-. These two companies are missing what the Web 2.0 ethos is all about: nimble, personal, creative, emotional. I am afraid Microsoft's corporate culture will simply smother everything it touches. It is good that the deal Yahoo-Microsotf didn't take place: most likely, it would have been another AOL-Time Warner or Sprint-Nextel.